Macro Dragon: The Tail-End ≠ V-Shaped Econ Bounce
Global Macro Strategist, Saxo Bank Group
Summary: Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Week ahead, KVP would be watching Sweden for a massive u-turn as flagged by Peter Garnrey on Friday's excellent Saxo Market Call Podcast. Potential nationwide shutdowns in places like Japan & a thematic extensions of the deadlines imposed on currently lock-downs, physical distancing & shutdowns. Also watch the US & NY, as next few wks will get brutal on the Covid-19 front.
Macro Dragon: The Tail-End ≠ V-Shaped Economic Bounce, expect lock-down extensions & delays
Folks as a pin going forward during this turbulent times, let us please remember:
The Covid-19 crisis with all its challenges, stress, chaos & opportunities will also eventually pass. What defines humanity & ourselves as individuals is how we both individually & collectively act under adversity. Think of how you want to look back over this period, doing your part to keep your family healthy, society healthy & functioning. Keeping a cool head, when others are losing theirs, maintaining an objective list of positive aspects & negative aspects of the policy responses & economic shock the world is / could go through. And lastly gratitude, sympathy & empathy for one another. Parts of Asia got / are getting through this & so too shall the RoW.
The one big positive from all this, is it reminds us we are all One. Plus we are not at the top of the food chain. Covid-19 does not care if you are rich, poor, what your ethnicity & skin color are, what passport/s you hold, nor what you age or profession is. Our greatest achievements are almost always those that we collectively do with others & sometimes as in this case, potentially as species.
Lastly keep your mind open to growth & opportunities.
Top of Mind…
- We already covered the wk ahead on Fri Macro Dragon: Chu Chu!, which will be shorter given good Friday holidays around the world on 10 Apr. The wk also has an inflation theme out of the US & CH... at some point it will be all about JOLTS (new jobs) over Jobless claims... but we are likely minimum 2-3m from that...
- Its worth noting that Bojo has been put in the hospital for “testing”. KVP would not like the neat-term prospects for GBP if Bojo gets put on ice... GBPUSD 1.2239 -0.24% this Asia morning. Remember we got to c. 1.14 2 wks back before popping back to 1.24 & are going to see a much bigger impact from Covid-19 over the next 1-2wks. We had Italy… now its Spain… could it be the UK next or Sweden?
- On the same Fri podcast session where Ole called the short on oil, Peter flags how he thinks the heard immunity strategy & lack of any kind of shutdown in Sweden is going to come back & hit theme squarely in the face. He points out that the big move lower in Italian equities, really occurred when the government went into full shutdown – suggesting there could be some serious downside to come on the Swedish Kroner (USDSEK, EURSEK, AUDSEK, NZDSEK, SEKJPY SEKCHF) & in particular the equity market
- To given context YTD (in USD), the OMX is down c. -21% yet most of the other European indices are c. -30%. For some reason the Swiss market is only down -13% (thought they were exporters with a strong currency & hit hard by the virus? Will have to ask Peter about that one)
- Lastly this Asia morning is seeing oil being crushed lower, as Ole’s thesis plays out that the probability of a 10m to 15m price cut from both the Saudis & the Russians (when they could not even agree on a few 100K worth of cuts) is very close to zero. Not to mention, we still don’t know when the economic meteor free-fall that the world is in, actually hits the ground
- As an example of this, parts of Asia that responded very quickly to the Virus & in ways that were effective: CH, SG, JP… are starting to go back to shutdown measures that intended to stamp out a second wave here. This was most recently seen here in the Macro Dragon’s incredible home of Singapore - which initiated new measures to fight the virus.
- So what does this script entail for Europe & the US?
- However long you think the lock-down & shutdown is for, think again & extend it. We have seen Apple extend the closure of its US’s stores until early May – don’t be surprised if that then becomes Jun or even Jul. The consensus is still too optimistic on a V-shaped economic bounce & completely not even registering that in the GFC we got to c. 9m people out of jobs in a two year period – we just hit 10m over the last two weeks & that is in the very early start of the crisis in the US, with not even everybody able to access the system or nor evening knowing (having never needed to file for benefits before) how to file for claims
- So a further theme that we are likely to see out of places like Sweden & Japan, is a complete u-turn on loose measures to a lock-down. Plays there are naturally equities & in the case of Sweden, a weaker SEK
We could continue to be in a gang buster period of volatility both to the up & down side until at least mid-Apr to back-end of May. Some, time decay is needed in the system, both from a Covid-19 spread (past peak velocity upwards), even bigger & even better government / fiscal / monetary policy response, to overall heads of governments giving this the 2nd & 3rd order consequences thinking that it needs. This to shall pass. Keep you minds & hearts open
Good luck to everyone out there, be nimble & position accordingly
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