Monday 30 March 2020

Week to Mar 27th

No slowdown in Coronavirus, Worst week for USD since 1985, best for Dow since 1938

In a week where coronavirus cases more than doubled globally, and US Jobless claims were six times higher than any previous high, the Fed passed the largest relief package in US history, and markets had their best week since 1933. Volatility, although reducing, was still rampant, and we started to see huge variations in individual stocks as traders started to evaluate which companies are the relative winners and losers in this unprecedented crisis which has put a quarter of the world’s citizens in lockdown. 

After the last two weeks’ huge moves down, Oil had a very stable inside week on low volume trading, which led to huge rebounds in oil-consumer stocks such as airlines, which had fallen much more than that the 35% SPX crash. A side-effect of the crisis has been a huge run on physical gold, although not the paper contracts, leading to a massive cash-futures divergence ($60 on Tuesday), although this seems to be rectifying itself.

Meanwhile, as the US passed 100,000 cases, the largest number of any country, the effect was seen on the dollar, which has so far been immune. DXY fell nearly 5%, its worst week since 1985.

Next week is still expected to be more of the same, as the focus on the pandemic moves from Europe to the US, which now has the largest number of cases, although the former is earlier in the curve, and traders will also be looking to see if infections are slowing down. Also expect more profit warnings (‘revised’ guidance) from companies ahead of earnings season which starts in two weeks. It is unlikely that there will be any more fiscal stimulus, it really is a matter now of slowing down the disease.

Also of course, we enter a new month which means a very important NFP print. Jobs and unemployment will be bad, it’s just a matter of how bad. Also there are key PMI prints from both the US and China, which will be interesting to contrast.

I will be doing a blog special on whether you can correlate the market moves to the coronavirus case numbers.

Mon Mar 23
After a gap down, markets climbed up but failed to close green, as the coronavirus support bill failed to pass in Congress, outweighing the open-ended QE announced by the Fed. There were wide variations in stocks, with Dow components BA up 11% whereas UTX was down 9%. Currency volatility varied with GBP and CAD down but other currencies up. Gold was up hugely as there was a panic run on the physical metal. Oil and yields were down in line with the market

Tuesday March 24
Today Nancy Pelosi put her support behind the coronavirus support bill, more or less ensuring its passage through the Democrat House. Markets leapt and the Dow had its best day since 1933, adding 11.37%. Other world markets soared in line. CVX added 23%. DAL added 21% on hopes of an airline bailout. The dollar was down across the board (except for JPY which inevitably fell on such amazing risk-on) on the fiscal easing. Oil and yields were down on this Turnaround Tuesday of Tuesdays.

Meantime, this was too late for an unusual physical run on gold, where bullion dealers reported being out of stock. This had the effect of creating a highly unusual but temporary $60 differential between the cash and futures price of the metal, as shown in this chart here. The last time this happened was in 2008, immediately preceding a further drop.

Wednesday March 25
he Senate agreed to pass the support bill today, and stocks continued to advance, although they came off at the end when Bernie Sanders said he would try and block the bill describing it as “$500Bn of corporate welfare”. Indices varied as a 24% rise in BA contrasted to a losses in FANG. The dollar fell again (except against coronavirus-sensitive AUD and NZD), and Gold was down and Oil up in line. Bonds were flat on the day.

Thursday March 26
Another day of contrasts. US new Jobless Claims came in at 3.2 million, the highest figure in history, fifteen times last week’s figure and six times as high as the previous record in 1985. Normally this would be a disaster, but the estimate was 3 million, and more to the point, the Senate passed the support bill. Stocks had another bumper day, with SPX up 6.24% and similar gains around the world. BA rose again, now up 91.7% (nearly double) on last Friday’s close, an unprecedented gain for a mega-cap.

US fell for a fourth straight day, on course for its worst week since 2008. Gold was done in line, although Oil faltered, dropping nearly 5%. Also bonds were slightly up despite the risk-on mood, but in line with the Jobless report.

Friday March 27
The rally collapsed today, with DJIA giving up 4%, but still closing its best week since 1938. Of course after the previous few weeks, sharp rebounds are the norm, but this correction/crash has broken many records. The trigger was probably sentiment as the US overtook Italy to have the most coronavirus cases in the world, as the Michigan CSI was nearly at estimate. As expected a lot of the move came towards the end. The dollar had a further down day as expected. Oil and yields were down in line, the latter a massive 7.45%. Gold was nearly flat, down 0.65%.

The top forex trade was to buy GBPUSD, up 6.91%. The top index trade was DJIA, up an amazing 12.84%. Crypto languished near flat, with DJIA six times as volatile as Bitcoin! FANGs all had a good week with AAPL showing the best performance.

Our trade last week to buy AUDNZD wasn’t great, up 0.34%, when there were so many bigger gains. Our eight-week total is running at 3.9%, and our score is now 50% of trades. My cross call this week is to buy EURCAD. I think continuing dollar weakness will benefit EUR, especially as the virus has ‘moved’ from Europe to the US, whereas CAD is dragged down by both weak oil, and proximity to the US. I’d also sell SPX and Oil, to be honest.

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)

  • More coronavirus
  • Jobs reports
  • DST alignment
  • End of quarter

Monday March 30
Daylight Saving Time in Europe starts, and so US and European/UK markets are once again aligned. Coronavirus still dominates, as traders start to grapple with the winners and losers, and look to estimate when the economic shutdown might end.

09:00 EUR Eurozone Business Climate
12:00 EUR Germany CPI (YoY e1.4% p1.7%)
14:00 USD US Pending Home Sales
14:30 USD Dallas Fed Manuf Business Index
23:30 JPY Jobs/Unemployment
23:50 JPY Retail Sales/Industrial Production

Tuesday March 31
Focus turns to Europe today, with the UK final GDP and Germany unemployment. The modest downward estimate may well be revised nearer the time. The last day of the month and quarter and the final tax month in the UK may give rise to additional volatility.

01:00 CNY China PMIs
06:00 GBP UK 19Q4 Final GDP (e0.0% p0.0%)
07:55 EUR Germany Unemployment Rate/Change (UnEmp e5.1% p5.0%)
09:00 EUR Eurozone CPI (Core YoY e1.1% p1.2%)
12:30 CAD Canada GDP
13:00 USD US S&P/Case-Shiller Home Price Indices
13:45 USD Chicago PMI
14:00 USD US Consumer Confidence
Wednesday April 1
The first day of a new month sometimes brings a change in sentiment. Today there will more than usual focus on the ADP jobs figure, being a preview of Friday’s NFP.

01:45 CNY China Caixin Manufacturing PMI (e45.8 p40.3)
06:00 EUR Germany Retail Sales
07:55 EUR Germany Markit Manuf PMI
08:30 GBP UK Markit Manuf PMI
09:00 EUR Eurozone Unemployment Rate (Feb)
12:15 USD US ADP Employment Change (Mar) (e-150k p183k)
13:30 CAD Canada Markit Manuf PMI
13:45 USD Markit Manufacturing PMI (Mar)
14:00 USD US ISM Manuf PMI (e44.3 p50.1)
14:30 WTI EIA Oil Stocks

Thursday April 2
After last week’s record figure, focus will be on the Jobless claims figure. This is new claims each week. The estimate is as bad as last week, and these are additional jobs lost.

12:30 USD US Trade Balance (Feb)
12:30 USD US Initial Jobless Claims (e3000k p3283k)
12:30 CAD Canada International Merchandise Trade (Feb)
14:00 USD US Factory Orders (MoM) (Feb)

Friday April 3
The first NFP of the ‘coronavirus era’ will be very telling, even with such a low estimate. Note the services PMI estimate is still very optimistic, this may change.

00:30 AUD Aus Retail Sales
01:45 CNY China Caixin Services PMI
07:55 EUR Germany Markit Composite PMI
08:00 EUR Eurozone Markit Composite PMI
08:30 GBP UK Markit Services PMI
09:00 EUR Eurozone Retail Sales (YoY) (Feb)
12:30 USD US NFP/AHE/UnEmp (e-123k p273k)
13:45 USD US Markit Services/Composite PMI
14:00 USD US ISM Non-Manufacturing PMI (Mar) (e55.1 p57.3)

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