04-5-2020 10:12:30It has been yet another horrendous day in the markets as fears surrounding the health crisis continue to rise. 

Trump’s travel ban set the scene, and even though the European Central Bank (ECB) announced measures to assist the eurozone, dealers remained in selling mode. The ECB kept the refinancing rate on hold at 0.0%, but the deposit rate was also left unchanged at -0.5%, while traders we expecting it to be cut to -0.6%. The central bank will assist SMEs in the currency area through a new targeted lending operation, and the terms will be more favourable. In addition to that, €120 billion of quantitative easing was revealed too.

Christine Lagarde, the ECB chief, called for a co-ordinated and ambitious response to the crisis, and traders will be looking ahead to Monday’s euro group meeting to see if there is a show of strengthen and unity. The ECB can only do so much on its own. Robust fiscal action is needed too. In relation to the government bond market, Lagarde, said they we not there to ‘close spreads’, but the stimulus addicted markets didn’t like that one bit, hence why European equites are massively lower. 

The airline sector has had a terrible few weeks but things have gotten even worse for the industry on account of President Trump’s decision to introduce a travel ban from Europe. The restrictions will apply to flights from the Schengen area, so flights from Ireland plus the UK are excluded. The ban applies to people but not cargo. The drastic move is aimed at stemming the health emergency in the US. Stocks such as Norwegian Air Shuttle, Lufthansa, Air France, International Consolidated Airlines Group, and Ryanair have taken a battering.

Cineworld shares slumped to a 10 year low after the company announced muted full-year figures as well as warning about the potential problems associated with the health situation. On a pro-forma basis, admissions as well as revenue slipped by 10.8% and 6.2% respectively. The real damage to the share price came when the firm cautioned that business might be impacted by the coronavirus situation. The Budget has made provisions to help high street businesses in the form of scrapping business rates for the year, but the fear of lockdowns has sent traders running scared as they feel that footfall will suffer.

WH Smith has been caught up in the coronavirus crisis too as the group warned that profit is likely to be £30-£40 million below previous forecasts. The group is massively dependant on people being out and about, so the prospect of lockdowns has dented sentiment. The stores located at railway stations and airports are the most important outlets for the group, so the US travel ban is likely to hit the company hard. The operations in Asia have been hurt, so the outlook for this part of the world isn’t great. 

The domestic travel industry has been clobbered too for fears that self-isolations and even lockdown could become common place. FirstGroup and National Express have lost huge ground.    

US

Last night the Dow Jones entered a bear market – it closed more than 20% below the record close that was set last month, and the mayhem continues on Wall Street. Drastic actions from governments often bring about drastic responses from traders – hence the massive losses again. The European travel ban combined with no clear plan to assist the domestic economy has prompted dealers to dump stocks. The fact the limit down mechanisms – the circuit breakers that stop the markets spiralling out of control, had to be used, sends out a very worrying message.  

Boeing shares are down in excess of 10% as the company is set to lose a big tax break - this is because of a new measure introduced by lawmakers. The group has suffered from order cancellations recently so this is a big blow to the company. In a bid to conserve cash, Boeing will limit overtime as well as put a freeze on hiring.   

Carnival, the cruise company, declared it will suspend all global operations for two months due to the health crisis. The stock is down 18%.

FX

EUR/USD is lower on the back of the ECB update. The currency pair initially jumped after the central bank didn’t cut the deposit rate, but shortly after, the euro fell over. Christine Lagarde mapped out the way the ECB will try and alleviate the strains of the health crisis in the euro area, but some dealers felt the package didn’t measure up to the Bank of England’s move yesterday. The reality is that the ECB have fewer tools at their disposal. Besides, it’s the real economy that needs help, and not the financial markets – which have gotten too used to getting their way from central banks.  

GBP/USD has been driven lower on account of the rally in the greenback. The Fed took their tough medicine last week with the shock rate cut, and now the greenback has been rebounding since Tuesday. Sterling is weak versus the euro too despite the bullish Budget from the UK yesterday.

USD/CAD continues to drive higher thanks to high demand for the US dollar plus very weak oil prices.

Commodities

The colossal declines seen in stock markets are being mirrored by the falls seen in WTI and Brent crude. The oil market is being hit from the supply side as well as the demand side. The Saudi-Russian price war fight could not have come at a worse time, or perhaps, the Kingdom, picked its moment carefully. As the days pass, it appears that global demand will be hit harder and harder by the health crisis, so the prospect of a supply shock is hammering the oil market.

Gold is nursing heavy losses on account of traders being squeezed on their equity positions - margin calls on stocks are prompting traders to cash-in their gold. The jump in the greenback hasn’t done the metal any favours either. The mood in the markets is so awful that some dealers dumping any assets, even those that are considered to be safe havens. Gold is having a bad day, but palladium and platinum are off 19% and 10% respectively. 

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