Trading Week Ahead: 30th March–3rd April 2020

COVID-19 remains the critical issue globally, with new cases of infections arising in just about every country.  This has subsequently prompted drastic government measures impacting everyday life for people worldwide. The effect has been far from positive, with many people sadly losing their jobs due to the forced closure of businesses. Italy has been decimated by the pandemic but has now been overtaken by the U.S. both in the number of confirmed cases, and the fact that New York is now becoming the epicentre.

There are some positives, Italy’s new cases continue to decline, while China is also getting closer to normality with most of the city returning to work and school, as well as factories reopening. However, the economic fall out is starting to be felt in the west as job losses and economic slowdowns develop.

Fed Acts to Sure up U.S. Economy

Locally, we saw up to 1 million jobs gone once the shutdown started. This lead to scenes not seen since the great depression as long queues of people formed outside welfare agencies. In a sign of the new tide, U.S. unemployment claims surged to 3,283K. 

The Fed helped set up the current recovery rally by advising the market that unlimited asset purchases will continue during the pandemic. The U.S. government also released a $2 trillion stimulus package that passed the Senate and cleared the House Friday. This led to most stock indexes gaining over 10% on the announcement, but the asset purchases hit the USD following its recent steam train rally.

This Week’s Outlook

Looking ahead to this week’s data, we’ll be on the lookout for more evidence of economic damage driven by COVID-19. 

For Chinese manufacturing PMI, with the engine back on, will we see a tick up in manufacturing or do we need more time for recoveries to start appearing? The value will certainly act as the barometer for the U.S. and European countries as they just start to enter into their own economic shutdown. And while on the other side of the pandemic, U.S. manufacturing PMI should show us whether the current disruptions have had an effect on this round of data and if so, give us an indication of how robust the country is before the confirmed U.S. cases hit their peak. For Thursday and Friday’s U.S. employment data, just as we saw a jump in unemployment claims last week, it may offer further clues to just how bad the country’s workforce has been affected. Chances are, if the data is worse than expectations, we could be in for a shock.

Aside from data events, eyes will once again be on the current recovery rallies. Are we setting up for phase two of a leg down? If we do see selling, buyers would be looking for new higher lows to set up. This from a price action point of view could suggest the last low has more merit. New declines with failed rallies could point to lower highs, and they can suggest continuations. We’ve included two examples below from the Dow and Nasdaq. 

These images are for educational purposes only. They are not future trade or market predictions.