As usual, the last trading day of the month brought unusual volatility and bizarre behaviors in EU and US markets
Unconventional market movements usually characterize the end of the month.
The adjustments of portfolios carried out by investment funds cause non-fundamental flows, and even the technical analysis is less valid on these types of days, say market analysts.
And that is what we have been able to witness recently.
Stock markets have suffered considerable losses in both Europe and the United States. The falls have been precipitated with the publication of the jobless claims data in the United States, for yet another week, it showed an impressive figure close to 4 Million.
USA500 was down more than 2% on the day but still far from breaking the last bullish leg that would start to break with a close below 2856.
But, in reality, the catalyst for the fall cannot be attributed to this figure, especially if we consider that the previous day several more significant indicators had been published, such as GDP, with a considerable and worrying decrease, which the market did not take it into account.
The arguments against the excess of optimism that has prevailed in the market are accumulating as the economic figures are published beyond the statistics on the evolution of the contagion curve and the plans to reopen the economy. As more data is known, the reality will be different.
In Europe, the GDP has also been published with a drop of 3.8%.
The ECB has not changed its monetary policy, with the only exception of modifying the interest rates of the TLTROs, the liquidity that it provides to financial institutions for credit operations.
Although it has been firmer in its determination to do everything necessary to support the financial system and the economy, the market reacted negatively. The fall of Italian bonds, the most vulnerable country due to its excess of debt over GDP, made the stock markets fall sharp close to 3%.
Germany30 slumped 2.8% and lost the support level of 10,861 points.
The ECB governor, Christine Lagarde, presented the economic forecasts of the Governing Council and, although she recognized that the situation was unprecedented and therefore her evaluation was complicated, she estimated that there could be a drop in the GDP of the Eurozone of up to 12% in this epidemic crisis.
Obviously, in such a dire scenario, the market has considered its 750-billion-euro asset purchase program insufficient and has hit both the stock market and the most vulnerable sovereign bonds.
The Euro initially fell across the board in line with that of other European assets.
Still, from 16.00 CET it experienced a rapid upward movement against most currencies, which has led it to break the resistances that had been operating in previous sessions.
This sudden flow of buying Euros is related to operations settled in the London fixing. They do not have any fundamental cause behind them; quite the contrary, it is a movement against fundamentals very characteristic of the end of the month.
Although from a technical analysis perspective it has given bullish signals, we will have to wait for the evolution of the next few days to be able to properly evaluate them, appreciate market analysts.
EUR/GBP, however, has moved more in line with fundamentals.
The Sterling Pound has also been bought in the market and the EUR/GBP pair has been trading below the level of a broad neckline which, if confirmed to the downside, would open the way to more pronounced losses in this pair. If the weakness of the Euro is confirmed in future sessions, EUR/GBP could experience more substantial losses for fundamental reasons and with a technical scenario that supports it.
By: Miguel A. Rodriguez
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