In April, investors were faced with a new reality: stock indices are growing rapidly against the backdrop of terrible macro statistics and corporate reporting. For the first time since the beginning of February, the S&P 500 marked growth for two consecutive five days, for the Dow Jones index the 2-week rally was the best since 1938, and the Nasdaq reduced losses from the beginning of the year to 3.6%. The desire to buy what’s cheap, to increase the share of technology companies ’shares in portfolios, and the belief in the Federal Reserve were higher than the recession and the tense epidemiological situation.
Do not go against the Fed. This principle, it would seem, was forgotten in March, when the central bank unexpectedly and sharply reduced the rate on federal funds and announced its intention to acquire an unlimited amount of treasury and mortgage bonds. In April they remembered him. Yes, how! Black Rock, which manages $ 6.5 trillion, is going to buy those foreign assets that will be acquired by the central banks of the countries of origin of these assets. According to most investors, fighting the Fed is futile, and thanks to a massive monetary stimulus, corporate profits will recover in 2021.
S&P 500 Dynamics
Whereas previously, American stocks went uphill thanks to a combination of incentive measures and hopes that the outbreak of the coronavirus would be controlled, their success in the week of April 17 was due to growing confidence in the imminent opening of the US economy. Many believe that US GDP will take the path of a V-shaped recovery, and try to be proactive by buying stocks. At the same time, the President of the Federal Reserve Bank of New York, John Williams, does not believe that by the end of the year the American economy will work at full strength. “It will take more time to get us where we want to go.” In addition, several support programs, including a $ 350 billion small business lending program, have been nearly exhausted, and Congress may put obstacles in the way of expanding incentive measures.
It should be noted that despite the success of the S&P 500, investors, in contrast to previous days, are in no hurry to get rid of the greenback. He stopped talking about stock indices, feeling the vulnerability of competitors' currencies. In particular, the bulls on EUR / USD were frightened by the words of French President Emanuel Macron that the European Union could fall apart if it could not find a way to share the costs of the crisis; that coronavirus revealed weaknesses in the euro. Rumors are growing in the market that the € 1.5 trillion fiscal and monetary stimulus is not enough. The ECB may expand the scope of QE.
Greenback was supported by a speech by Donald Trump. If earlier the US president spoke more than once about the shortcomings of a strong dollar and called for its weakening, now he remembered the advantages. According to the head of the White House, a strong currency strengthens the desire of foreign investors to invest money in American assets. And States with low, near-zero borrowing costs should take advantage of this. “The dollar is very strong, and a strong currency is generally very good!” An unexpected change in Trump's rhetoric reinforces the risk of an “bear” assault on EUR / USD support by 1.081.
LiteForex Analyst Source