Dubai: Global stocks are expected to remain in rally mode this week, as investors see an end to the COVID-19 crisis and markets recovering, but analysts warn of the short-lived nature of the latest rally.
Equity markets have recovered part of their losses, thanks to colossal stimulus measures from the governments and monetary support from central banks worldwide.
Major indices worldwide have rallied by over 15 per cent from their lows despite all the doom and gloom related to the economic fallout of the virus outbreak. The rally was partly helped by hopes that cases have peaked in the Eurozone and are nearing their peak in the US.
“However, this (rally) is expected to be short lived as investors realize that any turnaround in infection rates isn’t going to be a one-way street,” said Vijay Valecha, Chief Investment Officer at Dubai-based brokerage Century Financial, while adding that bear markets (that encourages selling) are often characterized by sharp rallies.
Rally, or not to rally
“If a cure is found soon, the rally will continue – however, in the absence of a cure, there is a high probability that the rally will fail especially when corporates earnings will be slammed, and the guidance will be uncertain.”
“The moot question is whether the recovery in the markets will be a V-shaped or W-shaped,” Valecha added. “Given the experience of 2008, and the long time required for normalization as well as customer reengagement; it seems that the recovery in financial markets will be W shaped.”
An unknown is for how long the virus will continue to spread at numbers that require the lockdown to continue. Governments may be hopeful of easing containment measures in the coming weeks.
But this could all change in the event of another spike that could come from an increase in testing, or worse yet, a cluster in a US or EU member state yet to be materially impacted to date. Amidst the optimism, some caution is advised in the coming week.
More data from virus-irked markets
Beyond coronavirus, investors will pay attention to economic data across economies as they continue to assess the extent of damage to the global economy.
The IMF’s economic projections will also be watched as the first broad based multilateral agency guidance of global growth projections over the next 12 months.
In the US, the world’s largest economy, March retail sales figures and industrial production figures due on Wednesday will be closely watched. Unsurprisingly, there will also be plenty of interest in the weekly jobless claims figures on Thursday.
Latest figures show 16 million people have now lost their jobs in the US, with layoffs spreading across the economy. Unemployment rate is now 12 or 13 percent in the country, the worst since the Great Depression, economists note.
Finalized March inflation figures are due out of France, Germany, Italy, Spain, and the Eurozone, this week. Eurozone’s February industrial production figures are also due on Thursday, and in Asia, March trade figures out of China too will garner a lot of interest.
Focus on EU’s action plan, earnings
Markets are largely seen brushing aside the statistics, but instead is seen focusing on EU’s action plan to limit implications from the outbreak.
While an urgent plan is needed to restore confidence in the region’s economy, questions over the inability of EU finance ministers to agree on a significant stimulus package is hurting prospects.
Last week’s 500 billion euro package to tackle the economic impact of the virus paled in comparison to that of the US administration. When considering the extent of the economic fallout across the EU, there are concerns that it just isn’t enough.
It’s also that time of the year again when a flurry of corporate earnings is due. This time around, while actual results will garner some interest, it will be forward guidance that is key.