There is always a glimmer of hope and one should always keep that in mind. For traders, this glimmer of hope came in the shape of positive economic news from China. The Chinese factory activity picked up. Asian markets skyrocketed on the back of this news because traders were eager to hear something which finally had an official rubber stamp on it.
It has been a while that we have been hearing unofficial news that factory activity has started to gather momentum in China, but today, we received the official confirmation of this. For investors this is enough for now because all they wanted to see was a glimmer of hope, meaning recovery taking place. No one is expecting this recovery to be turbocharged despite the recent fiscal package from the Chinese government. This is because the rest of the world is still fighting to contain the Coronavirus outbreak. As long as the sentiment keeps on improving—which the data has confirmed—it is enough for the market players.
So how good were those numbers?
The Chinese manufacturing PMI for March printed 52 against the forecast of 44.9. The Chinese non-manufacturing PMI number also came ahead of the forecast, the actual number read 52.3 while the forecast was 42.1.
Nonetheless, this doesn’t mean that we are out of woods completely, because the equity markets are set to record the worst quarter since the financial crisis because of the virus outbreak. But for now, the Asian markets are gathering momentum and they have reported gains today. The HSI surged 0.81% and the KOSPI increased by 1.83%. The Nikkei index dropped by 0.88%.
Over in the U.S., we also experienced some serious gains. The S&P 500 index challenged the 200-da SMA on the weekly time frame yesterday, and if the index breaks the SMA to the upside, it will be the first technical confirmation that the bear market is officially over. The S&P 500 index closed with a gain of 3.19%, the Dow Jones jumped by 3.19% and the NASDAQ index clocked gains of 3.62%.
So, what should we be focusing on? When it comes to markets, investors are observing the following:
- Fiscal and monetary policy support
- Chinese economic activity
- The virus outbreak curve and its peak
- The length of the upcoming recession period
From the list above, the first two are stacked in favor of bulls, we have seen global and cohesive efforts on this front. Chinese economic numbers are rolling in the right direction. The virus outbreak is largely in control in China, and as for Europe, it appears that Italy has already seen its peak, and Spain and France are likely to experience theirs this week. As for the UK and the U.S., maybe another two more weeks for them to see their peak. For the last part, it seems like the period of recession is going to be short-lived because of the massive monetary and fiscal stimulus.
Thus, overall, I do think the tone in the equity markets is positive, and this is the reason that the VIX index also dropped below 60 yesterday. If the markets continue to surge at this pace, the VIX index may drop below 40 as early as next week, if not by the end of this week.