We are expecting low liquidity in the markets as the US closed for a public holiday. This routine of low liquidity is normal whenever the biggest market of the world is closed. Investors do not like to trade big for they aren’t sure about the direction of the big money.
So far, buy the dip is the most prominent strategy among traders. This pushed the US stocks higher on Friday and the momentum was picked up by Asian markets.
The Chinese CSI Index recovered all of its losses since it resumed its trading. Market participants are expecting more from the People Bank of China in terms of their support. It wasn’t long ago when the Bank announced several measures—lowered one of its interest rates--to enhance the liquidity in the system which eased off funding conditions in the Chinese money market. Speculations are emerging that there are plans of reducing corporate taxes, fees and allow banks to run their non-performing loans for a bit longer.
Overall, the Japanese markets fell despite the fact that the put to call ratio for open interest favors large upside move. The Nikkei index fell by 0.64%. The Aussie benchmark index traded fractionally lower by 0.09%.
The hope among speculators is that Coronavirus would have a short-lived influence on markets. The change in the methodology of measuring Coronavirus has raised more questions. Investors do have their qualms about the mortality rate as every single day the reported infection number is significantly higher. China has reported an additional 105 more deaths today and the infection number soared to 2,48 new cases.
In order for us to have the confidence fully restored, we need to see the factory operating rate returning back to its normal mark. So far, we are seeing factories re-opening at a very low rate and most of them are still closed from their extended holiday period.
Commodities: What Can Move Prices?
In terms of commodities, we experienced a massive rally in the gold price last week, but its price has started the week on the backfoot today. The hopes are that the shining metal would touch the price level of 1600 due to the softness in the US retail sales number which failed to beat the forecast and the US industrial production number which was immensely poor.
This risk-off sentiment should prompt traders to park their money in gold. The biggest event for the gold price is the upcoming FOMC meeting, it is likely to bring higher volatility. It is the tone of the FOMC meeting minutes which can impact the odds of another rate cut by the Fed. Remember, last year, the Fed cut the interest rates three times and so far, this year, they have been reticent with respect to their reaction. So far, the odds of Fed cutting the interest rate sit at 30% and if their tone indicates a dovish stance, we could see a sell-off in the dollar which should be positive for the gold price.