background image

The potential for a different kind of credit crisis

Macro
Picture of Steen Jakobsen
Steen Jakobsen

Chief Investment Officer

Summary:  Corona-virus is now close to being named pandemic as infections increase dramatically in South Korea, Japan and Italy


What:
Corona-virus is now close to being named: Pandemic as infections increases dramatically in South Korea, Japan and Italy

Impact:
The main economic result is: An almost perfect storm for global supply break-down. South Korea is key, as in key, in supply chains for technology and similar both Japan and Northern Italy is powerful machine in SME and engineering product. Global economy will NOT be back to normal in Q2 – neither will it be V-shaped recovery. Hence “market” will be disappointed as they continue to play experts on only “gradual impact, too early to tell…” – No not really (see below)

Action:
FOMC will cut in March
G-20 FM all but promised massive fiscal expansion this weekend in Saudi Arabia
Gold – will continue to rally….. now calls for 2.000 is “neutral”.

BUT….

The main, and overlook, fact is this is potentially the beginning of new CREDIT CRISIS, created by companies dependency on just-in-time business models, extreme leverage financially, and now lack of both products and supply. In a world with extreme leverage in corporate sector, low top-line growth and supply disruption, the cash-flow shortage will potentially mean loss’ in banks, and among investors. The hardest hit sector will be none-listed SME companies, but in later stage global companies will follow.

OVERALL:
The best way to hedge your downside here is to BUY VOLATILITY, which is still cheap. We suggest 8000, 8300, 8500 puts in March  (Please ask GST-sales to help you price)

We suggest following portfolio for coming period:

  • 20% Long volatility: mainly SPX, NASDAQ and DAX volatility
  • 20% Long gold, silver: main XAUUSD, XAGUSD
  • 40% Long fixed income: 25% TLT(ETF) + 15% VTIP:xnas USD
  • 20% Long SaxoCLIMATE basket

We have intentionally  been keeping a low profile on Corona virus as it seems everyone is now an expert and furthermore able to predict when the full impact will peak, never the less this weekend development is concerning on spread as cases with no obvious China link is increasing and fast.

This changes the dynamics of WHO but also global impact with several events, including Serie-A games being cancelled in Italy.

BBC – Corona virus: “Narrow window” to contain outbreak, WHO says

SJN_24_Im1

Sky News: Coronavirus: Austria consider border controls over coronavirus outbreak

BBC: Coronavius: Venice Carnival closes as Italy imposes lockdown

Reuters: Vietnam report supply chain issues from virus, says may hit Samsung output

People website:  Chinese top leader holds unprecedented meeting on epidemic control work

High unusual gathering with 170.000! Yes, 170K party officials being told China is having “dual approach” to Corona: 1. Getting economy back to “normal” to meet 2x GDP promise of CPC by end of year 2. Using all resources to fight disease.

My comment: There is much more focus on getting economy back than anything else in Chinese propaganda, and this is probably due to the “fall-out” from lock-down which in economic terms is measured in lack of funding, rising unemployment and insecurity. (Authorities is ramping up support, but most of fall-out comes in private sector which creates 80% of all service jobs in China)

Bloomberg: Millions of Chinese firms face collapse if banks don’t act

SJN_24_Im2
SJN_24_Im3
Source: Saxo Bank

Conclusion:

The virus is top priority for us as societies, but the global supply chain break-down is the real economic impact. IF… we continue to see more and more dispersion outside China it will have significant disruptive on economic growth and overall on our economic system.

There is zero reason to be alarmist, but the complacency observed in the market is simply scary and hence there is need for being long volatility, central bank cuts, and gold.

See the slides from Saxo Market Call for more charts

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.