Market Quick Take - March 19, 2020

Macro 3 minutes to read

Steen Jakobsen

Chief Economist & CIO

Summary:  Markets tried to stabilize late yesterday but weakened again by late Asia, taking equity markets back toward the cycle lows. This occurred despite the Fed announcing a new liquidity facility for money market funds and a new large ECB QE facility. Every day brings new CB moves to get ahead of contagion across financial markets, but are shock and awe fiscal the needed medicine?


What is our trading focus?

We continue to watch stock indices for the time good news arrive and boost sentiment more sustainably, or when particularly bad news fails to spark a new sell-off as a sign of exhaustion in this scary deleveraging move.

  • 10YBTPJUN20 (Italian 10-year government bonds) – the ECB announced a large new QE program late yesterday and Italian BTPs and other peripheral EU bonds could gain on the session. BTPs futures opened 11 figures higher on the open trading at 141 taking Italian government bonds back to the levels around March 12.
  • AUS200.I (Australian equities) – RBA’s yield curve control and other central and government actions could lift sentiment and especially in resource economies such as the Australian.
  • USDCNH – USD strength is now a completely across the board affair, boosting USDCNH to new local highs and might allow China to let CNH slip more aggressively lower
  • TLT:xnas (ETF on 20+ US Treasuries) – under considerable pressure as US yields have moved aggressively higher from lows – will Fed’s next move be to cap yields?
  • EUNW:xetr (Euro high yield corporate bonds) – in focus due to ECB new QE programme. European high yield bonds are down 26% from the peak in February.
  • XAUUSD – Holding up well despite pressure from the killer dollar, a continued rush to cash and bond upheaval with real yields rise as inflation expectations drop. The key support level to watch remains $1450/oz

What is going on?

RBA pulls out a bazooka taking the cash rate to 0.25% and stating on the press conference that are aiming to main the 3-year bond yield at 0.25% so effectively launching yield curve control.

Merkel urges unity: German Chancellor Merkel out yesterday addressing the nation and called for unity, saying that the virus outbreak is the greatest challenge the country has faced since World War II.

EU: the ECB announced late yesterday a new EUR 750 billion of new QE (the PEPP or Pandemic Emergency Purchase Program) late yesterday, one that is set to run until late 2020 and will include the purchase of private and public assets and include Greek debt and will see the central bank considering lifting “self-imposed limits” on purchases, meaning the percentages of any single issue the bank is willing to buy as well as possibly how many purchases are linked to a country’s size.

A Democratic proposal to help US economy by Chairwoman Maxine Waters was proposed yesterday in the House of Representatives and is bigger than Trump’s current plan.

US treasury bill yields went negative briefly yesterday – a sign of the desperate dash for cash.

The Fed announced a new MMLF facility to boost liquidity in money markets

FX: Moves are getting disorderly in foreign exchange markets, with an overnight range of over 5% in AUDUSD and NZDUSD and nearly 10% in EURNOK as liquidity is very poor.


What we are watching next?

USDCNH – enormous pressure now on the Chinese renminbi to weaken as the authorities have yet to get ahead of global USD funding issues and the income from exports for China are in collapse at the moment.

Yield curve control? – authorities may not mind some steepness in the yield curve, but the moves in the very long treasuries in the US

Shock and awe fiscal – real cash drops and guarantees to economic actors are needed to limit the damage to what will be some of the most shocking GDP readings in history.

US initial jobless claims – today likely to be first day that shows a spike in claims from the virus impact and this could rocket higher at unprecedented speed in coming weeks.

XAUXAG – Silver selling has slowed after collapsing by almost 30% during the past week. A sharp drop in open interest on COMEX futures to a four-year low could be an early indication that the market is now looking for the next direction. The gold-silver ratio at 124 (ounces of silver to one ounce of gold) is now trading 37% above its five-year average


Calendar (times GMT)

  • 0830 – SNB Meeting
  • 0900 – Germany Mar. IFO Survey
  • 1230 – US Weekly Initial Jobless Claims
  • South Africa Reserve Bank Rate Announcement
  • China Rate Announcement
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