Global stocks fall as investors brace for corporate turmoil
European stocks plunged as investors continued to worry about the state of the economy. In the UK, the FTSE 100 declined by as much as 9% while in Germany and France, the DAX and CAC declined by more than 8%. The drop came even as the Federal Reserve made another surprise rate cut yesterday to prop-up the markets. The central banks brought interest rates to between 0 and 0.25% and announced that it will acquire at least $700 billion in asset purchases. Other central bankers followed suit. In China, the PBOC injected 100 billion yuan through the one-year medium-term lending facility while the Bank of Japan doubled its target for net purchases of ETFs to 12 trillion yen. The Reserve Bank of New Zealand (RBNZ), Bank of Korea, Bank of Philippines, and Hong Kong Monetary Authority all cut interest rates.
The main reason why global stocks declined is that investors don’t believe that monetary policy is the solution to the current problem. Instead, they are focused on the likely bankruptcies that will happen. For example, Centre for Aviation, an industry body warned that most airlines will go bankrupt by May. Yesterday, Scandinavian Airlines said it would slash more than 10k employees, and today, Air New Zealand said that it would suspend 8k employees. United, the American carrier, warned of painful cuts. Other industries that could see turmoil are those in hospitality, cruise lines, and oil and gas. In all economists expect a recession this year according to a survey by Chicago University. Goldman Sachs expects no US growth in the first quarter and a steep 5% decline in the second quarter.
The Japanese yen rose today after the central bank announced measures intended to calm the market. The bank said that it would buy risky assets like exchange-traded funds at double the current pace. The bank also created a new loan program to extend one-year, zero-rate loans to financial institutions. The decision was meant to boost lending to companies. It will buy $112.55 billion worth of ETFs annually and double the pace of purchases for Japanese real estate funds to Y180 billion per year. The bank did not lower interest rates because rates are already in negative territory.
The EUR/USD pair rose and then declined today as traders reflected on the action by the Fed and other central banks. The pair is now trading at 1.1190, which is slightly below its day’s high of 1.1235. The price is also slightly above the important resistance line shown in pink below. This turned out to be a false breakout. The price is along the upper line of the Envelope indicator. This means that the pair may resume the previous downward trend that started on March 9.
The XBR/USD pair declined to an intraday low of 31.50, which is the lowest level since Monday last week. This price is just a few pips shy of its lowest level since December 2015. This price is along the lower line of the Bollinger Bands and below all the short, medium, and long-term moving averages. The RSI has moved close to the oversold level of 30. The pair may continue moving lower as fears of a recession rise.
The XAU/USD pair declined by almost 3% earlier today as investors questioned its role as a safe haven. The pair reached an intraday low of 1,455.80, which was the lowest level since December 31. The average true range, which is a measure of volatility jumped while the short and medium-term moving averages made a bearish crossover. The accumulation/distribution indicator has also declined. This means that the pair may continue falling to test the 1,400 level.