Market recovery hangs in the balance despite Dow Jones mega rally

After inklings of monetary policy responses began trickling out of central banks over the weekend, in an effort to fight the effects of the Coronavirus threat, the huge rallies enjoyed during the Monday session were somewhat hampered by the best efforts of international organisations.

The WHO fulfilled its usual obligation – remind everyone the situation is bad – and the effect this had was to snap equities back to reality, with all but the FTSE somewhat revising their early session exuberance.

The British market continued its rally not because of any particular virtue other than the fact it had dipped to its lowest level in 4 years during the last week of February, which was already a slow month for the index – and thus it took its chance to catch up.

Not to be outdone, the Dow Jones recorded its greatest ever rally on Monday night, which acted as the catalyst for a positive start to Tuesday trading across global equities.

This positive start will likely be revised as the G7 publishes what Reuters (TSE:TRI) expects to be an unambitious plan of ‘attack’ on Coronavirus, which will only redouble fears the virus and its supply-side implications, are here to stay for a while.

Speaking on market opening movements during the Tuesday session, Spreadex Financial Analyst Connor Campbell stated,

“There are rallies, and there are rallies – and boy did the Dow Jones RALLY on Monday night, posting its greatest ever points gain on the hopes that the world’s central banks can muster a co-ordinated response to the coronavirus this Tuesday.”

“It is a sign of just how bad the final week of February was that the Dow’s 1,297 point – or 5.1% – increase still leaves it almost 3,000 points off of where it was on Valentine’s Day.”

“Nevertheless, after a weekend full of stimulus-suggesting statements, news that the central bank chiefs and finance ministers of the G7 would be having a conference call to discuss an action plan – like a fiscal version of the Avengers – designed to combat the coronavirus crisis was enough to point the markets in the right direction.”

“It helped that the Reserve Bank of Australia has already given the G7 an example of what they can do, cutting its cash rate by 25 bps to a record low of 0.5%.”

“Following a thoroughly mixed Monday, the European indices shared in the Dow’s optimism, without getting quite as excited – after all, any enthusiasm will have been tempered by the WHO warning the world is in ‘uncharted territory’.”

“The FTSE, which was the best performer in Europe on Monday, added another 2.2%, pushing it back towards 6800. After missing out on yesterday rebound, the DAX rose 270 points to cross 12100, while the CAC added 2% as it neared 5450.”

“The danger, of course, is that if the world’s financial bigwigs fail to announce a coherent, co-ordinated plan of attack – and Reuters is reporting that the draft statement currently being worked on doesn’t call for such action – these gains could unravel double-quick.”

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Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.