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Earnings season shows effects of Corona pandemic – Market Analysis – April 15

Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Rough prospects worsen medium and long-term outlook over economy

The American economic figures published on Wednesday have made the optimism of the previous day turn into concern due to the devastating panorama that they reflect.

US macro data

As indicated yesterday, the important thing is not so much a return to production but the reactivation of demand. In the current situation of social distancing and confinement, a return to normality will be challenging.

As evidence of this, the figure of Retail Sales MoM for March experienced the most significant drop in its history -8.7%, and Industrial Production MoM March plummeted -5.49% and N.Y. 

The Empire State Manufacturing, which rates the relative level of general business conditions in New York state, suffered a massive drop at -78.20. This is economic data that can only be comprehended in the environment of a great natural catastrophe or a war, usually.

More and more economists are pessimistic about a V-shaped recovery, a theory affirmed at the beginning of the crisis, and that augurs a slow and painful return to normality that will have a very notable impact on the global economy.

The logical and expected reaction for the magnitude of adverse effects of the crisis on the stock markets has been a pronounced sell-off in all indices, European and American, after a rebound the previous day without any solidity from a fundamental perspective. 

Earnings from Banks such as Citibank, Bank of America and Goldman Sachs were published with sharp falls, the latter with a 46% drop, which means a hit of $900 M.

USA500 was losing more than 2% and has slowed its fall around the 100-hour MA (moving average) at 2767, which acts as a temporary support. The index needs to drill a bullish trend line currently going through 2733 and confirm its downside move with a close below support around 2709.

The Fed Beige Book was also published, showing that activity contracted sharply and abruptly across all regions and all sectors: manufacturing, employment. All in all, Fed districts reported highly uncertain outlooks, with most expecting conditions to worsen in the next several months.

Still expected are earnings of large companies such as Honeywell or BlackRock that will follow the negative trail and data on employment and real estate that, according to the forecasts of market analysts, will show as well the negative effect of this crisis.

The FX market

In the currency market, the trend does not seem to be defined. At the beginning of the day, with an increase in risk-off in the market, harmful data, and a drop in the stock markets, the US Dollar returned to its safe-haven status, rising across the board. 

This was a movement contrary to what was considered in the last week by most market participants, that the Dollar, after Fed's expansionary measures, would weaken losing its quality as a safe-haven currency. 

At the end of the market session, the Dollar lost much of the territory gained, ending with little difference from the previous day. This shows that there are contrary opinions as to how the economic deterioration will affect the US currency. Still, so far, everything indicates that the general sentiment of the market is more inclined towards a weaker Dollar in the future.

The Sterling Pound performance during these days is exciting. The British currency was negatively affected at the beginning of the pandemic, suffering some losses due to the lack of government measures. Having the Prime Minister hospitalized being infected by the virus didn't help either. 

But, in the following days, the Pound has been gaining positions, and some believe that the Pound can be a currency that benefits in relative terms. All logic comes from a hypothetical weakness in the Dollar and because the British economy would be less affected by not having lock-down measures as aggressive as the rest of Europe.

For this reason, EUR/GBP has been declining since the peak reached at the end of March and is close to a support area located between the 0.8648 and 0.8690 area, which, if drilled to the downside, would leave a path open to significant losses, at least up to the minimum levels reached in February in the 0.8300 zone.






Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.