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Breaking News: Dollar Retreat and Market Rally

Breaking News: Dollar Retreat and Market Rally

The state of California closes its borders, and Germany may follow her this Sunday. Republicans of the US Senate introduced a new bill on economic incentives, which includes the issuance of cash to American families, emergency assistance to airlines and other businesses. The dollar goes negative as central banks reduce tensions in the market, stock markets recover in anticipation of the expiration of March option contracts. Oil, meanwhile, is skyrocketing after a report stating that the United States can restore production quotas for the first time in nearly 50 years.

We present the most important news in the financial markets on Friday, March 20.

1. California Border Closure

The state of California has ordered its 40 million people to stay home to stop the spread of coronavirus, which has hit the global economy.

In Germany, expectations for a complete closure of borders are also growing, as Chancellor Angela Merkel planned to hold a conference call on Sunday with the heads of the federal states of the country.

According to Johns Hopkins University, now the world over the death toll from the virus has exceeded 10 thousand people, while the number of confirmed cases has reached 245 thousand. The number of confirmed cases in the United States has increased to 14,250. California Governor Gavin Newsom calculated that more than half of the state’s population — about 25 million people — can be infected within eight weeks.

2. Republican Incentive Bill

US Senate Republicans have presented stimulus packages worth more than $1 trillion to support Congress' first two modest attempts to support the economy from a coronavirus outbreak.

This plan provides for a real distribution of cash: adults — up to $1200 per month, with an additional $500 for each child. Payments will be reduced for those Americans who receive a more substantial salary.

The bill also includes loan guarantees of $50 billion for passenger airlines, $8 billion for cargo airlines and $150 billion for other large enterprises, and authorizes the federal government to take part in equity.

3. Dollar retreat

Extreme dollar growth has reversed since the massive expansion of liquidity by the central bank has finally begun to bring currency supply in line with demand.

The US Fed’s efforts to help paper and money market funds this week supported US domestic markets, while the announcement of another 9 dollar swap lines with foreign banks will allow the dollar flow to reach different parts of world markets faster, reducing the risk of default short term.

Other regulatory actions, such as the sharp expansion of quantitative easing programs by the European Central Bank and the Bank of England over the past 36 hours, have also supported European markets.

At 06:55 am Eastern time (10:55 GMT), the dollar index, which tracks the exchange rate of this currency against a basket of currencies of developed markets, fell 1.0% to 102.54. Nevertheless, it still grew by 3.9% in the week.

4. Rally in the stock markets

Mitigating stress in the stock markets allowed them to recover. US stock markets open higher, futures Dow Jones 30 showed an increase of 719 points or 3.6%. The S&P 500 futures contract grew by 3.2%, and the Nasdaq 100 futures contract — by 4.4%.

In Europe, the STOXX 600 benchmark also rose sharply to 3.6%, while in Asia, the Chinese CSI 300 index closed 1.3% lower.

Market movement is reinforced by the fact that most of the March contracts for major futures and options products expire on Friday — the “witchcraft effect”, that is when an incredible price fluctuation is recorded, and trading volume soars by 50-60%. This happens once a quarter and expiration occur in 4 groups of financial instruments: stock index futures, stock index options, stock options, and one-share futures.

5. The rise of oil

Crude oil futures rose in price amid reports by The Wall Street Journal that the US would set quotas for production in domestic companies. At 06:55 am ET (10:55 GMT), WTI crude oil rose 5.1% at $27.22 and Brent crude rose 4.5% at $29.46 a barrel.

The United States regulated production through the Texas Railroad Commission before the Second World War but abandoned this practice almost 50 years ago.

According to WSJ, the US may try to put pressure on Saudi Arabia and Russia to restrain production, in particular, by the threat of sanctions against Russia.

Bloomberg said Russian President Vladimir Putin views the price war initiated by Saudi Arabia as blackmail and refuses to give in. The Russian budget is designed to balance at a price of $40 per barrel, while Saudi Arabia and most manufacturers from OPEC countries need a much higher price to meet their budgetary needs.

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