Market Quick Take - April 20, 2020

What is our trading focus?

• 10YBTPJun20 – the Italian 10-year sovereign bond future: we will be watching the Italian sovereign bond market all week as we await a critical Thursday meeting of the European council and how the EU plans to approach aid to Italy, which has been the worst hit economy, together with Spain, by the coronavirus. Italian leader Conte was out with forceful language over the weekend (see below in What’s going on).
• EURCHF and EURJPY– together with the Italian BTP’s noted above, we will watch the euro closely for signs of strain all week as the EU council meeting is set for Thursday. EURCHF has been posting new lows even as risk sentiment generally has been strong in recent weeks, and even as the SNB leans hard against further CHF strength with a steady intervention.
• Nasdaq100 – we are getting close to the moment of truth of whether fundamentals matter anymore as equities trade on central bank-fueled hopium of TINA (there is no alternative) and zero rates and liquidity provision rather than on  earnings fundamentals. The high-flying Nasdaq100 close Friday with in the green for the year with a gain of over 1% for the 2020 calendar year thus far.
• GOLD (XAUUSD) – remains in corrective mode as signs of virus easing damps demand but so far staying clear of the key support at $1650/oz. The latest COT report covering the week to April 14, saw limited fund appetite for gold despite the rally to a 7-year high following the latest Fed bailout.  
• IBM (IBM:xnys) – with its 350,000 employees IBM has a massive footprint in economy and especially on technology spending from companies. Will give some early insight into the potential CAPEX destruction.
• OILUSJUN20 (WTI crude) and OILUKJUN20 (Brent crude): The May WTI Crude oil contract is posting eye-popping losses and traded below 15 dollars per barrel overnight ahead of its expiry tomorrow as traders roll into the more liquid June contract, which is trading at a more than 50% premium above 23.5 per barrel. If production cuts and demand recovery are not sufficient to skirt the risk of a feared topping out of storage, downside pressure could continue for the June contracts.

What is going on?

Italy’s president Conte demands mutual EU bonds over the weekend: Ahead of a pivotal Thursday EU Council meeting of EU national leaders, Italian leader Conte, in an interview with Germany’s Sueddeutsche Zeitung, demanded mutual EU bonds to address Italy’s economic and health crisis. Italy is politically against all aid linked to the ESM. The previously agreed deal among Eurogroup finance ministers relied in part on ESM funding. Bloomberg coverage of the story.

US Covid19 response: US President Trump and the US Congress are signaling that a deal is close to top up a small business loan program, with as much as $450 billion in funds. Meanwhile, Trump is feeding the flames of the divide over the coronavirus response as he tweets to “liberate” the states with the strictest lockdown measures.

Q1 earnings season: The earnings season kicks into gear this week with many interesting companies reporting such as Netflix (Tue), Chubb (Tue), Biogen (Wed), Delta Airlines (Wed), Intel (Thu), Credit Suisse (Thu) , American Express (Fri), Boeing (Fri). Next week the big focus will be on technology companies with our focus on Facebook and Google as we believe the market is not adequately pricing in the sharp decline in online advertising that has taken place.

What we are watching next?

Signals from EU leaders all week and into critical Thursday EU council meeting – the stakes for Europe could not be higher and watching all indicators for how seriously the market is treating the risk of a new EU existential crisis will be critical all week, especially on the other side of a . The FT’s Munchau offers thoughts (paywall) on how this could play out, while underlining the uncertainty and risk of the unthinkable.

Stock market internals  Financials, small caps versus big tech, etc...

Economic Calendar (times GMT)

• 0800 – Switzerland Weekly Sight Deposits ­– this is a weekly look at how much intervention the SNB is carrying out to keep the CHF from appreciating more rapidly. It has been rising in steep fashion in recent weeks.
• 1230 – Canada Mar. Teranet/National Bank Home Price Index – not sure when the data is collected for this survey, but Canada exceptionally vulnerable to any bad news on the housing front because of the scale of the country’s housing bubble since the financial crisis.

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