Market Quick Take - March 16, 2020 Market Quick Take - March 16, 2020 Market Quick Take - March 16, 2020

Market Quick Take - March 16, 2020

Macro 3 minutes to read
Picture of Steen Jakobsen
Steen Jakobsen

Chief Investment Officer

Summary:  Big overnight action as Fed leads central banks in cutting interest rates by 75 bps to 0-25 bps target (Zero-bound) + an expansion of the balance sheet by USD 700 bln. Market however did not like the message and it limit-down until regular US open. ASX in Australia fell 10%, and we could see QE start later this week. Overall liquidity is extremely thin and solvency is the real issue.


What is our trading focus?

PHYS:arc – Physcial Gold ETF
LCOC:xlon – Cocoa close to go below 2003 low
US500.I – S&P500 CFD limit down – watch open


What is going on?

Policy makers is in total panic cutting rates and providing liquidity, governments are stepping up fiscal support, but remember there are three negative credit impulses: collapse of global demand and supply lines, plus energy war which is destructing capital in the energy sector. Policy makers can deal with one, maybe two fall-outs but not three right now.

 

China’s Jan-Feb data starting to come through: Retail Sales -20% YoY, Investment -13.5% YoY – this implies Q1 GDP of -10% YoY

Expect these numbers to be mirrored in Europe and the US.

 

Physical Gold trades at huge premium to paper gold. Check PHYS:arc vs. GDL;arc indicating ‘Dash for cash” still continues

 

Our US value model on MSCI USA Index is now back to average valuation. In 2008/09 it had to go to -2.5 standard deviation cheap before it turned. Goldman Sachs sees 15-20% drop in S&P500 earnings, we see 30% YoY drop.

 

EU Banks: -41%, Nikkei -29%, DAX -38%, NASDAQ -23% & S&P -24%.

 

Commodities:  Deleveraging is and was the overriding theme among hedge funds. This was highlighted in the latest COT report covering the week to March 10. It showed that both long and short positions were being reduced. The biggest long reductions were seen in crude oil, gold, sugar, cocoa and cotton while short-covering was seen in natural gas, soybeans and corn.

 

Physical Gold has opened up a premium to paper gold and it highlights  the current selling pressure in the futures market from funds in need to realise cash through the sale of liquid positions.  Check PHYS:arc vs. GDL;arc indicating ‘Dash for cash” still continues

 


What we are watching next?

G-7 telephone conference @ 10.00 AM Eastern time (1500 CET)

16_SJN_01

The meeting is scheduled for 30 min only – Don’t expect major initiative, but it needs monitoring

Liquidity – S&P and NASDAQ limit-down into open at 14:30 CET. USDJPY Currency SWAPS (the price of $ funding for Japanese currency based investors) trades at 113 BPS vs. long average of 20 bps – This show global USD liquidity is very tight

US Mortgage market on the open as 30Y mortgage rates rose dramatically on Friday again indicating il-liquidity.

 

Calendar (times CET)

1500 – G-7 teleconference

EU Group meeting

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)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/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.