Market Quick Take - March 16, 2020

Macro 3 minutes to read

Steen Jakobsen

Chief Economist & CIO

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)

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

Saxo Capital Markets (Australia) Pty Ltd 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 Combined 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) Pty Ltd 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.