SP&500, Dollar Index, Gold: March Outlook
S&P and other indices sell-off were very healthy and foreseeable for the markets as we have mentioned in our previous forecasts.
Now we have reached our medium-term target at 2850.
However, it is useful to look at a few points. On February 25th, the FED member Clarida said they were closely watching China in his speech: “However, risks to the outlook remain. In particular, we are closely monitoring the emergence of the coronavirus, which is likely to have a noticeable impact on Chinese growth, at least in the first quarter of this year.The disruption there could spill over to the rest of the global economy.But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook. ”
If you pay attention, they see the problem as a problem that can come from Chinese growth. Which was similarly stated in the FOMC minutes. However, while slowing down other supply chains such as S. Korea and Japan, its influence started to be felt in Europe.
And CDC confirmed the first Coronavirus case on Thursday. https://edition.cnn.com/2020/02/27/health/us-cases-coronavirus-community-
Now the Fed will have to evaluate the situation directly over the US economy, not on China.
China; where the effect of the virus on economic data was first seen, February Manufacturing PMI has dropped from 50 to 35.7. Considering that the expectation is 45, we can say that:
1. Economists are severely disconnected from what’s happening in reality
2- Q1 China you can say there is no such thing as growing.
And the first statement came from the FED on Friday: Jerome Powell: The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy. https://www.federalreserve.gov/newsevents/pressreleases/other20200228a.htm
We do not have an epidemic case that we can compare directly, but I think there is a very similar case: September 11 terror attacks. When we look at the effect, the flights have been stopped after the attacks (commercial and human activity stops), people and companies have started to switch to liquid assets, household spending and investments have slowed down, as consumer confidence and financial asset prices have shrunk and the resources have been directed to defense to fight against terrorism and the share of consumption and investment have been decreased.
S&P level is not so important by itself, however, the decrease in the overall asset prices will also put the “collateral” market in a difficult position and further increase the need for the dollar liquidity that already exists (this is behind the JPY’s failure to be a safe haven this time, the euro rise is also temporary).
In case of an increase in the number of cases in the United States or if the global dollar liquidity narrows further, the FED will go to 1- interim rate cut ( as earl as possible, before March 18th, 2- to continue repo operations where it thinks to terminate 3- to activate international swap lines that will pump more quality collateral into the market. 4. to act together with other Major CBs.
Gold: XAUUSD dropped 100$ as we predicted. The main Reason is USD liquidity. ( CBs physical gold selling = Need for liquidity)
What is next?
The latest sell of in DXY and rise in EURO are likely to be temporary. However, if the FED takes the above-mentioned actions, we are likely to see a further decrease in DXY near-term.
Crude Oil: The global economy was slowing down and now we have a new issue of the virus. The oil prices came to our forecasted level. And we predict the bearish continuation and the prices to go down to 38$ medium term.
XAUUSD, SPX, DJI, EURUSD, DXY, and WTI forecasts will be posted under the light of this article.
An interesting information: The World Bank has launched pandemic bonds in 2017. Under the heading of “Covered Perils”, which is included in the coverage area, you also see coronavirus ( Is the World Bank responsible for this epidemic along with the Simsons and Roscilds to avoid paying the bond?) If the epidemic is triggered, these bonds will be the source for the war with the disease.
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