Equities softer on quarter last day – Market Analysis - April 21

Equities softer on quarter last day – Market Analysis - April 21

The first quarter ends with mixed performance

The end of the quarter, as yesterday, is usually a time in which the movements in the market are more volatile, and that is normally a bit more challenging for trading, more unpredictable.

The reason is that at the end of the quarter, investment portfolios are rebalanced by fund managers to adjust them to the asset composition requirements of their mandate.

The buy/sell flows are more substantial than usual. They are executed at any time of the session regardless of economic figures or news that would otherwise be the market drivers.

Currencies

As an example, we had a large USD/JPY buying flow at 3.00 AM CET during a fixing in Tokyo that led the pair to rise 75 pips without any data or news to back it up. Later the pair returned to the downside trading up to 130 pips lower at 1.0745, in a move more in line with fundamentals. As indicated yesterday, a close below 107.68 38.2% Fibonacci is necessary to make way for further falls.


The US Dollar had a mixed performance, strengthening against the Euro, weakening against the Yen and the Canadian Dollar and neutral against the Sterling Pound.

In the DollarIndex chart, we can see a long-range candle but with a reduced body (little difference between opening and closing price).


The FED

Usually, the end of the quarter is normally dominated by buying flows of the US Dollar. This time, these flows have not been dominant, which generates a more favorable market sentiment for a weak Dollar that is likely to be the trend in the coming days.

The shortage of Dollars due to the wide demand for financing in this currency seems to have been tackled by the provision of funds from the Fed through short-term swaps. Although new tensions are not ruled out if the crisis worsens and emerging countries need to go to the market to finance themselves.

Overall negative feeling

We are not in the type of market that is waiting for the economic figures to define the movements, the data on the health crisis has more influence, but we should highlight two pieces on news published yesterday.

PMI manufacturing China at 52.00, incredibly high, still signaling economic expansion after nearly two months of shutdown. In reality, the market did not take it very seriously because it was inconsistent.

The World Bank, on the other hand, made forecasts of China's GDP growth and lowered it to 2% this year from 6%. This figure was taken more into account by investors. Besides, in the afternoon, consumer confidence in the United States was published, which, although higher than expected, fell to 120 from 132.6 previously. The statement after this figure predicted further declines in the future as the health crisis worsens.

This general negative feeling can be seen in the stock markets. In the same way that the US Dollar has not shown its usual strength at the end of the quarter, neither have the stock markets on a traditionally bullish date for these markets, which, like the in the Dollar case, is a sign of weakness.

We can see it in the chart of the USA500 which, after a week of bullish corrective movements, has not managed to overcome the 38.2% Fibonacci level for the entire fall.



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