Morning Briefing: Global markets fell on gloomy US consumer spending

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Vrasidas Neofytou
Head of Investment Research

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Morning Briefing: Global markets fell on gloomy US consumer spending

The global financial markets fell sharply on Wednesday after the record low US March consumer spending, manufacturing data and disappointing financial Q1 earnings. US Retail Sales dropped 8.7% during March, the biggest one-month decline since 1992, while New York manufacturing activity hit an all-time low, declining by 78%.

The negative economic numbers reflect the complete shutdown of the US market as consumer spending accounts for more than two-thirds of economic activity. Mandatory social distancing and business closures, depressed demand for a range of goods, setting up consumer spending for its worst decline in decades combined with one of the worst manufacturing activity data since the Great Depression.

The gloomy US economic data showed a deep hit of the pandemic shutdown during March, strengthening economists’ belief that the US economy had already dropped into a recession.

Coronavirus Update:

Global cases: More than 2 million
Global deaths: At least 134,178
Most cases reported: United States (636,350), Spain (177,644), Italy (165,155), Germany (134,753), and France (134,582).

Market Reaction:

Dow Jones fell 2% on record low US economic data

The US stock markets plunged on Wednesday on a general risk aversion sentiment after the terrible US economic data and lower financial Q1 earnings.

Fig.1, Dow Jones index, 30-minutes chart

Both Dow Jones and S&P 500 indices fell nearly 2% having their worst declines since the start of April. However, the Nasdaq index closed with lower losses of 1.4%, supported from the ongoing tech stock rally, mainly from Amazon, Tesla and Netflix.

The banking sector suffered more than 5% in losses after some of the major US banks such as Bank of America, Goldman Sachs and Citigroup have all reported more than 40% declines in Q1 earnings. Financial corporations suffered huge losses on loans, credit cards and mortgages amid the pandemic outbreak.

Asian Pacific markets fell 1% on risk aversion sentiment following the overnight losses from the US session. The Nikkei index led then losses with 2% while the Kospi and Chinese indices fell 1%.

Crude Oil: Brent fell 7%, WTI hit $19 record low

The WTI crude oil prices hit fresh 18-year lows at $19 per barrel yesterday on the huge build ups in U.S. crude inventories. The US Energy Information Administration (EIA) reported yesterday a record jump of 19.3 million barrels in crude inventories for the week, ending April 10, much higher than the expected rise of 12 million barrels. Nearly 50 million barrels have added to the inventories over the past three weeks on lower oil demand amid pandemic lockdowns, sending the price of WTI to lows last seen in decades.

Fig.2, WTI crude oil price, 30-minutes chart

However, it was the Brent price that dropped the most by 7% after Saudi Arabia, Iraq, UAE and Kuwait offered their crude oil prices for May with deep discounts to Asian and European oil refinery customers. Those price discounts were the best indicator that the “oil price’’ war still holds, and every producer is looking to increase its market share.

Precious Metal’s rally lost some steam:

Gold price dropped by 1% yesterday on the stronger US dollar and sell-off in stock markets. The yellow metal still holds most of its recent gains, pricing above the $1.710 per ounce level on pandemic fears.

Silver price also closed with 2.5% losses at $15.42/oz, Platinum rose 0.6% to $779/oz while Palladium dipped 1.5% to $2,184/oz.

Forex Market: US dollar higher across the board

The US dollar was the stronger currency across the board on safe-haven demand. The greenback bounced from its monthly lows against risky currencies after it got strong safety flows after the gloomy US economic data and the sell-off in the stock markets.

Fig. 3, USD/JPY pair, 30-minutes chart

The DXY- dollar index rose to the 100 level while the USD/JPY pair bounced from its weekly lows of 107 towards the 108 level.

The bigger losers yesterday were the risky currencies such as the Sterling and Australian dollars which pulled back from their recent strong rally.
The energy-related currencies such as the Mexican Peso, Norwegian Crone and Russian Rouble were hit hard from the big losses in the crude oil prices.

Economic Calendar for April 16, 2020 (GMT+ 3:00):

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