Week Ahead: Continuing Volatility On New Coronavirus Data; Stocks, Gold Lower
New York (Mar 22) This week's upcoming data releases, including German Manufacturing PMI, U.S. Core Durable Goods Orders and Crude Oil Inventories, and UK Retail Sales, are expected to begin to provide some hard numbers indicating just how severe the impact of the coronavirus pandemic will likely be on the global economy. Concurrently, fiscal and monetary policies the world over will attempt to soften the blow.
At this point, easing efforts by central banks and governments are, among other things, an attempt to shore up sinking financial markets, by regaining investor and consumer confidence while avoiding an ongoing downward spiral, which could easily spin itself into a doom loop.
SPX: Down 30% In Just Five Weeks
The S&P 500 lost 15% of its value last week. In the process, the final portion of three years' worth of exuberant advances was wiped out. It was the worst weekly selloff since the 2008 financial crisis, on a mounting negative outlook.
Analysts at Goldman Sachs predict the U.S. economy will reflect a contraction of 24% on an annual basis in the second quarter, and the European Union warned of a recession to match that of 2009. The chairman of Alvine Capital Management, Stephen Isaacs, expects another 20% drop, which would cut the benchmark's value in half since it’s all-time, Feb. 19, high.
As of Friday's close, the S&P 500 is down a whopping 30% in just five weeks' time. After Monday's 12% crash, we were expecting an upward correction, but though the index rebounded a respectable 9.4% during the following days, losses continued into the end of the week.
We might still get an upward correction this week, as prices consolidate. What most traders may not realize is that duration, not just price retracement, can also be considered a form of correction (yellow oval). In other words, the correction may have happened without our fully realizing it, which would jibe with the virus-related economic data expected this week.
On the other hand, panicked investors may have already priced in a short term uptick, while still developing and a darker longer term outlook. Only a meaningful breakout that closes higher will signal the next upward move.
The U.S. 10-year Treasury yield headed back below 1%, slipping to 0.885% at the close of trade last week. From a technical perspective, however, it found support at the bottom of a rising channel, which may serve as a bouncing-off point from which to retest the 1.3% area.
After surging 8% in eight sessions, the dollar retained last week's gains even subsequent to the Fed ramping up of liquidity and slashing rates.
Technically, Friday’s trading session caused an extreme hanging man to develop on the chart. With a lower close that will send a bearish signal, at least till it hits the uptrend line.
Gold rebounded Friday after dropping 12% during the previous week.
However, the yellow metal found resistance by the 200 DMA within a pennant. That suggests a downside breakout would commence next week. In such a scenario, we'd expect another leg down for the precious metal.
For the fourth week in a row, last week oil fell.
Investing.com
