Macro Digest: Welcome to policy panic week Macro Digest: Welcome to policy panic week Macro Digest: Welcome to policy panic week

Macro Digest: Welcome to policy panic week

Steen Jakobsen

Chief Investment Officer

Summary:  We are looking for global central banks to pull out the stops to bring support to the market this week, a move that may bring some relief after an ugly week for global markets, but one that may not last for long as the challenges for the earnings and the economy remain depending on the ongoing fallout from the coronavirus.

Expect Fed to cut by 50 bps this week and for other G-7 banks to follow through in a ‘coordinated fashion’

Markets have fallen 15% and in very short order – more than enough for central banks to panic

Market impact:
There could be a sharp rebound as bottom-seekers and liquidity returns for a time – see the chart below for levels.

Going long short-term (March) calls on the S&P future – strike prices from 3050 up to 3150. Note that this is not a call on the longer term direction – see more below.

SPX w. Retracement levels:
A basic retracement from top to bottom would argue that a throwback rally could achieve a move back toward 3190 in the S&P 500 if we take the 61.8% retracement, even if the longer term outlook remains at risk for market bulls.

Source: Saxo Bank

The saying goes there are only two certainties: Death and taxes, but the market of course knows this is incorrect as there are really three: death, taxes and central bank panic. This week will see a repeat of all prior crises... a full liquidity Tsunami is about to hit the market with Fed expected to cut 50 bps priced fully in: April trades 106 bps with Fed funds at 150-175 bps!

Source: Bloomberg

More importantly, our long held view that US rates will go to zero is now almost fully priced in as seen here but Fed Fund targets as priced by markets. While ‘support’ through liquidity may be good for market stabilization we are medium and long term only making things worse as debt pile will grow and so will central bank balance sheets. Where in early 2018 we had chance to revert we are now fully down a one-way alley where either hyperinflation or global default are the only outcomes!

Just last week world central bankers were telling us again and again: It’s too early to draw any conclusions. Markets have zero respect for central banks and are now forcing their hands to intervene. 

Bank of Japan started this morning, indicating coordinated policy is near:

We have taken profit on the long volatility play we suggested February 24th:


The best way to hedge your downside here is to BUY VOLATILITY, which is still cheap. We suggest 8000, 8300, 8500 puts in March  (Please ask GST-sales to help you price)

We suggest following portfolio for coming period:

  • 20% Long volatility: mainly SPX, NASDAQ and DAX volatility
  • 20% Long gold, silver: main XAUUSD, XAGUSD
  • 40% Long fixed income: 25% TLT(ETF) + 15% VTIP:xnas USD
  • 20% Long SaxoCLIMATE basket

Conclusion and strategy for this week:

There is no doubt that the market is forcing Fed and G3 central banks to move. A full 50 bps cut is now fully priced by Fed, personally I’m looking forward to see ECB’s handling of this as lower rates clearly doesn’t make any sense (or change) to economic outlook!

The critical thing here to watch after the market reaction to the policy easing is the further development in coronavirus in Europe and the US.

Remember the virus is what has created the ‘angst’ in the markets but the real economic price is yet to be priced as companies, in particular SME’s, will be under pressure due to the lack of credit and broken supply chains. Most observers in China and globally calculate that the critical period starts some three months from the  outbreak if conditions have failed to normalize.

We are now two months into this crisis with Europe and the US only feeling phase 1, so clearly it’s going to be a race against time but also for central bankers and politicians to change the narrative which increasingly is becoming one of a ‘global recession’ - and this while the global credibility and communication of those same people as the lowest I have seen a too long career in the market.

Personally, I will maintain defensive exposure (small long through options on SPX).

I fully expect to only be constructive on the outlook for a market bounce for a mere week or so as this looks like a possible “third wave of five” in a bearish move in Elliot Wave terminology. And with economic data and corporate earnings warnings signaling that this needs to get a little worse before it gets better.

Don’t forget Super Tuesday tomorrow. Mayor Pete is out, and by Wednesday we will know how strong Bernie Sanders stands.

Safe travel this week,



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 (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.