Sunday 15 March 2020

Week to Mar 14th

Coronavirus still dominates, Biden recovers his lead, Black Thursday, biggest loss since 1987

In a week where again, the only driver was COVID-19, the sell-off reached brutal proportions, with many records broken. Other news hardly registered as markets gyrated wildly. The key events were an initially bungled response from President Trump which caused the fourth largest one-day market drop ever on Thursday (beaten only by 1929 and 1987), followed by the 10th largest recovery as he improved matters on Friday by declaring a state of emergency and $50bn spending package.

Next week should be more of the same, and there is no way of knowing whether the bottom is in. We are now in the fastest and most violent technical bear market of all time. For what it’s worth, next week’s Fed rate decision on Wednesday has an unprecedented expectation of a further 100bp cut (68%) to 0.25% or at least 75bp (32%) to 0.50%. Amazing to think that only one month ago 2.25% was 84% priced in for Mar 18th. Given that the emergency 50bp cut had no positive effect on the market, at least we can assume that if the Fed does not make this enormous further cut, it may not have a negative effect.

Mon Mar 09
COVID-19 panic gripped the markets again, and markets suffered their worst one-day fall since December 2008, with SPX down 7.6%. This was exacerbated by Saudi Arabia’s decision to reject cuts and increase oil output. Oil fell 25%, its worst day in 29 years. Against all this currencies behaved as you would expect, commodity currencies AUD and CAD fell, and JPY, along with Gold and Bonds rose. The name ‘Black Monday (2020)’ was given to the day, although as we will see, that didn’t last long.

Tuesday March 10
President Trump floated the idea of a zero payroll tax (employer’s contribution) for the rest of 2020, and Joe Biden comfortably won the six mini Super Tuesday states today. What would in formal circumstance be seen as a blowout day (stocks up around 5%, the 13th best day this century) was really only a correction from yesterday’s lows, such is the volatility of this market. Everything else reversed as well, Oil jumped over 11% (its second best day of the century), and Gold, Bonds and JPY were sharply down. Otherwise it was a dollar clean sweep as all other currencies fell.

Wednesday March 11
The US inflation beat was ignored as investor panicked again as coronavirus infection numbers grow and there does not appear to be any governmental response. Markets gave up Tuesday’s gains. To put this in perspective, the 5.86% drop in DJIA was the 8th worst day this century (Monday was the 3rd worst). Oil was relatively stable, only dropping 4.14%. The dollar was up across the board with only JPY beating it, of course. Oddly Gold and Bonds did not follow suit, in fact Gold dropped 4% to a 2020 low, its worst day since June 2013, and presumably an oversold reaction as there was no specific gold-related news.

Thursday March 12
Today now has a Wikipedia page, Black Thursday. Following a lacklustre Trump speech about plans to combat coronavirus, the Dow fell a whisker short of 10%, and all indices had the worst day this century (the worst since 9/11 for DAX). Airlines fell 20%, cruise lines fell 30%. Prices in many cases fell below even the December 2018 lows. Oil fell 5.76% from of course a much lower base. Oddly, once again, Gold fell sharply, although bonds and JPY rose. USD had a good day, up across the board. GBP fell 0.7% as investors worried about the cost of Wednesday’s “giveaway” budget from new Chancellor (Finance Minister) Sunak. The Euro fell after the dovish ECB increased bond purchases (QE). AUD and NZD were sharply down on virus-linked trade fears, the former posting its worst day for 10 years.

Friday March 13
On Friday, President Trump got serious and declared a state of emergency, and promised that 1.4 million coronavirus test kits (the experts preferred method of containing the pandemic) would be available, 50,000 within a week. Stocks bounced back, adding 9.2%, their best day since 2008, and Oil added 6.42%. This still left SPX nearly 9% down on the violent week. Gold and AUD fell again heavily, as you would expect and JPY had its worst day since April 2013, and fourth worst of the century. AUDUSD posted its lowest closing price for nearly 17 years. Only CAD managed to outperform the dollar, in line with the Oil move. Bonds were also down in line.

The top forex trade was to sell AUDUSD, down an amazing 7.06%. Our own trade selling GBPAUD was a loser, as the pair was up 1.15%. We correctly predicted the decline in GBP but could not foresee the even greater collapse of AUD, so our hit rate is four out of six 66%, with net gains of 6.37%. Technicals suggest every currency should recover against USD, but I will play safe and short USDJPY, a proxy for another downturn in the market.

The worst equity market was DAX, down 20% because it closed too early to benefit from a huge closing surge in US markets. Cryptos had a terrible week, down around 40%, and FANG shares generally did worse than NDX as a whole.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

  • Fed meeting may cut rates further
  • Coronavirus dominates everything
  • Largest crash since 2008
  • Generally light US news week

IG Weekend Prices 1840GMT Sun Mar 15
Monday March 16
In the absence of scheduled news, expect everything to be driven by coronavirus updates. Weekend markets run by UK broker IG already point to futures opening 4% down, erasing the late Friday rally, in a similar vein to the weekend of Feb 29/Mar 1. Markets are closed in Mexico today.

23:50 JPY Japan Machinery Orders (Sunday)
02:00 CNY China Industrial Production/Retail Sales
02:30 CNY China NBS Press Conference (time approx.)

Tuesday March 17
The Retail Sales report for February will reflect some degree of confidence, as will the German ZEW survey, the estimate for which is hugely down. Markets are closed in Ireland for St Patricks Day.

00:30 AUD RBA Meeting Minutes
04:30 JPY Japan Industrial Production
09:30 GBP UnEmp/AHE (UnEmp e3.8% p3.8%)
10:00 EUR Germany ZEW Economic Sentiment (e-23.4 p8.7)
12:30 USD US Retail Sales (MoM p0.0%) 
13:15 USD US Industrial Production
14:30 NZD NZ GDT Milk Index (time approx.)
23:00 AUD RBA Ellis speech
23:30 AUD Aus Westpac Leading Index
23:50 JPY Japan Imports/Exports/TB

Wednesday March 18
All eyes are on the Fed today. After the 50bp emergency cut two weeks ago, the CME FedWatch tool is pricing in an unprecedented 100bp (1%) cut. to 0.75%. Amazing that only a month ago, this meeting had 2.25% priced in. There is also a rate decision in Brazil.

10:00 EUR Eurozone CPI
12:30 USD US Building Permits/Housing Starts
12:30 CAD Canada CPI (BoC Core YoY e1.7% p1.8%)
18:00 USD Fed Rate Decision/Statement
18:30 USD FOMC Press Conference
21:45 NZD NZ 19Q4 GDP (e0.5% p0.7%)
23:30 JPY Japan National CPI

Thursday March 19
Markets will no doubt continue to react to the Fed today. It will be interesting to see what Japan and Switzerland do. They already have negative base rates, and we saw how the Eurozone did not cut last week. There are also rate decisions in Norway, Turkey, and South Africa

00:30 AUD Australia NFP/UnEmp (NFP e11.6k p13.5k)
03:00 JPY Japan Rate Decision/Statement (e-0.1% hold)
04:30 JPY Japan All Industry Activity Index
06:00 JPY Japan BoJ Press Conference
08:30 CHF SNB Rate Decision/Statement (p-0.75%)
12:30 USD Philly Fed Manuf Survey
12:30 USD US Jobless Claims

Friday March 20
A light day on news, so once again, coronavirus should dominate. As well as the Chinese rate decision, which may give an indication of how bad the PBoC thinks things are, there is also a rate decision in Russia. Today is also quarterly OpEx day where, for example, many index options will expire, so expect volatility. Markets are closed in South Africa.

01:30 CNY PBoC Rate Decision/Statement (p 4.05%)
07:00 EUR Germany PPI
12:30 CAD Canada Retail Sales (e0.3% p0.0%)
14:00 USD US Existing Home Sales

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