Academy News 10 top events at financial market during Q1 2020

10 top events at financial market during Q1 2020

1. The end of bullish trend at stock indices

Top global indices, indicating the performance of respective economies, experienced significant drops during Q1 2020, but at the end of March, thanks to massive stimulus, remarkable increase was seen. Final results per first quarter are following:

S&P 500: -20%
FTSE: -24.8%
DAX 40: -25%
NIKKEI: -20%

2. Price war of Saudi Arabia and Russia

Price per oil barrel has dropped to the lowest level from 2002 in the first quarter, even below the price of $20 per barrel. The reason is the significant drop of demand caused by spreading covid-19 and the “price war” between Saudi Arabia and Russia.

3. Gold heading to reach its historical max

Gold proved to be safe haven when investors started to get rid of risky assets, including stocks and oil. Its price rose to almost $1,700 per troy ounce. However, from a long-term perspective, it lacks sufficient importance for investors due to its zero yield and expectations of anti-inflationary pressure.

4. Czech Koruna back at levels before interventions

At the beginning of this year, EUR/CZK exceeded the level of CZK25.00, supported by optimistic economic data and rate hike of the Czech National Bank. The spreading of covid-19 into the Czech Republic, isolation of the Czech economy and the fact that Koruna belongs to risky currencies of developing economies cause significant outflows of foreign capital and weakening up to even CZK 28.00 against EUR. In case of further weakening, the Czech National Bank is prepared to intervene in a form using its foreign exchange reserves in the market.

Chart: EURCZK currency pair development

5. Massive stimuli of governments and central banks

Governments and central banks all over the world initiated massive stimuli for the purpose of supporting slowed economies. U.S. FED cut rates by 1% while the Czech National Bank (CNB) by even 1.25%. FED and the European Central Bank (ECB) have also initiated the quantitative easing program, i.e. a program where government and commercial bonds are purchased, thus providing billions of dollars to economies. After the covid-19 fades away, it should be seen in the development of risky instruments in a positive way.

Chart: Development of interest rates in the world, March 2020

Chart: Development of interest rates in the world on March 12, 2020 (Source: Bloomberg.com)

6. Dollar being the winner among currencies

The safest currency in the world, despite the rate-cut, dominates clearly. Demand for dollars and U.S. government bonds, deemed as the safest in the world (compared to gold, they provide some yield), caused its significant strengthening. Thus, the dollar determines direction for currency markets.

7. Equity markets divided into healthy and affected companies

Sale of stock markets showed which stocks should be held and which should not. Popular U.S. “blue chips” like Apple, Amazon or Facebook kept at least small profits from 2019 despite significant selling pressure. However, companies like Boeing and some U.S. airlines ended their rally after strong buybacks. Selling pressure is still seen on stocks of companies, whose growth depends on the expansion of their debt (Ford, General Motors).

8. Record unemployment in the United States

Record unemployment in the United States: that even 47 million people could lose their job, pushing unemployment above 20%. Now, 25% people with coronavirus globally are from the United States and the expectations that the economy is going to recover in a “V-shape” do not have to look realistic.

Chart: Development of jobless claims in the United States (Source: US BoLS)

9. Palladium bubble burst

Palladium, as a commodity used mainly for the manufacturing of automobile catalysts, faces massive drop of demand and supply at the same time now due to the closure of mines. For the last 3 years, its rise was incredible and the price was far away from being based on real data. Other industrial commodities (industry metals) experienced the same.

10. Bitcoin or gold?

Cryptocurrencies did not avoid selling pressure either and BTC dropped to even $4,000. However, there was a quick recovery and the demonstration that cryptocurrencies are not owned by big corporations and investment companies, looking for cash at that moment. However, on a daily basis, it became as much volatile as other markets and also, sensitive to the development on stock markets and U.S. dollar.

Every cloud has a silver lining

But to close this positively, the decrease in economic activity during the first quarter has a very optimistic impact on the concentration of greenhouse gases in air. What Greta was putting her efforts to over couple of years became true even without her intervention in just couple of weeks. The entire world a common enemy now that could bring heads of each country back to the meeting table and to try to solve problems of our planet.

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