Global markets to stay strained as pandemic only escalates

Global markets will stay strained this week, as investors see an escalating pandemic that shows no sign of waning, with more economies eyeing a hit bigger than what was seen during the financial crisis.

“Going forward, the downward risk will continue to playout as the pandemic paralyses majority of the global economies,” said Iyad Abu Hweij, managing director at Allied Investment Partners.

Markets did attempt to rally last week as policymakers rolled out textbook responses seen during past global crises, albeit at a much larger scale.

Investors also attempted to seize on brief glimpses of optimism that showed a slowdown in the rate of new coronavirus infections in countries like Italy, which might offer hope that global lockdowns are beginning to work.

However, this could not sustain the broader market recoveries, as the economic cost of coronavirus was by the end of last week also becoming ominously clear, as jobless rates soared to unprecedented levels around the world, noted Timothy Fox, head of research and chief economist at Emirates NBD.

Eye on jobless claims

An indicator that investors will keep a close eye on is how many more will file for unemployment this week in the US after about 10 million people were laid off in the world’s top economy over the last two weeks. The number was higher than those laid off in the first two months of the financial crisis of 2008-09.

As a result, Wall Street stocks ended lower for the third week in four, even with investor sentiment exasperating on the duration of the virus related shutdowns. The S&P 500 closed down 2 per cent for the week.

Analysts say jobless claims are expected to show many millions more in layoffs in this holiday-shortened week, and the markets will get a look at investor sentiment. But the biggest issue for the markets is the progress of the virus and when the protective shutdowns will end, allowing the economy to recover from its sudden paralysis.

“We look for 7 million new claims to be reported for the week ended April 4, though obviously the range of uncertainty around this forecast is wide, and a substantial decline is also possible,” wrote JP Morgan economist Jesse Edgerton.

US consumer sentiment is reported Thursday, and consumer price index inflation is reported Friday, when the US stock market, along with many other bourses globally, is closed for the Good Friday holiday.

Oil in focus, Q1 results next

A virus-bogged first quarter earnings season is also set to commence, with investors exercising caution on the extent of earnings impact from supply chain disruptions and drop in demand stemming from the outbreak.

This week will be the lull before earnings season, with not many companies reporting, but it’s the headlines on developments around the spread of the coronavirus that may result in the most volatility.

Oil could be a factor in the week ahead as Saudi Arabia and Russia seem to be dithering and postponed hold an emergency meeting Monday to discuss production cuts. US President Donald Trump sparked a 12 per cent rally in oil prices last week when he said he spoke to Saudi Arabia and Russia and they wanted a deal to cut production.

The coronavirus pandemic and lockdowns imposed by governments worldwide have already pushed the global economy into the sharpest downturn since the Great Depression. And it’s become clear to economists that the economy is contracting more quickly than ever.

The dire state of curfew-struck countries is also forcing some analysts to move past the conclusion of the economy being in recession to what’s possibly coming next – from a state of extended recession to a repeat of the Great Depression seen during the 1930s.