Chief Investment Officer
Summary: The S&P and Dow Jones managed the first back-to-back gains in a month, but the Nasdaq 100 future closed lower as Senator Bernie Sanders indicated he could obstruct the GOP rescue package. Early this morning the deal passed Senate and is now expected to be signed by the House Friday and land on the Presidents table before the weekend. The Asian session was nervous, the main headlines driven US death toll passing 1,000 people and small rise in Asian number.
The sessions ahead of the quarter-end are key for measuring confidence from rebalancing flows and whether the market feels policymakers are getting ahead of the curve in bringing more profound relief. Key on the agenda today are the US jobless claims and yesterday’s highs in global equity indices as the local tactical bull/bear line.
What is our trading focus?
What is going on?
The US Senate signed the $2 trillion stimulus package that now must be signed by the House – expected to happen on Friday - and then President Trump before becoming law. The package includes $500 billion in loans and aid to large companies, $350 billion for small companies, and outright cash payments to individual citizens.
EU looking to suspend accounting rules for banks: EU authorities and the ECB are looking to suspend accounting rules due to pressure on balance sheets from the virus outbreak – this could allow banks to delve into reserves and take other measures, but authorities are concerned that the move could dent confidence in banks, who would be seen as hiding their true state of solvency. Watch this space closely – the most powerful solution would be a recapitalization.
Remember, Covid19 driving a supply shock, not just a demand shock A story highlighting that the Covid19 has created twin shocks is Caixin pointing out that air freight rates have spiked due to the reduction in flights globally.
Ford debt downgraded to junk by S&P ratings, leaving Moody’s with the only investment grade rating for the company’s debt. Ford’s share price closed yesterday at 5.39 – up from the 3.96 low this week, but down 42% YTD.
What we are watching next?
US weekly jobless claims and how the market absorbs the news (see estimates below in the calendar). There are wild estimates from 2M to 5M and the actual number and how the market digests it will be key for the coming US session.
The BULL/BEAR line and risk sentiment status – yesterday’s rally ended with a fizzle after crossing near the key 38.2% retracement line and then dipped again overnight – not a strong sign after markets bounced on hopes that policymakers are getting ahead of the curve. The price action makes yesterday’s highs the key tactical bull/bear line for the moment.
Quarter end rebalancing the best hope for equities – with momentum-oriented CTA’s maximum short on the slide in equities and asset allocators with low equity weights after the massive slide in Q1, there is a prominent potential bid for equities from these source into month-and quarter end.
USDCNY (and USDCNH as the tradeable offshore CNY). The Chinese currency remains a hugely important question as the US dollar has yet to turn notably lower and yesterday saw the largest rise this week in the USDCNY exchange rate, taking it close to the 7.12 area highs from last week.
Calendar today (times GMT)
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
