Market Quick Take - March 19, 2020

Macro 3 minutes to read

Steen Jakobsen

Chief Economist & CIO

Summary:  Markets tried to stabilize late yesterday but weakened again by late Asia, taking equity markets back toward the cycle lows. This occurred despite the Fed announcing a new liquidity facility for money market funds and a new large ECB QE facility. Every day brings new CB moves to get ahead of contagion across financial markets, but are shock and awe fiscal the needed medicine?


What is our trading focus?

We continue to watch stock indices for the time good news arrive and boost sentiment more sustainably, or when particularly bad news fails to spark a new sell-off as a sign of exhaustion in this scary deleveraging move.

  • 10YBTPJUN20 (Italian 10-year government bonds) – the ECB announced a large new QE program late yesterday and Italian BTPs and other peripheral EU bonds could gain on the session. BTPs futures opened 11 figures higher on the open trading at 141 taking Italian government bonds back to the levels around March 12.
  • AUS200.I (Australian equities) – RBA’s yield curve control and other central and government actions could lift sentiment and especially in resource economies such as the Australian.
  • USDCNH – USD strength is now a completely across the board affair, boosting USDCNH to new local highs and might allow China to let CNH slip more aggressively lower
  • TLT:xnas (ETF on 20+ US Treasuries) – under considerable pressure as US yields have moved aggressively higher from lows – will Fed’s next move be to cap yields?
  • EUNW:xetr (Euro high yield corporate bonds) – in focus due to ECB new QE programme. European high yield bonds are down 26% from the peak in February.
  • XAUUSD – Holding up well despite pressure from the killer dollar, a continued rush to cash and bond upheaval with real yields rise as inflation expectations drop. The key support level to watch remains $1450/oz

What is going on?

RBA pulls out a bazooka taking the cash rate to 0.25% and stating on the press conference that are aiming to main the 3-year bond yield at 0.25% so effectively launching yield curve control.

Merkel urges unity: German Chancellor Merkel out yesterday addressing the nation and called for unity, saying that the virus outbreak is the greatest challenge the country has faced since World War II.

EU: the ECB announced late yesterday a new EUR 750 billion of new QE (the PEPP or Pandemic Emergency Purchase Program) late yesterday, one that is set to run until late 2020 and will include the purchase of private and public assets and include Greek debt and will see the central bank considering lifting “self-imposed limits” on purchases, meaning the percentages of any single issue the bank is willing to buy as well as possibly how many purchases are linked to a country’s size.

A Democratic proposal to help US economy by Chairwoman Maxine Waters was proposed yesterday in the House of Representatives and is bigger than Trump’s current plan.

US treasury bill yields went negative briefly yesterday – a sign of the desperate dash for cash.

The Fed announced a new MMLF facility to boost liquidity in money markets

FX: Moves are getting disorderly in foreign exchange markets, with an overnight range of over 5% in AUDUSD and NZDUSD and nearly 10% in EURNOK as liquidity is very poor.


What we are watching next?

USDCNH – enormous pressure now on the Chinese renminbi to weaken as the authorities have yet to get ahead of global USD funding issues and the income from exports for China are in collapse at the moment.

Yield curve control? – authorities may not mind some steepness in the yield curve, but the moves in the very long treasuries in the US

Shock and awe fiscal – real cash drops and guarantees to economic actors are needed to limit the damage to what will be some of the most shocking GDP readings in history.

US initial jobless claims – today likely to be first day that shows a spike in claims from the virus impact and this could rocket higher at unprecedented speed in coming weeks.

XAUXAG – Silver selling has slowed after collapsing by almost 30% during the past week. A sharp drop in open interest on COMEX futures to a four-year low could be an early indication that the market is now looking for the next direction. The gold-silver ratio at 124 (ounces of silver to one ounce of gold) is now trading 37% above its five-year average


Calendar (times GMT)

  • 0830 – SNB Meeting
  • 0900 – Germany Mar. IFO Survey
  • 1230 – US Weekly Initial Jobless Claims
  • South Africa Reserve Bank Rate Announcement
  • China Rate Announcement
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.