Market Quick Take - April 14, 2020

What is our trading focus?

• US100.I (NASDAQ 100 Index) and US500.I (US S&P500 Index) – the S&P 500 rally has rallied to the 50% retracement of the enormous sell-off into the March lows (2786) and even slightly beyond. As markets get back fully online globally today, this local resistance area (as high as 2820) is the latest pivot point for whether markets can continue to trust that the Fed put is alive and well. Next levels higher are the 61.8% retracement at 2930 and then the 200-day moving average near 3000.
• XAUUSD (Spot gold) – the key multi-year highs ahead of 1700 have been broken in the spot market as we watch whether gold continues to rally here, driven by fears of inflation and financial repression from limitless fiscal spending in an environment of zero yield.
• JPMorgan (JPM:xnys) and Wells Fargo (WFC:xnys) – the two giants in the US financials sector are both reporting Q1 earnings figures today ahead of the US equity session. Analysts expect JPMorgan to post Q1 EPS down 19% from the same period last year and Wells Fargo Q1 EPS down 47% as the economic pain begins to hit the major banks. If outlook is terrible this could be a serious test of the market rally in equities.
• OILUKJUN20 (Brent crude) and OILUSMAY20 (WTI crude) –  Crude oil’s failure to rally following the historic OPEC++ production cut agreement highlights the continued downside risks. At best the deal may help stabilize the market until lockdowns are being lifted and demand returns. Focus on compliance (or lack off given recent history) and U.S. production data.
• AUDUSD – we continue to watch AUDUSD as a proxy for risk appetite and the status of the US dollar withing the G10 as a key driver of the comeback in risk sentiment in global markets is the weaker greenback. The pair is nearing an “ultimate” resistance area of note in the 0.6450 (61.8% retracement of 2020 sell-off) and the more psychological, round 0.6500 level.
• DIS:xnys (Disney) – An interesting single name to track on the degree this market is taking a leap of faith on the shape of a recovery and return to normalcy as such a large portion of this storied company’s revenues is based on travel to its parks, cruise bookings (three new cruise ships actively under construction) and sales of movie tickets. The company has just borrowed $6 billion dollars to see it through the storm.

What is going on?

Recap – latest Fed bazooka last Thursday – this was another aggressive Fed moves that has likely provided a considerable portion of the market’s improved sentiment. The Fed last Thursday announced another $2.3 trillion in backstops for the economy in announcing, among other measures, purchases of junk debt (if downgrades were made to junk after March 22) as well as a lending program for small businesses and direct financing for states, municipalities and counties.

Covid19: talk in the US of a return to normalization, with few plans on the ground for what this looks like and a very divided opinion across the US depending on the region. Europe is on a more forward timeline than the US and many countries have extended lockdowns into early May, although some countries like Austria and Denmark will start a slow opening up this week.

Australia NAB Business survey saw confidence plummeting to -66 in March from -2 in February, an unheard of drop and compares with a financial crisis low of -31.

What we are watching next?

The mood in Europe – a late Eurogroup deal to provide EUR 540 billion in emergency funding across the EU was hammered out last Thursday after European markets closed, and today is the first day back from holiday for most EU markets after the Easter break.

Beginning of earnings season – the Q1 earnings season starts today and this week focus will be on financials which have been lagging the overall market. Earnings outlook from financials this week will be the first real test of sentiment in equity markets.

Economic Calendar (times GMT)

• 1535-1900 – US Fed regional presidents Bullard, Bostic and Evans (none are FOMC voters) will be out speaking.

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