Jerome Powell, Chairman of the U.S. Federal Reserve, in an interview with CBS, despite his concerns about the state of the economy, made it clear that the Fed was watching over everything, which allowed investors to turn back to more risky assets. Stock, oil, gold, and silver are on the rise, and in turn, the contract for the VIX fear index, showing the expected volatility of the S&P 500 index, is falling.
Powell said it was a time of great suffering and difficulty. You can't really express in words the pain that people are feeling. However, the US economy will come alive, but it may take a while. According to Powell, the recovery may last until the end of next year, but no one is able to give a specific date. Powell added that unemployment could potentially rise to 25 percent, with the worst earners suffering most from the crisis. Meanwhile, from the positive statements, which could have affected the behaviour of investors, Powell expressed his conviction that the economy will revive. He added that he would never bet against the American economy. It can emerge stronger from this crisis. According to the Chairman of the Fed, which may turn out to be most important for investors, the central bank has not exhausted its possibilities of supporting the economy – we can do much more. We've done our best, but we're not short of ammunition, Jerome Powell said.
It seems that as a consequence of these statements, we may observe a positive sentiment on the stock market today. The German Dax gains almost 3 percent. French CAC 40 over 2.5 percent and contracts in the USA indicate the possibility of indexes opening above the last closing. The markets may be additionally supported by lifting the restrictions. By June we should observe their complete removal. Then it will be crucial to observe all processes and consumer behaviour.
Gold prices rose on Monday to the highest level since 2012. This, in turn, may be a consequence of renewed tensions between the USA and China. Recent macroeconomic data showed that the number of victims of the pandemic may be higher than expected, with US industrial production and retail sales falling at a record rate last month. In turn, the Japanese economy entered recession in the first quarter. An unprecedented fiscal and monetary stimulus from major central banks flooded the market with liquidity, which seems to have raised gold prices by almost 20 percent. Investors could therefore at least partially dispose of cash to gold.
The price of a barrel of WTI oil rose on Monday to the highest level in two months, i.e. to over USD 31. The price increase seems to be a consequence of production cutbacks along with hopes for a recovery in demand. It should be noted that the number of active oil platforms in the US has fallen to a record low of 339 last week, as shown by Baker Hughes data, and stocks in Cushing, Oklahoma, have fallen for the first time since late February. Thus, the supply from the US may also have decreased.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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