The US session of March 24, 2020, will go down in history due to the scale of rebound. The Dow Jones Industrial Average has seen its biggest rise since 1933, gaining over 11 percent. We also saw a similar rebound in Germany.
The next day, Wednesday, March 25, 2020, markets in Asia joined the rally. Nikkei rose 8 percent, the Korean KOSPI index gained almost 6 percent, and the Australian ASX closed 5.5 percent higher. However, such a great euphoria is not caused by the good news about fighting a pandemic. The rate of increase in new cases of infection is alarming and there are signs that the United States will soon become the epicenter of the coronavirus.
Nevertheless, information on the agreement between the White House and Congress regarding the stimulus plan for the US economy for USD 2 trillion seems to be responsible for such significant increases. All this to limit the negative economic effects of the COVID-19 epidemic. Senate Majority Leader Mitch McConnell said the deal for the package is now close to being implemented. Investors are waiting for it, hoping that this may reverse markets that have suffered as a result of the greatest slowdown since the global financial crisis over a decade ago.
The scale of the economic collapse in March is illustrated by preliminary publications of PMIs. Economic activity in Germany has fallen to its lowest level since 2009 together with a record decline in services. In France, activity fell to historically low levels. In Japan, on the other hand, the services sector recorded the largest decline in services in history.
It is also worth noting that along with the improvement of sentiment on the stock market, the price of gold also went up, climbing almost 7 percent. Flooding the economy with cash in the form of unlimited purchases by the Fed or a stimulus package from the US government may contribute to another increase in interest in the gold market, which may have already cooled down after the last correction.
Activities on this scale may also cause that the US dollar could be in abundance on the market. In fact, the quantity of US currency might be exactly as needed. Therefore, its price may stop rising. As a consequence, USD-settled gold prices could also stabilize or rise.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
60% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.