Market Analysis

Risk aversion remains the predominant sentiment in the markets, supporting safe havens and affecting risk-related assets. This dynamic is well illustrated by the performance of the euro against the Swiss franc. Following President Trump’s statements yesterday, threatening to withdraw from phase one of the trade agreement with China, the franc reached 1.05038 against the single currency, the highest value in 5 years. 

The apprehension around a possible second wave of the coronavirus was already calming the spirits of investors, who, however, had found reasons to be optimistic in partially lifting the blockade in Europe and America; these fears are now compounded by Donald Trump’s latest aggressive tirade toward China, with the markets stating that, in the face of the worst economic contraction since World War II, the reignition of trade tensions between the United States and China is the last thing the world economy needs.

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Large macroeconomic imbalances in many economies make recovery difficult. Countries such as Spain or Italy foresee an exorbitant increase in their levels of public debt, with IMF forecasts that put the debt at 120% and 150%, respectively.

In recent weeks, the harsh global pandemic the economy is going through has put the world in check. A check that could be considered as conjunctural, but that could have devastating effects for certain economies. And the problem is that we are not talking about another crisis, but a crisis that, as indicated by the International Monetary Fund and as we indicated in an article a few days ago, is the largest economic contraction since the collapse of 1929; in short, one of the biggest contractions in our history.

As the growth forecasts are published, the data that is being projected on the different economies indicate how the pandemic has taken its toll on the European economies and these economic data are getting worse. Such is the aggravating circumstance that, while the Bank of Spain exceeded all published forecasts, with a forecast contraction of up to 13.5% for Spanish gross domestic product (GDP), a week later the Morgan Stanley bank presented forecasts that placed the contraction at 13%, being able to reach a contraction of 22.6% in the worst case.

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The International Monetary Fund (IMF) has released the update of its forecasts for the world economy and the effects caused by the Coronavirus. In ForexDominion we have analyzed the report published by the organization.

A few days ago we knew the forecasts on the world economy, which were published by the IMF. A highly anticipated publication, following the last one in Davos for the 50th anniversary of the World Economic Forum (WEF); including, yes, the effects of an economic and health crisis that, unlike the rest, was unprecedented. A downward revision in the forecasts, highly anticipated by analysts who, given what happened, cannot see clarity in the near future.

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The end of the quarter has caused a volatile session in the currency market, increasing demand for the USD. Due to this, the EUR/USD fell below 1.1000, a key support to determine the trend.

The US dollar moves higher against major currencies and emerging currencies in the session on Tuesday, breaking a week of declines, as investors prepare for prolonged uncertainty and governments proceed to tighten the containment rules to fight against coronavirus pandemic.

It should be noted that we are on the last day of the first quarter of 2020, which means that the investment portfolios will be balanced, which is expected to support the dollar. Demand for the dollar was evident in the Asian session and could have been the cause of a sharp drop in the Australian and New Zealand dollars. But keep in mind that the markets may have some liquidity during the Asian session. Therefore, the focus will be on adjusting the European session at 17.00 to observe the volatility of the currencies.

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Historical falls for the stock market due to the coronavirus crisis. The health crisis has been joined by an economic crisis. Governments have to decide which one they prefer to focus on. And they are hardly going to stop both at the same time.

Let’s focus first on the thermometers of the global economy. The S&P 500, which accounts for almost a third of the world market capitalization, this week had its fifth largest drop in the stock market (-11.5%) since the Second World War. The MSCI World has also fallen by -11.12%. This in economic terms represents losses of almost 10 trillion dollars in the accounts of investors, that is, the sum of the GDP of Germany, the United Kingdom, France and Spain. Not bad for a single week.

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Medical and recreational marijuana has been opening spaces in several countries of the world and, more recently, in the United States. However, it seems that the regulatory frameworks in the great world power are not clear and there has been a discussion between a member of the American Congress and the central bank of this country, known as the Fed or Federal Reserve System. In a hearing that lasted for two days, the president of the Federal Reserve gave his opinion on various issues before the United States Congress, due to changes in the political and economic scenario since he took office in 2018. One of the issues discussed was the legal vacuum for authorized cannabis companies to operate with banks.

Background: marijuana in the United States and its legal status

The issue of Cannabis has become a headache for the American government. Its structure of independent political-administrative divisions makes regulatory frameworks complex, especially for such controversial issues as marijuana. According to the Business Insider analysis, Cannabis continues to make its way in the North American country. Although at the Federal level it is still illegal in the USA. In the US, many states have put to work to legalize their medicinal and even recreational use – the latter with more recent additions. Of the 50 states that make up the US territory, 33 have accepted the medicinal use of this psychotropic. Meanwhile, recreational use is more limited: only 10 states have been mounted on the train. The last to join was Michigan, where recreational marijuana was approved in December 2018.

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News about the expansion of the coronavirus makes headlines in the news. Many people wonder if this epidemic could spread on a large scale if it will be the next pandemic and will seriously affect not only a large part of the world’s population but also the global economy.

On Tuesday, February 4, the director of global preparedness for the risks of infection of the World Health Organization (WHO) explained that we still cannot talk about a pandemic (which would be when a disease spreads worldwide), but of an epidemic with multiple foci.

In addition to health effects, the impact on the global economy could be very high. If we move to the past only a few years ago we find SARS, the severe acute respiratory syndrome that had its origin in Southeast Asia, and that has some kinship with the coronavirus.

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