Market Quick Take - March 12, 2020

Macro 3 minutes to read

Steen Jakobsen

Chief Investment Officer

Summary:  Markets are reeling after a very poor performance in a President Trump address on the coronavirus outbreak. As well, we note a massive sell-off in US investment grade corporate bonds in recent sessions as a significant escalation of the weak risk sentiment plaguing markets. Meanwhile, the ECB meeting today is crucial for EU Banks.


What is going on?

Trump addressed the US overnight in a speech many saw as poorly organized. It inspired unease as he discussed the “foreign virus”  and announced a travel ban for most of travel from Europe as well as a handful of other measures.

Our take on Trump: US President Trump clearly delivered a speech he was not interested in delivering. His tone lacked all energy and conviction. From the recent mismatch of his signaling on the danger of the Covid19 outbreak relative to what public health officials have been saying, and given the massive disruptions to the US economy that are incoming and the bear market in stocks, it may be dawning even on Donald J. Trump that his presidency is drawing to a close.

Worst case: If markets can’t right themselves soon, US authorities could step in to declare a market holiday – not a prediction, but a risk, with Covid19 as an excuse.

Awareness level of the severity of Covid19 outbreak dawns on US at a popular level. This after the professional basketball season has been suspended and Hollywood star Tom Hanks announced he and his wife have the disease.

Denmark joined Italy in a more or less total shutdown of public institutions in coming days, with Italy ratcheting up stimulus while closing all commercial stores apart from supermarkets and pharmacies.

As President Trump addressed the nation, US equity futures plunged into bear market territory, with the S&P futures down over 5% at one point overnight, making this the worst market drawdown since the financial crisis.

Stocks and bonds both down: – yesterday saw an unusual day in which both stocks and longer term treasuries performed poorly, with many blaming

Japan’s Nikkei down over 850 points, or over 4% as of this writing.

Investment grade bonds fell 3.3% in US session compared to high yield bonds down only 2.2% in what looks to be a liquidity preference dynamic. This means high yield bonds true value is much lower from current levels.

Risk parity funds had their worst decline in terms of speed since 2008 which could add to deleveraging dynamics.

Commodities suffer further losses with HG Copper breaking key support. Crude oil trades lower as Russia, Saudi Arabia and the UAE raise production while demand continues to slow. With bonds and stocks both suffering losses gold is struggling as a new round of margin calls and deleveraging hits the market.


What we are watching next?

Very volatile session likely today as the EU opens up amidst ugly market drawdowns overnight, while pondering the scale of the ECB’s likely very significant response to the Covid19 outbreak in today’s ECB meeting

Treasuries firmed overnight as US equity futures declined.


What is our trading focus?

Volatile trading day ahead as markets mull whether ECB’s Lagarde is bringing enough to the table to get ahead of the Covid19 crisis, especially for SME’s and banks.

With oil under further pressure we are also watching energy companies where we will soon find out who will be losing in the oil price war between Russia and Saudi Arabia.

Calendar (times GMT)

1230 – US Weekly Initial Jobless Claims (any pickup from Covid19 important)

1245 – ECB Meeting

1330 – ECB Lagarde presser

Disclaimer

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 is not intended to and does not change or expand on this. 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 (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

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

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.