As the fight against the coronavirus crisis continues, the markets remain in turmoil.
Let’s look at what’s happened:
- ECB announcement: At 11pm, ECB President Lagarde announced that a EURO750 billions Pandemic Emergency Purchase Programme, not very dissimilar from the 2012 ‘whatever it takes’ bazooka. This means buying or around 60 billion a month government and corporate debt in the market.
- RBA cuts rates to 0.25%. At the same time, Australian treasurer launches a 15$ Billion programme in support of SME.
- FED sets up the Money Market Fund Liquidity Facility (MMLF) (at 11pm, once again, who’s working there?). This will provide liquidity to b institutions backed by securities purchased in MM (Deposit, CD). Trust among them is clearly getting smashed, and this is a very bad sign.
USD have been the absolute protagonist, rising almost 7% during the last 2 weeks (after having been a laggard just before) to new three-year highs. It’s honestly unclear to me if this is a safe-haven trade toward the biggest liquidity reserve of the world (USD), the total disruption of correlations in markets (that is happening), or if this is due to a shortage in USD liquidity.
Currencies like AUD and GBP have been absolutely smashed, -3.31% and -4.19% respectively against the USD. The NOK, a currency that has been weakening for months but is still of a stable country like Norway, has been reduced to dust and depreciated a whopping 6.62% (will come back to this later: Norway manages the biggest Sovereign fund of the world, mainly invested in oil).
Eventually, the reinforced SWAP LINES agreed among central banks some days ago are causing a huge demand for USD through its derivative.
OIL down 24% to 20$ a barrel. Hygienic paper is more expensive now. Saudi Arabia is comfortable with that and ARAMCO is going on producing its 12 million barrels a day.
There will be a big wave of bankruptcy, especially in the American shale oil industry. Eventually, the weakness in NOK could be tied to the exposure to Brent, Crude through their Sovereign Fund.
I’ll just focus on SP500, that is the world benchmark for risk. Below, is its 30-minute chart for last week.
Despite the huge volatility, limit up and down, it’s trying to build a floor around 2382 (just where it’s trading now).
Yesterday it briefly lost it to go check 2280 before rebounding. (ok 100 points are a 4%, but these days that’s nuts).
The bear market is characterized by huge short-covering rallies (all the shorts in the market get out and squeeze the price) and maybe we are not far away from one of them.
By: Marco Turatti