Market Quick Take - March 17, 2020
Chief Investment Officer
Summary: US markets suffered one of the worst sell-offs in history, coming even with massive policy moves from global governments to get ahead of the crisis. Large US banks under major pressure on the draw on credit lines. Today we look at the bounce overnight and focus on interesting developments in gold and gold miners.
What is our trading focus?
The stock markets yesterday was another day for the record book. It came amidst major policy initiatives from global government and increased lock-down in Europe. US Major banks fell more than 15% on the day. Overnight there has been a nice bounce of the low close with ASX in Australia leading the charge higher. One interesting aspect of yesterday's move was that Gold mining stocks GDX:arcx rallied 18% on the day. Why is that so interesting? In 2008 the GDX led the market off it's low, then followed by GLD:arcx
- S&P 500 (US500.I CFD) – up sharply overnight after yesterday’s third largest drop ever.
- Euro STOXX 50 (EU50.I CFD) – still struggling at around yesterday’s lows
- American Airlines (AAL:xnas) – closed near high of the day and at a three day high, some 30% higher than day’s lows on talk of airline bailout
- Gold ETF (GLD:arcx)
- Vaneck Gold Miners (GDX:arcx) - Gold managed to find support at the key $1450/oz level yesterday and it helped sparked an 18.5% rally in the GDX to close at $22.49. The $16.2 low yesterday represented a 49% drop from the February 24 peak. Miners will despite the recent drop in gold prices benefit from strong demand for physical gold and the collapse in fuel costs which represents 20% of the top five miners cost.
- European banks (BNK:xpar) – this industry is the most sensitive to any policy measures that make a difference for the credit market and the economy. European banks are down almost 50% so there will be plenty of opportunities there.
What is going on?
Major US banks starts tapping Fed's discount window. This is sign Fed wants no stigma for weaker banks to use the lending window.
US Empire Manufacturing, the first regional manufacturing survey out of the US for March, dropped by a record from +12.9 in February to -21.5 in March.
The US VIX measure of equity volatility closed at its highest daily close ever at 82.6 (intraday record from 2008 still intact at 89.5) and the 2nd futures contracts in VIX trades 70% lower than the spot indicating traders are still betting on long volatility.
Australia’s stock market posted its largest rally since 1997, closing some 5.8% higher just a day after posting its worst sell-off ever.
Yesterday’s G7 meeting produced a statement vowing “whatever it takes” to support economies that was short on specifics and reassurances that ongoing dialogue among finance minister would continue.
Policymakers are moving with increasing aggression on the bailout front – skipping quickly from talk of traditional stimulus to cash handouts for companies and individuals. France has led in Europe with French president Macron vowing to go to war on the virus and the government back EUR 300 billion in bank loans and announcing a few tens of billions in other measures, saying no business would be allowed to fail as the country looks set to become the new epicenter of the virus outbreak in Europe, together with Spain.
Ideas for giving every citizen in the US $1,000 are already circulating in US Congress as a way to address the situation.
What we are watching next?
US airline industry bailout request to the tune of $50+ billion after years of using most of cash flow to buy back stock and reward executives – will be interesting to see how US Congress treats the industry.
Market wise: Keep a close eye on GDX and GLD in US sessions. We expect both of those ETF's to lead a potential turn-around.
Calendar (times GMT)
- 1000 – Germany Mar. ZEW Survey – the first major sentiment survey out of Germany this month in an economy already teetering on recession before the COVID-19 outbreak.
- 1230 – US Feb. Retail Sales – likely too early to show coronavirus impact in the US.
- WED – US FOMC Meeting
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.