Stimulus Spurs Record Gains

Eleanor Creagh

Australian Market Strategist

Summary:  US stocks had a record setting session overnight and that positive sentiment has flowed through to the Asian session. The USD continues its retracement allowing a breather for Asian currencies, the AUD in particular liking the return of risk appetite and dollar pullback.


Stocks in Asia have continued Wall Street’s record setting rally spurred by the unprecedented whatever it takes backstop from the Fed, anticipation of the $2trn US fiscal stimulus package and short covering. Calls from President Trump that he aims to have the US economy open again by Easter despite medical advice to the contrary, potentially adding to risk appetite. Although we question how likely this will be given the rapidly accelerating case count in the US. The NYC Major De Blasio’s more candid declaration that an improvement in NYC is months away, not weeks and that April will be worse than March for the city is likely a more fair representation.

In a quiet session relative to the prior week, Asian indices are higher across the board, but the gains are muted relative to the overnight session and fading into the afternoon as US futures have declined into negative territory and remain under pressure.

The COVID-19 containment measures have also been stepped up across the region, Australia extending the shutdown of non-essential services, banning overseas travel and New Zealand declaring a state of emergency and nationwide isolation.

Congress are still stalling on the rescue package bill and the latest is that Mnuchin and Schumer remain in negotiations, but a deal is “very very close” according to Mark Meadows.

Despite US futures remaining under pressure for most of the Asian session, some tentative signs of reduced stress are appearing. Both HY and IG spreads tightened overnight for the first time since March 4th. The dollar is weakening as the global funding short squeeze abates somewhat after the record liquidity injections and expansion of swap lines. Although it is still too early to sound the “all clear” on this front. The AUD has continued its gains against the USD in today’s session, but as John Hardy notes, the tactical bull-bear line around 0.6000 is proving tough to break. However if risk remains buoyant and broad based dollar strength continues to pull back, the Aussie being highly leveraged to risk sentiment should be able to extend gains.

It is important to remember that a bear market does not preclude rallies. In fact, the biggest rallies are typically seen in bear markets. The big swings and erratic price action is exacerbated by the present high volatility regime and strained liquidity conditions. This as panic deleveraging and forced selling on the downside, is countered by short covering, bargain hunting and policy action hopes on the upside. With VIX remaining significantly above the long-term equilibrium, alarm bells are still sounding and traders should be wary of relief rallies. We are in unchartered territory, both as it relates to the global health crisis sparked by the COVID-19 pandemic and therefore by default market conditions.

US and European PMIs released overnight have provided a window into what is yet to come as the sudden collapse in economic activity is played out in hard data. Despite the bounce in risk sentiment a wave of second-order panic remains likely and capital preservation should remain a priority.

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

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

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.