Stock market this week
Latest update: 16-02-2020 18:54
Still the corona virus
The earnings season is coming to an end. No matter how companies did it in the fourth quarter. It says nothing at all about this first quarter. Because this first quarter is entirely devoted to the corona virus.
The more that Western companies do business with China, the more trouble people will now have. The differences will be enormous per company. Of course, companies in China themselves are the most bothered. Many companies remained closed for weeks.
Meanwhile, more and more are being started. But with a lack of supplies and staff, they are still not running at maximum capacity. When does depend on the corona virus. To date, however, there is nothing to say about when that will be over.
However, the Chinese government is doing everything possible to limit the damage to companies. Financial support and extra loans to keep companies going and to prevent bankruptcies.
This is necessary because if companies collapse you will end up in a negative spiral with the result of a major economic crisis. Given the power that the Chinese government has in its own country, it will certainly be possible to save Chinese companies from the worst.
However, do not see all those extra resources used as stimulation. At the moment it is only to prevent worse. Stimulation only comes when the coronavirus is over. Western companies that are bothered can often rely much less on the western government.
Partly disappearing from China as a buyer or a western factory that comes to a halt due to lack of Chinese parts. That is all part of the business risk. Now I do not expect large listed companies to fall over immediately. At most they will have to deal with lower sales and less profit or more loss.
Because we are now in the middle of the first quarter, I expect that many companies will start warning about the negative consequences of the corona virus in the coming weeks. That can put pressure on the share price. I also expect that more and more Western companies will experience problems with Chinese supplies this week.
Last Thursday, the FED announced that the repo emergency aid would be reduced from the following day. This despite the fact that market demand was often higher.
I expect that these lower repo amounts will immediately put pressure on stock prices this week. We have seen this phenomenon more often in recent years. When the FED started to raise interest rates, stock markets (at the end of 2018) started to fall sharply.
Even when the FED started to roll over less expiring bonds, stock markets fell. Interest and bond measures always work on the stock market with some delay. With repo money that is a different story.
The repo market is intended to offer financial space to banks and financial institutions that need to smoothen things out on that day. If you limit that financial space, banks and financial institutions must immediately become more cautious.
It does not make sense that the FED will now pursue a tightening policy in view of the economic risks of the corona virus. I think the Fed just wants to get rid of that repo emergency aid.
Because more and more questions are asked, it ensures that banks and financial institutions dare to take too many risks and with repo emergency aid it seems too much that the financial system is shaking.
By stopping the repo help, the Fed wants to pave the way for a new QE. Because that is desperately needed. The debt of the American government continues to rise. That money must come from somewhere. The American economy can now also use some support.
The coat rack to hang it on is already there. Due to the economic consequences of the corona virus, a temporary stimulation of the American economy with a new QE has become necessary.
But before that QE is there (the FED will meet again on March 18), certainly American stock exchanges can get quite bothered by lowering the repo amounts.
The gold and silver price
More and more coronavirus fear creeps into the gold and silver price. For the somewhat longer term, we need more central bank stimulation that will be needed to recover from the economic impact of the corona virus.
The week forecast for the stock markets
The corona virus remains a major risk. As long as it appears to be a Chinese problem, investors dare to look away. That will be different if larger coronavirus outbreaks occur in the rest of the world. That risk is still there.
What is certainly going to happen is that more and more Western companies are starting to suffer from the drop in demand from China and the faltering deliveries from China. The more companies indicate this, the greater the risk for the stock markets.
Then there is the repo tightening. We will first notice this on the American stock exchanges. By the way, they are closed on Mondays due to a public holiday.
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The weekly forecast for the AEX
I still expect a decline. Just like the last 2 weeks, but then the fall did not happen yet. The last few days of last week, however, the speed went out completely.
With increases of 0.02% (Thursday) and 0.01% (Friday) per day, we will not reach the 700. The doubt crept into the market at the end of last week. Now that the coronavirus is still not over and the damage to the economy and to companies is increasing, that doubt can quickly turn to negative.