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For 3 day win streak – Update from the Investment Division

For 3 day win streak – Update from the Investment Division
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What has occurred since yesterday ?

Global equity markets closed yesterday the third day in a row with strong gains. The US leading equity index increased by 6,2%. The European exchanges could see gains of 1% to 3%.

The credit risk margins für High Yield Corporate Bonds decreased again considerably. Also on the markets where the banks are refinancing themselves the risk margins decreased considerably over the last days.

That is due to the interventions of the Central banks and their liquidity programs. Gold an investment grade government bonds (e.g. 10Y US-Treasuries and German Bunds) were relatively unchanged compared to the day before.

What will we pay attention to over the next days and weeks?

As reported several times already: Last month will enter into the history books. Yesterday there was another entry added. A weekly figure every economist, fund manager and trader pays attention to are the US initial jobless claims.

They are generally getting published every Thursday. So far the highest weekly increase happened on 2 October 1982 and it was 695.000. The last time with a stronger increase was 2008/2009 during the financial crisis. Due to the containment measures against the virus in the USA many businesses and corporations have closed. The number of US initial jobless claims has reached the record high of 3.283.000.

Initial claims for unemployment benefit

Source: St. Louise Fed und U.S. Employment and Training Administration

Why did the markets for risky assets then react positively?

On the one hand it could have been even worse. Some market participants were afraid of five million additional unemployed persons in the USA.

On the other hand the fast implementation of fiscal and monetary policy measures was the second important factor. As an example California: The standard unemployment benefit is ca. USD 450 per week. Based on the support package the was passed the day before yesterday in the Senate over the next four months this benefit will be increased by USD 600 per week.

That means that an unemployed person over the next four months will get benefits of ca. USD 4.200 per month. That is only part of the USD 2.000 billion package of the US government, which is supposed to protect the economy over the next weeks and months from the impact of the Covid-19 virus.

From today’s point of view these support measures are definitely necessary. Since yesterday the USA are the country with the highest number of Covid-19 infections. In total there are more than 85.000 infected persons in the USA. Also Italy saw a strong increase of newly infected yesterday and has currently 80.539 cases.

Our dossier on coronavirus with analyses: https://blog.en.erste-am.com/dossier/coronavirus/

 

Legal note:
Prognoses are no reliable indicator for future performance.

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