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WHAT DO I THINK HERE? The more the governments hesitate, the more we fall. State interventions Pop vs “US, UK spread/fear increases” bigger fade continues to be the balance.

Written on March 10, 2020 by ozan

WHAT DO I THINK HERE? The more the governments hesitate, the more we fall. State interventions Pop vs “US, UK spread/fear increases” bigger fade continues to be the balance.

Overnight, we got the “states’ fiscal help” coming rally, I had smelled.

But I am afraid, as more in US, UK, big Western countries work from home, growth/liquidity concerns increase; drops can still become deeper.

Some want to ride these pops. But others are also worried that Xmas 2018’s 2318 like levels can be revisited.

Last week, I wanted & predicted TLTRO (besides inevitable cut) from Madame Scarf. For many players now, this may not be enough without sovereign buying etc.

Until last weekend, this was a Corona-led confidence crisis etc.

When the whole of Italy goes into lockdown AND when MBS (Putin) what they did; DM Credit/HY and Europe/Italy come right to the center of it.

Besides my still on Macro Dinner, Thursday may be a make or break moment for Lagarde and Italy and.

Bigly is putting the pressure big time on Wobbly; but his delivery of the package and coordination overall are very important.

“Our pathetic, slow moving Federal Reserve, headed by Jay Powell, who raised rates too fast and lowered too late, should get our Fed Rate down to the levels of our competitor nations. They now have as much as a two point advantage, with even bigger currency help. Also, stimulate!

States were very late yesterday. They are showing more life today. “Secretary Mnuchin indicates they’re working on a range of tools

-Will focus on helping small businesses
-Helping workers who’ve been quarantined
-Looking at offering tax relief to companies and individuals
-Looking at working with companies who need liquidity” (Bloomberg TV).

Also some coordination hopes from Europe? “I’d be surprised if we get something into terms of coordinated economic policy just yet. This meeting will probably be preparatory on that front, with the real focus on the Eurogroup and ECOFIN meetings next Monday/Tuesday. But it’s possible we get signals or decisions from the Council on willingness to implement broader/cross-country containment measures (travel, etc). Lagarde is participating in the video call — taking time out of the ECB Governing Council meeting to do so. Given the main GC discussion won’t be happening until tomorrow and Lagarde’s preference not to pre-empt Council decisions, I’d be surprised if we get a pre-announcement of the monetary policy decisions this soon” (Mark Wall).

After the biggest fall since 1991 on Oil, there’s a bounce hope today. Hsueh thinks that rallies should be sold: “First, on oil, it is rallying with everything today but we would sell any rallies given this news… SAUDI ARAMCO TO SUPPLY 12.3M BARRELS A DAY OF OIL IN APRIL this compares against 9.7 mmb/d in February, and would exceed previous record production of 11.1 mmb/d. This likely includes some withdrawal from inventory as underlying physical rate of production is boosted
From our Oil Bear Michael Hsueh, FX Commodity Strategist…This News overnight in crude is again worse than we thought possible - and suggests a sell-rallies approach will serve well. The uptick in crude may be associated with an overall risk rally, but is not backed up by any of the newsflow. Saudi Arabia is promising to exceed record production levels, +2.6 mmb/d from February level (much more than expected), along with smaller increases in Russia and Iraq. The only thing that could justify moving back above 40/bbl Brent is an immediate resumption of talks - waiting until 9 June (next scheduled meeting) is obviously not going to cut it.

And our Tim Baker in FX also throwing cold water on rally as he notes… “Personally sceptical on this move higher being sustained, until some improvement is seen in at least a couple of these areas: (1) credit markets – spreads still concerning, (2) a slowdown in new virus cases outside China – they’ve been very high the past 3 days, (3) a more concerted policy response, (4) more valuation support – equities PE ratio has dropped below average per yesterday’s FX Daily, but that’s not a big cushion yet. SPX likely to be 16% down from trough today based on e-minis – at low end of Binky’s 15-20% range, and that range pre-dates the oil price war
And on Credit markets…Some context on the extent of the damage in US HY yesterday from Craig Nicol…. Spreads on the overall index were 104bps wider which was the third biggest single-day widening ever. The two days that eclipsed this also happened when starting spreads were a lot higher than they are today. The current spread on the index is 668bps. For reference, at the wides in 2016 the index got to 887bps. We were as tight as 338bps back in mid-January.
HY energy spreads were 333bps wider yesterday, the second worst day for the sector ever and worse than any of the days during the commodity selloff 5 years ago. Energy sector spreads are now 1,432bps. The peak 5 years ago was 1,984bps.” (Tx to Ben Fisher, too)

STOXX EUROPE 600 ERASES GAINS OF AS MUCH AS 4.1%. Market hopes/recovery on fiscal headlines are reminiscent of the squeezes we were getting on vaccine headlines. slow states.. much faster panic/fear/ this cancellation, that cancellation in us & uk.

Meanwhile, in Asia: “1. The Covid-19 epidemic curve has flattened out significantly in China, unlike in rest of the world where even the second derivative is not yet in check. Onshore activity levels in China are slowly but steadily improving, as suggested by a lot of high frequency indicators, including commodity imports.

2. The Chinese authorities continue to prioritise containment over stimulus, and relying mostly on targeted measures. To be sure, at some stage, they will likely go all hands in on policy (particularly now that the outbreak is also a large export demand shock). But its unclear if FX weakening will be part of that policy toolkit. Historically, PBoC has preferred FX stability in periods of stress on global growth.

3. RMB is one of the very few currencies which has not historically weakened in a weakening growth/weakening oil environment. Given that the oil shock this time adds to the case for a weaker DXY; G3 currencies make up 50% of the weight in the RMB CFETS basket; and the basket is 5%+ away from its 2018 highs – there is more reason for RMB to hold its beta to a weaker dollar.” (Sameer Goel)

We saw numbers like 2700 SPX, 0.30% TY, 0.70% US 30 year, yesterday. We are living through history.

My feeling is we will try to rally on all stimulus, rate cut etc announcements.

But quarantines, fear in streets & kitchen tables can make sell offs deeper.

Liquidity, importance of ETFs since 2008 all under focus. This is not over by any means.

At least, we have CL we can still focus on; let’s see if Mourinho can pull an escape. Shoulder to shoulder w/ the deserving time!

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