Stimulus Spurs Record Gains

Eleanor Creagh

Australian Market Strategist, Saxo

Summary:  US stocks had a record setting session overnight and that positive sentiment has flowed through to the Asian session. The USD continues its retracement allowing a breather for Asian currencies, the AUD in particular liking the return of risk appetite and dollar pullback.


Stocks in Asia have continued Wall Street’s record setting rally spurred by the unprecedented whatever it takes backstop from the Fed, anticipation of the $2trn US fiscal stimulus package and short covering. Calls from President Trump that he aims to have the US economy open again by Easter despite medical advice to the contrary, potentially adding to risk appetite. Although we question how likely this will be given the rapidly accelerating case count in the US. The NYC Major De Blasio’s more candid declaration that an improvement in NYC is months away, not weeks and that April will be worse than March for the city is likely a more fair representation.

In a quiet session relative to the prior week, Asian indices are higher across the board, but the gains are muted relative to the overnight session and fading into the afternoon as US futures have declined into negative territory and remain under pressure.

The COVID-19 containment measures have also been stepped up across the region, Australia extending the shutdown of non-essential services, banning overseas travel and New Zealand declaring a state of emergency and nationwide isolation.

Congress are still stalling on the rescue package bill and the latest is that Mnuchin and Schumer remain in negotiations, but a deal is “very very close” according to Mark Meadows.

Despite US futures remaining under pressure for most of the Asian session, some tentative signs of reduced stress are appearing. Both HY and IG spreads tightened overnight for the first time since March 4th. The dollar is weakening as the global funding short squeeze abates somewhat after the record liquidity injections and expansion of swap lines. Although it is still too early to sound the “all clear” on this front. The AUD has continued its gains against the USD in today’s session, but as John Hardy notes, the tactical bull-bear line around 0.6000 is proving tough to break. However if risk remains buoyant and broad based dollar strength continues to pull back, the Aussie being highly leveraged to risk sentiment should be able to extend gains.

It is important to remember that a bear market does not preclude rallies. In fact, the biggest rallies are typically seen in bear markets. The big swings and erratic price action is exacerbated by the present high volatility regime and strained liquidity conditions. This as panic deleveraging and forced selling on the downside, is countered by short covering, bargain hunting and policy action hopes on the upside. With VIX remaining significantly above the long-term equilibrium, alarm bells are still sounding and traders should be wary of relief rallies. We are in unchartered territory, both as it relates to the global health crisis sparked by the COVID-19 pandemic and therefore by default market conditions.

US and European PMIs released overnight have provided a window into what is yet to come as the sudden collapse in economic activity is played out in hard data. Despite the bounce in risk sentiment a wave of second-order panic remains likely and capital preservation should remain a priority.

Disclaimer

The Saxo 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 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 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 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 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 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-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.