Deal Done; Equities Extend Rally

Posted on

March 25, 2020
Congress agrees on stimulus deal
Equities extend rally
Nikkei 8.04% Dax 4.26%
UST 10Y 1.05%
Oil $24/bbl
Gold $1604/oz
BTCUSD $6807

Asia and EU
EUR GE IFO 86.1 vs. 87.9

North America Open
USD Durable Goods 8:30

With Senate in agreement on the stimulus deal and the House expected to pass the bill, markets were in ebullient mood in Asian and early European trade today with futures rallying between 2% to 3% on hopes that the $2 Trillion stimulus bill would provide some support to the locked-down US economy.

With the global COVID-19 case count now above 400,000 there is little evidence that the spread of the virus is slowing materially, but President Trump announced yesterday that hoped the country would reopen by Easter which is April 12th. Mosty scientists think that this an utterly unrealistic timeline given the fact that the virus cycle is thought to be eight weeks at minimum.

Indeed if the US did loosen restrictions earlier, the virus could come back with a vengeance making the situation on the ground far worse. Even “model” countries like Singapore, Hong Kong, and South Korea are seeing a pick up in infections after they loosened the social distancing regulations. Indeed Singapore, which has long been touted as containment superstar, went on a near-full lockdown yesterday doing a full about-face in policy.

Therefore, despite market’s positive sentiment, the US economy is likely to be offline longer than anyone thinks and that, of course, will continue to do damage to balance sheets both personal and corporate. For now, the stimulus bill will provide welcome relief to millions of unemployed workers, but investors will likely look past that and will only focus on the rate of change of new COVID-19 cases in the US.

Currently, US is doubling the caseload every two days – a horrid pace that will create massive stress on the healthcare system and could result in thousands of deaths. If the social distancing regulations begin to take hold and the caseload goes into what’s known as exponential decay investors could begin to breathe a sigh on relief knowing that the virus threat is receding. For now, however, there is little evidence on the healthcare front to reassure investors, so the relief rally in the market could quickly run out of gas.

Boris Schlossberg
Managing Director

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