Global economy already in recession on coronavirus devastation

By Ritu,

Capital Sands

The global economy is already in a recession as the hit to economic activity from the coronavirus pandemic has become more widespread, according to economists polled by Reuters amid a raft of central bank stimulus actions this week.

The spread of the disease caused by the virus, COVID-19, has sent financial markets into a tailspin despite some of the biggest emergency stimulus measures since the global financial crisis announced by dozens of central banks across Europe, the Americas, Asia and Australia.

The panic was clear in stocks, bonds, gold and commodity prices, underlining expectations of severe economic damage from the outbreak.

More than three-quarters of economists based in the Americas and Europe polled this week, 31 of 41, said the current global economic expansion had already ended, in response to a question about whether the global economy was already in recession.

“Last week we concluded that the COVID-19 shock would produce a global recession as nearly all of the world contracts over the three months between February and April,” noted Bruce Kasman, head of global economic research at JP Morgan.

“There is no longer doubt that the longest global expansion on record will end this quarter. The key outlook issue now is gauging the depth and the duration of the 2020 recession.”

Economists have repeatedly cut their growth outlook over the past month and have increased their forecast probabilities for recession in most major economies.

The worst-case views on growth taken just weeks ago in some cases have already into the central scenario for private sector economists in Reuters polls.

“The evolving news on COVID-19 has triggered ‘forecast leap frogging,’ with economists and strategists repeatedly lowering their forecasts. Among the big three economies, the U.S. and the euro area will see negative growth, while Chinese growth is expected to come in at a paltry 1.5%,” said Ethan Harris, head of global economics at BofA.

India ready to take steps to calm markets over coronavirus

By Ritu,

Capital Sands

The Indian government and financial regulators will take necessary steps to calm markets gripped by fears over coronavirus, the government’s chief economic adviser Krishnamurthy Subramanian said on Friday.

“Government and regulator will be responding when it will be necessary,” Subramanian told reporters in response to a question if the government planned relief measures to tackle a rout in the stock market and the rupee currency.

Trading on the exchanges hit a “circuit breaker” a few minutes into Friday’s session – the first time since 2009 – as widespread panic over the coronavirus pandemic gripped global markets. Indian indexes swung wildly after the markets resumed trading at 0450 GMT.

The rupee, which earlier fell to a record low of 74.5075 against the dollar, also reversed some losses.

Argentina needs ‘substantial’ relief in $70 billion debt talks

By Ritu,

Capital Sands

Argentina will need “substantial relief” as it restructures nearly $70 billion in debt with international bondholders, the country’s economy minister Martin Guzman told , signaling a tough tonic ahead for the country’s creditors.

In his first interview with international media since taking up his role in December, the 37-year-old U.S. trained economist, said a March 31 deadline to strike a deal with bondholders may also be affected by a global coronavirus outbreak that was hitting plans for road shows for the government’s debt proposal.

In an hour-long conversation in his office in central Buenos Aires, Guzman said Argentina does not have the capacity to service its foreign currency bonds for a “few years” and that any agreement with creditors needed to put public debts on a sustainable path.

Argentina is locked in debt restructuring talks with global creditors including Pimco and BlackRock Inc  to avert a damaging sovereign default that would block the giant grain producer’s access to global markets.

Guzman and his debt team have laid out a plan to strike that deal with creditors by the end of March, though he indicated that there may have to be flexibility given the current global situation, including the coronavirus outbreak.

He added road shows planned for this month for government officials to take their case to creditors had been affected and may have to be done by video conference.

“We have been on track, but now we are in a situation of global emergency that requires that every side is flexible,” Guzman said, adding if the March 31 deadline was missed it should only be by “a matter of days.”

Government officials met with bondholders earlier this month, while negotiations are ongoing with the International Monetary Fund (IMF), which has lent around $44 billion to the South American country.

The debt negotiations could determine Argentina’s economic future and global standing in markets for years following the current period of economic turmoil that has seen high inflation, recession and rising poverty.

Talking about life after the divorce: EU and Britain set for new talks

By Ritu,

Capital Sands

Britain and the European Union kick off talks on Monday on how their relationship will shape up after Brexit, with half a trillion euros worth of annual trade and close security ties at stake in what are bound to be tense talks.

Both sides say they want to reach a deal by the end of the year so that new cooperation on everything from aviation to fisheries to student exchanges can kick in from 2021.

Around 100 UK officials will be arriving in the EU hub Brussels for the first round of talks with the bloc’s executive European Commission that are due to last until Thursday.

The second round will be held in London later in March and then more are due to follow every two-three weeks.

The EU wants give Britain beneficial access to its single market of 450 million people in exchange for solid guarantees that London would prevent dumping.

But Prime Minister Boris Johnson has said he wants to move away from the EU and refuses to be bound by its rules or the jurisdiction of its top court — all necessary, in the bloc’s view, to ensure fair competition.

He has upset the bloc by backpedalling on a possible more ambitious and broader future relationship the sides had agreed in their divorce package last year.

Britain and the EU will assess in June whether sealing a basic trade deal is possible by the end of the year.

Without one, trade volumes could shrink dramatically if the sides default to World Trade Organization terms, which include tariffs and quotas.

The lack of trust between the EU and Britain has been exacerbated by comments from London that it might not carry out border controls on the sensitive Irish frontier, the most fraught issue in the talks.

Gold retreats from seven-year high, but virus fears limit losses

By Ritu,

Capital Sands

Gold prices fell on Tuesday as investors booked profits from a jump to a seven-year high in the previous session and as equities regained some footing, but a spike in coronavirus cases outside of China capped bullion’s losses.

Spot gold was down 0.7% at $1,648.36 per ounce as of 0605 GMT. On Monday, the metal rose as much as 2.8% to $1,688.66, its highest since January 2013.

U.S. gold futures fell 1.6% to $1,650.60.

“S&P futures jumped and regional stock markets opened higher, so we saw a temporary bout of selling pressure come through on gold,” said Jeffrey Halley,  analyst said.

Asian share markets found some stability after a wave of early selling petered out and Wall Street futures managed a solid bounce.

However, the coronavirus death toll climbed to seven in Italy on Monday, while several Middle East countries were dealing with their first infections.

While a rising dollar, which has also seen strong interest as a safe haven amid the outbreak, could temper gold’s rally, it is unlikely to “hold it back too much”, Patterson added.

The rapid spread of the virus beyond China has heightened fears over its impact on the global economy, driving some bets that the U.S. Federal Reserve will be pressed to cut rates to cushion the hit.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

U.S. Treasury Secretary Steven Mnuchin, meanwhile, told Reuters he does not expect the outbreak to have a material impact on the Phase 1 trade deal with China, although that could change as more data becomes available.

However, the Trump administration is considering asking lawmakers for emergency funding to ramp up its response to the epidemic.

On the technical front, gold may retest a support at $1,639 per ounce, according to Reuters analyst Wang Tao.

Adani Group eyes Air India, talks in preliminary stage

By Ritu,

Capital Sands

Billionaire industrialist Gautam Adani backed diversified conglomerate Adani group is weighing a potential bid for state-run carrier Air India, Experts Said.

If the deal fructifies, it will mark the Adani group’s big-bang entry into the domestic airline market.

“The Adani group has engaged advisors and is evaluating submission of an expression of interest  at this stage. Their interest is preliminary and clarifications need to be sought from the government on the bidding process,” a source said.

Another source said the Adani group is looking at this opportunity, but is ‘yet to take a final call’. “With this transaction, the group can diversify and bolster their presence in the sector.”

The Tata Group, which operates Singapore Airlines and Air Asia, is also seen as contender for the mega deal. But on February 5, N Chandrasekaran, Chairman, Tata Sons, said it is ‘too early’ to take a call on Air India, in which the government has decided to sell its entire 100 percent stake. In 2018, the government had offered to sell 76 percent in the state-run carrier, but had failed to attract even a single bid.

In October 2019, a proposed deal between a Tata Group led consortium and GMR had faced a hurdle from the Airports Authority of India  which had opposed the transaction. The AAI cited its rule that bars groups that own airlines to also hold more than 10% in an airport operator. The deal was later called off and GMR struck a deal with France’s Groupe ADP.

Air India, along with its subsidiary Air India Express, commands 50.64 percent share of international traffic to/from India among Indian carriers and an 18.4 percent share, including global airlines, as of Q2 FY20. The two airlines combined control around 12.7 percent of the domestic market.

Kejriwal’s third sweep shows bijli-paani in Aam Aadmi heart

By Ritu,

Capital Sands

The Aam Aadmi Party swept the Delhi assembly polls yet again on Sunday by securing more than 60 seats – marginally short of the 67 seats it won in the elections held five years ago – paving the way for its supreme leader Arvind Kejriwal to be sworn in as Chief Minister of Delhi for the third time in a row.

The BJP, which put its all might in the last two weeks ahead of the February 8 polls, could not even touch double figures, though it won a few seats more than it did in 2015 and increased its vote share. The Congress repeated its 2015 performance by drawing a blank.

In 2015, the BJP received 32.3 % vote share, the AAP polled 54.3 % votes and the Congress just 9.7 %. According to the results declared on Tuesday, the AAP got 53.64 %, the BJP 38.43 % and the Congress 4.27 %.

As the final results started pouring in, Arvind Kejriwal, who was following the poll trends with top leaders and poll strategist Prashant Kishor in the party headquarters at ITO, addressed thousands of supporters by describing the victory as a ‘new kind of politics’.

“The people of Delhi have given a message that they will vote for schools, mohalla clinics, 24-hour electricity and free water. This is a great message for the country,” Arvind Kejriwal said in a brief speech before heading towards Hanuman Temple in a road show, “Today is Tuesday, Hanuman-ji’s day. Hanuman-ji has showered Delhi with blessings,” said the Chief Minister, who was mocked by the BJP after he recited verses in praise of Lord Hanuman on live television.

Among the winners are a string of AAP leaders including Deputy Chief Minister Manish Sisodia, Atishi and Raghav Chadha.

Manish Sisodia witnessed a see-saw battle in his constituency before eventually emerging victorious by more than 2,000 votes over his nearest rival, the BJP’s Ravinder Singh Negi.

“The BJP tried to do politics of hate but the people of Delhi chose a government that works for the people,” Manish Sisodia said after he won from Patparganj seat.

In the high-stakes poll which eventually turned out to be bipolar, AAP focused its campaign on its work while the BJP tried to shift focus on polarising issues such as the ongoing protest against the citizenship law. The high-decibel campaign was marred by three firing incidents in the Okhla constituency at Shaheen Bagh and Jamia Nagar.

AAP lawmaker Amanatullah Khan retained Okhla, with a record 71,000 votes.

“People of Okhla have given an electric shock,” Amanatullah Khan said, taking a shot at Union Home Minister Amit Shah’s “current” remark. Most exit polls expected the BJP to improve its performance from the last assembly elections in 2015, when it won just three seats, but the party was far behind the incumbent.

Among the seats BJP won are Rohini and Vishwas Nagar that the party had won in 2015 as well.

EUR/USD: Oversold conditions, Powell may pull it from the multi-year lows


The world’s most popular currency pair is trading close to the 2019 trough of 1.0879, and a break below this level opens the door to levels last seen in 2017. The main downside driver of euro/dollar has been economic divergence. The US economy enjoys solid growth – with Friday’s jobs report still underpinning the greenback – while the old continent is struggling. Monday’s Sentix Investor Confidence missed with 5.2 points, expressing lower expectations.

The euro has also been suffering from political developments in Germany. Annegret Kramp Karrenbauer resigned from leading Chancellor Angela Merkel’s ruling CDU party and the grand coalition seems vulnerable.

The coronavirus outbreak continues dominating headlines with the death toll topping 1,000. On the other hand, most of China is back to work after extended holidays and the number of new cases has fallen. Stock markets are on the rise and the safe-haven US dollar is edging lower. Nevertheless, EUR/USD’s uptick is minimal – a dead cat bounce. The common currency is exposing its weakness.

The Relative Strength Index on the four-hour chart is well below 30 – indicating oversold conditions and an upcoming bounce. However, this rise may be shortlived as momentum remains to the downside and the pair continues trading below the 50, 100, and 200 Simple Moving Averages.

Some support awaits at the daily trough of 1.0905, which is also the lowest since October. The next level is critical – 1.0879 was the 2019 low. Further down, prices seen back in 2017 await EUR/USD, and these include 1.0810 and 1.0790.

Resistance is at 1.0925, which had a role in October, followed by 1.0940 which provided support earlier in February. Next, we find 1.0965 and 1.0985.

GBP/USD Forecast: Awaited Non-Farm Payrolls, coronavirus & Brexit

Capital Sands

Coronavirus and Brexit

However, markets may have gotten ahead of themselves and the dollar may already be stretched. It would likely take an extraordinary NFP to sustain the greenback’s rally, especially as the weekend nears and traders may want to book profits.

A “buy the rumor, sell the fact” response may reverse an initial knee-jerk reaction in favor of the dollar – GBP/USD may rebound shortly after hitting new lows.

Another factor that favors a V-shaped move in pound/dollar is the coronavirus outbreak. Markets have calmed after downfalls early this week and at the end of the previous one. However, the disease is far from being contained and the economic damage continues widening.

The number of people infected has surpassed 31,000 and the death toll tops 600, including the whistleblower doctor who provided an early warning only to be harassed by the police, later contracting the virus, and eventually dying. On the economic front, Korea giant carmaker Hyundai was forced to shut production down due to a lack of parts from its suppliers in China’s Hubei province.

This Friday may see a renewal of fears taking over markets. Last week, a run to safety saw investors rotate from stocks to bonds that resulted in lower yields on US treasuries, pushing the dollar lower with it.

The Relative Strength Index on the four-hour chart is still above 30 – outside oversold conditions and allowing for further falls. Moreover, the currency pair is still above the round 1.29 level which was low in late December.

Momentum remains to the downside and GBP/USD is trading below the 50, 100, and 200 Simple Moving Averages.

Below 1.29, the next cushion is at 1.2875, which was a low point in early December. Next, we find 1.2820, dating back to November, followed by 1.2775. 

Resistance is at 1.2940, late January’s low, followed by 1.2975, a cushion from earlier last month. 1.3010 worked as support earlier this week and it is followed by 1.3050 and 1.3075.

GBP/USD struggles with 1.30 ahead of critical BOE decision

By Ritu,

Capital Sands

GBP/USD is struggling to hold onto 1.30 as tension mounts toward the all-important
BOE decision, which carries high uncertainty about a potential rate cut, one day ahead
of Brexit.
GBP/USD is leaning lower, trading below the 50, 100, and 200 Simple Moving Averages
on the four-hour chart and suffering from downside momentum. However, it is
supported by an uptrend support line that has accompanied it since Christmas.
Break or bounce? That probably depends solely on the BOE, but bears seem to be in
the lead.
Support awaits at 1.2975, which supported GBP/USD earlier this week. Next, 1.2955 is
the 2020 trough and 1.29 provided support in mid-December. 1.2820 is the next line to
Resistance is at 1.3030, which held cable down in recent days. Next, 1.3105 was a
swing high last week, and it is followed by 1.3175, another peak from that time. 1.3215
and 1.3285 are next.