By Eliman Dambell
Today, the eyes of the finance world will be on the OPEC meeting in Vienna to see if the cartel will cut supply production in response to a recent fall in prices due to the COVID-19. In the last few weeks we saw markets move with synchronicity along the volatility created by the Coronavirus, and the global panic it has caused. Oil prices had hit 300 day lows of $43 per barrel as the travel industry, mainly the airline sector experienced setbacks in demand for commercial flights. This is also due to travel restrictions being in place at most major airports around the globe.
Financial instruments such as Gold which are the ultimate measure of market uncertainty experienced rapid price hikes, climbing as much as $100 within a 7 day period, before falling by close to $80 in 1 trading day. Monday also saw the safe haven currency rise again, similar to Tyson Fury in his first fight with Deontay Wilder, but has since failed to experience any significant moves in price.
Although the markets have reacted with fear thus far, leading to index markets like the SP500 falling at a pace similar to the big short of 2008, during the mortgage crisis. Tuesday and Wednesday saw relative stability as the markets consolidated, and even rallied. This has come as the global death rate of the virus was 3.4% on Wednesday, with the UK now reporting 87 cases. So why are markets no longer reacting?
Firstly you have to look at the FEDs decision to undertake an emergency rate cut on Tuesday. Although the markets initially reacted with nervousness, traders now seem to be reassured that the powers that be are ready to do whatever it takes to stabilize the situation. This essentially has meant traders have already priced in the risk of the current virus spread, and the impacts it may have now and moving forward.
As seen in the above chart of Gold, the last few days has seen that consolidation fully form, with a price ceiling created. This within the same period where COVID-19 news continues to take centre stage within most publications, both financial and non-financial. So today’s OPEC decision comes at perfect timing, as the traders look for fundamentally driven opportunities. In addition to this, today also sees two major central banking Governors giving economic updates on the respective state of the nations they represent. Both Canadian, however Mark Carney of the Bank of England and secondly Stephen Poloz of the Bank of Canada will be giving separate but highly anticipated press conferences.
The reason why this will be more anticipated than traditional press releases, is mainly due to what we saw from the US Federal Reserve. Traders may see the potential for one if not both Governors following the led set by their North American counterpart, Jerome Powell. If this move does come there will surely be an increased level of panic. Similar to the reaction we see now in most confined spaces whenever someone hints at a cough. So the question for today seems to be, if the central banks sneeze will the markets catch a cold?