“Magic pill”, economic data and Central Banks

2020年4月30日

Since the pandemic began, it is difficult to find a simple day in the financial markets, but among difficult days there are especially difficult ones. That was yesterday and will be today as well.

The markets yesterday continued to be optimistic: they were not stopped by not very weak data on US GDP for the first quarter (the indicator decreased by 4.8% with a forecast of -4% and the past + 2.1%), nor a very sad in general earnings season in the USA, when ¾ companies report a radical decline in profits amid falling sales, nor the general extremely sad prospects for the second quarter.

The news that Gilead Sciences invented the “magic pill” from the coronavirus firmly settled in the minds of investors. Gilead's experimental antiviral drug, remdesivir, has helped improve symptoms in patients with COVID-19. And although recently there was information from China that remdesivir does not give a confirmed effect in the treatment of COVID-19, the markets felt blood.

Accordingly, everything goes as it happens in such cases: the VIX index was falling, stock markets were growing, the dollar was falling, commodity currencies and currencies of developing countries were strengthening.

The Fed left monetary policy parameters unchanged. There were no sound statements. So the Central Bank did not prevent the markets from being charged with optimism.

The optimism of investors in the stock market was supported by relatively good reports from tech giants and simply stock market influencers: Microsoft, Facebook, Tesla. It is important to understand that a pandemic and lockdowns generate problems for the vast majority of companies, and for many, this is a deadly thing at all. But there are individual corporations that benefit from it. It is important to separate the rules from the exceptions to the rules.

The markets are clearly trying to pass off as wishful thinking, in fact, no matter how strange it sounds, it makes little difference here and now. There was no doubt that sooner or later the humans will be able to fight the coronavirus. But the damage to the economy has already been done and will continue to be done in the foreseeable future (even if remdesivir really helps, tomorrow it will not appear on the shelves and will not move us back in time). Just in case, we note that the United States successfully overcame the mark of a million officially infected.

But the fact that stocks are being bought in the stock market despite the fact that the cost of the each dollar of profits has grown significantly and the immediate prospects are extremely negative is frankly surprising. But we do not plan to change our sell recommendation for the US stock market. The market is extremely overvalued - look at it through the prism of P / E, or EPS or any other adequate investment metric.

As for the dollar, its intraday purchases by and large remain relevant, as, indeed, are our favorite medium-term positions in foreign exchange market: sell the Russian ruble, buy EURGBP. For other positions (AUDUSD sales, USDCAD purchases, GBPUSD and EURUSD sales) prices are extremely good for opening positions here and now.

Current day is interesting primarily for the ECB decision and data on GDP, as well as unemployment figures in the Eurozone. In addition, data on jobless claims are already traditionally of great interest. Analysts expect further growth in the number of unemployed, which amounts to millions. Which once again confirms how bad everything really is.