Despite the worst first-quarter contraction in U.S. gross domestic product since the great recession and Powell’s warning that the worst was yet to come, hopes of a return to work and good news from the Gilead test kept sentiment strong. U.S. stocks ended higher across the board on Wednesday, while spot gold fell sharply and pulled sharply to close above $1,700 and oil prices rose more than 20 percent. In the current session, the market is set for a “super Thursday”, with the European central bank (ECB) set to join eurozone GDP, as well as initial us data and us PCE data to test the market.
Powell hits markets with GDP data
Wednesday was a day of heavy market news, but hopes for the early efficacy of redesivir were clearly in the ascendant as major assets swung wildly.
A Commerce Department report earlier in the day showed gross domestic product shrank at a 4.8 percent annual rate in the first quarter, the worst contraction since the great recession. Stringent measures to slow the spread of a novel coronavirus nearly brought the United States to a standstill, ending the longest economic expansion in American history.
“The market knows it’s bad, but it doesn’t know the exact number, but it knows it’s going to be a big negative number, and then there’s going to be a bigger negative number,” said Justin Hoogendoorn, head of fixed-income strategy analysis at Piper Sandler in Chicago.
At a subsequent fed meeting, the FOMC kept its target range for the federal funds rate at ultra-low levels of zero to 0.25 per cent, while warning that a new pandemic posed considerable risks to the us economic outlook.
“In this challenging period, the federal reserve is committed to using all tools to support the U.S. economy and thereby promote its goals of full employment and price stability,” the fed said in a statement at the end of a two-day meeting.
Federal reserve chairman colin Powell said at a news conference that U.S. economic activity is likely to decline at an unprecedented rate in the second quarter. He stressed that the severity of the U.S. recession will depend on policy measures at all levels of government to cushion the blow and support the recovery.
But Mr Powell also said the economy would rebound as restrictions were lifted and vowed the fed would continue to support the recovery.
As a result, the dollar continued to fall under pressure, the U.S. index fell to 99.46 at one point, lost the 100 mark, and continued to trade below 100 on Thursday.
“(the fed) has really put itself at the forefront of leading this recovery,” said Rick Meckler, a partner at Cherry Lane Investments. “They have been very positive, and that may be a big reason why the market has remained strong to some extent even in the face of some very negative economic news.”
The dollar was also weaker on improved risk sentiment after gilead said its experimental antiviral drug, reidsivir, helped improve symptoms of people infected with the drug’s novel coronavirus.
Gilead sciences (GILD) announced that a clinical trial of redtherivir for the treatment of coronavirus has met key evaluation criteria. Preliminary results from a coronavirus drug trial showed that at least 50 percent of patients who received 5 – and 10-day doses of the antiviral drug redesivir improved, and more than half were discharged within two weeks.
US President Donald trump has called gilead’s results “highly successful” and wants the us food and drug administration to approve effective drugs as soon as possible.
Edward Moya, senior market analyst at OANDA in New York, said: “risk appetite has surged again on news that redway has hit its key targets. But traders need to tread carefully because [the drug] has not been shown to be safe and effective in treating COVID 19.”
U.S. stocks ended the day higher on encouraging results from the inridgwe clinical trial, shrugs off the bad GDP data, and Powell’s warning, though there was some late-day decline.
By the close, the dow Jones industrial average was up 2.21 percent; The s&p 500 closed up 2.66 percent; The nasdaq closed up 3.57%.
On the back of rising risk sentiment, gold plunged to $1,690 the previous day, but Powell’s speech forced it to pare losses and eventually return to above $1,710, where it hovered in early trading on Thursday.
“You can see risk-taking coming out of the U.S. stock market,” said Michael Matousek, chief trader at u.s.global Investors. “I think there’s some profit-taking going on in the gold market right now, and a lot of people are adjusting their positions for the next rally.”
Lagarde and euro zone GDP hit
In the current session, after the departure of fed chairman colin Powell, the market is set for an ECB decision on Thursday at 19:45 Beijing time, followed by a press conference by ECB President Christine lagarde at 20:30.
Most economists expect the ECB to keep monetary policy unchanged, though it could decide to expand its emergency buying program.
In the absence of strong fiscal policy action, Goldman sachs strategists believe the European central bank will step up its emergency stimulus measures this week to counter the economic impact of the coronavirus pandemic.
Goldman Sachs strategists, including JariStehn and AlainDurre, said the ECB’s governing council could increase its emergency pandemic purchase program (PEPP) asset purchases by 500 billion euros ($542 billion) when it meets on Thursday.
ECB officials have signaled a willingness to increase the PEPP to avoid any unnecessary tightening of financial conditions and to help governments absorb the financial costs of the outbreak, they said.
Bank of America global research on Wednesday (29 April) discussed the euro’s direction and expectations around the ECB’s policy meeting. “We do not expect the meeting to have a lasting impact on the euro. The eurozone economy is likely to contract by 15 percent this year. As long as the outbreak is not over, we will consider continuing to sell the euro.”
Global shocks tend to affect the eurozone economy more than most other advanced economies because of structural rigidities and fiscal difficulties, the bank added. We are also concerned about the negative impact of a sharp increase in debt, particularly in Italy, which is already at very high levels. We do not believe that the recovery fund will be sufficient to address these issues.
The ECB could announce an expansion of its bond-buying programme, which could double to 1.5 trillion euros, barclays said.
In addition to the ECB’s decision, the euro zone’s first-quarter GDP should also be watched for the day, with the current survey showing a contraction of 3.7 percent in the first quarter and an annualized contraction of 3.4 percent.
Don’t forget the us preliminary and PCE data
In addition to the euro zone’s blockbuster event, the us today focused on the us data and the us PCE, the fed’s favourite inflation gauge.
Official statistics show that 26.5m people have applied for unemployment benefits since mid-march, wiping out all the jobs created during the longest employment boom in us history, and 3.5m are expected to file new claims this week.
Another 8.9 million to 13.9 million people were turned away, said Ben Zipperer, an analyst who heads the EPI survey. That means that as of this week, nearly 50 million americans have lost their jobs since early march.
Based on recent “surprising” initial hiring, some analysts expect April’s nonfarm payrolls, due on May 8, to fall by more than 20 million.
In addition, the us PCE data, the fed’s favorite inflation gauge, is due out today, which could cause short-term volatility and require caution.
The survey showed the market now expects U.S. personal consumption spending to fall 5 percent in March from a previous reading of 0.2 percent. Us personal income will fall 1.5 percent month-on-month in March from 0.6 percent.