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Market prospects in the current environment

Market prospects Johannes Röll Visitors: 273

The news background last weekend turned out to be relatively calm for the financial markets. For several days in arow, the Evergreen ship has taken center stage in the global financial media and on the Internet, which ran agroundin the Suez Canal and blocked more than 300 cargo ships. This incident slowed down the correction of quotationson the oil market, which was caused last week by investors' fears due to a decrease in demand after theintroduction of new anti-cactus restrictions by a number of EU countries.


At the time of this writing, the cost of North Sea Brent and American WTI is moderately declining by an average of1%, continuing to trade sideways for the past few days. On Monday morning, it was already reported that attemptsto remove the container ship from the aground were finally crowned with success, but it may take a week or more tofully resume movement along the canal due to the huge number of ships waiting to start moving along the canal.


Also in the last trading week of March, market participants will continue to assess the extent of the potentialeconomic damage caused by the increase in new cases of Covid-19 infection in Europe. French PresidentEmmanuel Macron said that he would prefer to introduce increased measures in certain regions, rather thanintroduce a full-fledged lockdown, but stressed that more substantial measures may also be required.


In Germany, the number of infected per day reached the highest value since January, in Poland - for the entire timeof the pandemic. An increase in infections has also been reported in Belgium, the Netherlands and Austria. Themain reason is that the rate of vaccination of the population in the European region is significantly inferior to theAmerican one. Earlier, a number of EU countries refused to use the vaccine of the British company AstraZeneca(NASDAQ: AZN, LON: AZN) due to potential side effects.


As we wrote earlier, the slowdown in the EU economy and the faster recovery of the US economy directlyinfluenced the rally of the “buck” against the European currency throughout March. The dollar index (DXY) hit 92.91points on Friday, its highest level since November, adding just under two points since the beginning of the month, which was the strongest monthly gain for the dollar since July 2019. In the near future, we expect a slight correctionto the level of 92.60 p., Where there is a strong support level in the form of the 200-day MA. However, thefundamental factors are still on the side of the American currency.


In addition, in the last days of March, the focus will be on a potential new multi-trillion dollar stimulus package, thefirst part of which will be announced on March 31 by US President Joe Biden. The new economic support measuresare expected to focus mainly on significant infrastructure and logistics development.


It should be said that on Friday the American stock exchanges finished trading on an extremely positive note, having significantly strengthened literally in the last 15 minutes of trading. The S & P500 Broad Market Index (SPX), the Dow Jones Industrial Average (DJIA) and the NASDAQ Technology Sector Index (IXIC) added 1.6%, 1.4% and1.25%, respectively. In our opinion, such a rebound was more likely caused by the technical features of the marketthan by a fundamental basis.


On Friday, the two largest US investment banks, Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS), were forced to liquidate nearly $ 20 billion in hedge fund positions Archegos Capital Management, Bloombergreported. At the same time, banks such as Japanese Nomura Holdings (NYSE: NMR, T: 8604) and Swiss CreditSuisse (NYSE: CS, SIX: CSGN) suffered significant losses, as they are Archegos creditors. This incident couldraise a question for the Securities and Exchange Commission (SEC) regarding the regulation of the mechanisms forthe use of significant leverage by large players on Wall Street. The effect of this event on market quotes at thebeginning of this week is still uncertain, so we will take it outside the scope.


Let's take a look at the big picture. The American stock market is now close to its historic highs, and we believe thatin the near future it will be difficult for quotes to gain a foothold at even higher values, even despite active monetaryand fiscal stimuli. Among the main risks, one can single out a potential resumption of sales of US Treasury bonds, i.e., an increase in the yields of debt market instruments on expectations of a faster rate hike from the FRS than isnow indicated in their economic forecast; a new round of coronavirus infections in both Europe and the UnitedStates, as well as the upcoming increase in corporate income taxes from 21% to 28%, which, in our opinion, hasnot yet been reflected in current market prices.


Johannes Röll
Johannes Röll

Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer

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