Markets Nowadays: an additional black day

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In spite of intense measures by the Fed yesterday and the return of QE, markets have been far from impressed.

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Today’s podcast

Overview: Tumbling dice

  • Threat assets stay below stress in spite of Fed and other CB measures
  • Nations take far more radical methods to combat COVID-19 outbreak
  • Equity rout continues. VIX spikes above 75
  • Brent oil trades sub $30, gold and copper fall more than four%
  • UST yield regain some of their post Fed losses. 10y Note at .74%
  • USD recovers from its post Fed decline.  JPY and CHF show their protected haven attributes
  • AUD falls by far more than NZD. AUD/NZD comes close to testing parity
  • All eyes on NZ fiscal response nowadays

 

Child, I cannot remain, you got to roll me

And contact me the tumblin’ dice – Rolling Dice

 

Drastic measures by the Fed and other Central Banks have failed to appease markets with investors nevertheless operating towards the exit door of danger assets as governments step up their radical measures to include the COVID-19 outbreak. The VIX equity volatility index is back above 75 as equities tumble across the globe. Brent oil trades sub $30 and even gold had a terrible day falling more than four%. UST yields recover some of their post Fed losses assisting the USD along the way. JPY and CHF show their protected haven attributes and AUD falls by far more than NZD with the cross coming close to testing parity.

Yesterday’s drastic stimulatory measures by the Fed (100bps reduce to the Funds price to .25% plus QE), RBNZ ( RBNZ cutting OCR 75bps to .25% and hinting at QE as subsequent step) and the  BoJ  increase in ETFS and REITS plus % loans to banks and CP/Corp QE) failed to present a circuit breaker for the equity rout as investors boost their adverse financial assessment from the COVID-19 outbreak and containment measures.

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Following yesterday’s Fed announcement

S&ampP500 futures hit their circuit breaker immediately after falling close to five%. European equity indices had an additional day of sharp declines with the Stoxx 600 Europe Index closing down four.9%, immediately after tumbling as a great deal as 10% to its lowest considering the fact that November 2012. Now as I variety the S&ampP500 is down ~10% and the NASDAQ is close to -11%. Barring Customer staples (-six,eight%) all other 11 sectors in the S&ampP 500 index are down far more than 10% and the VIX volatility Index is back at intense levels observed in the course of the GFC, above 75. The message from markets is that as a great deal as monetary stimulus is a welcome move, lowering the price tag of borrowing and growing liquidity are not adequate. The necessary COVID-19 measures are hampering the worldwide economy and with activity grinding to a halt, governments require to step in and present help. Markets are crying out for far more fiscal backing.

The Fed announcement triggered a large rally in UST at the Tokyo open. The 2y note traded to a low of  0.2617% and the 10y Note fell to .62%, these moves even so proved quick lived with yields climbing larger more than the course of the evening. The two year trades now at .37% though the 10y tenor is at .7387%. European bond yields also traded larger, 10y Bunds climbed 4bps to -.55% and vulnerable peripheral bonds have been smashed (Italy 10y +38bps).  Meanwhile, breakeven inflation prices, derived from inflation-linked bonds have plummeted,   the US 10-year breakeven price fell an additional 20bps overnight to just .7% though the equivalent measure in Australia fell to under .six%.

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Moving on to currencies

The move larger in UST yields helped the USD recover all of its post Fed decline with the boost of USD also assisting as investors appear for the exit door and the security of USD money. Investment Fund are also facing an boost in demand for redemptions, so money is king in this instance.

JPY and CHF have shown their protected haven attributes, outperforming the USD ( USD/JPY now at @105.33 +two.18%, CHF @ .9443 +.78%). Meanwhile commodity linked currencies have underperformed not helped by broad declines in the commodity space with oil costs major the move reduce ( Brent -10.78%, WTI -9.32%). The AUD is down 1.39% to .6117 though the NZD is at .6024.

Yesterday’s BNZ 75bps reduce to the OCR pushed the  NZD briefly under 60c, but the pair has managed to outperform the AUD with the AUD/NZD cross coming to testing parity trading to an overnight low of 1.0021. The cross now trades at 1.11. In addition to the RBNZ move, yesterday, a element weighing on the cross could be the RBA announcement that it is ready to obtain ACGBs, but we will have to wait till Thursday to see regardless of whether Money Price will be reduce once again and any formal QE/YCC pronouncement. The industry is also focused on the NZ government potentially announcing  very large fiscal stimulus nowadays ( midday AEDT).

Nations are taking additional drastic measures to limit the spread of COVID-19.  New York City is closing bars, restaurants and gyms, related measures to these announced a quick though ago by Germany.  There are widespread college closures in the US.  The EU is reportedly taking into consideration banning all non-vital travel for 30 days.  UK Prime Minister Boris Johnson asked the public to stay away from all non-vital get in touch with and travelling.  On a far more optimistic note, the Lombardy governor – the area in Italy which has the highest concentration of situations – stated the development in new situations in the area was no longer exponential.

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Financial information is beginning to filter by means of, displaying the dramatic influence of the virus, and linked containment measures, on financial activity.  The Empire manufacturing index, primarily based on firms in the New York area, skilled its most significant month-to-month fall on record, to levels final observed in the course of the GFC.  In China, exactly where the outbreak originated, there have been bigger-than-anticipated falls across all activity indicators (retail sales -20.five%, industrial production -13.five%), as foreshadowed by the PMIs earlier in the month.  But larger frequency Chinese information suggests activity is selecting back up.

Coming up

  • This morning, NZ will announce its fiscal response to COVID-19,Australia gets Q4 residence costs along with RBA March Minutes and Japan releases its final industrial production reading for January. Tonight the UK gets labour industry information for January and Germany publishes the ZEW Survey for March. Retails sales (Feb) and Industrial Productions (Feb), Jolts reports (Jan), NABH Index are out in the US.

The RBA Minutes have been overtaken by current events. RBA now says it is ready to obtain government bonds, but we will have to wait till Thursday to see regardless of whether Money Price will be reduce once again and any formal QE with or devoid of Yield Curve Handle pronouncement.

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