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WHAT DO I THINK HERE? Humility & Safety Time! Low/Turn Blah! “London shutdown.. NYC shutdown.. Perhaps real market shutdown.” What the Real Pulse in the market is, beyond corporate talk & TVs and…

Written on March 16, 2020 by ozan

WHAT DO I THINK HERE? Humility & Safety Time! Low/Turn Blah! “London shutdown.. NYC shutdown.. Perhaps real market shutdown.” What the Real Pulse in the market is, beyond corporate talk & TVs and…

This is not an encouraging start at markets.

Everybody waking up are thinking of their parents, children & where/whether to work.. Hence all Booms last night when Fed/all CBs gave even more sugar went futile

I still sadly predict London & NYC shutdowns soon. I do not agree with “herd immunity” approach here.

Wish more Western leaders could talk like Merkel did last night.

Fed gives trillions!!! And Euro trades at 1.1165!! .. rates go from 0.61% to 0.75%

In my mind, this shows we fear credit, private credit, shadow banking events. And we should!

In 08, we feared banks etc.

Now we fear for corporates, sectors, our family restaurant.. our parents ..

Very different

Mkt liquidity a huge issue

ECB should support govt bonds soon.. Fed, Powell said “they are trying their best” to make USA Treasury mkt function

Read that again if you wish

Many clients/frds still wonder if markets will be shut soon too. What happens to repo, then, for example.

100 cut “doesn’t save” EM.. TRY at 6.40

Oil & gold both suffer.

Of course, this is a heath crisis foremost. Life & death. But that has triggered a financial crisis indeed, too

You can always play Polyanna, too!

Be safe! 🧿😷🙏🏻☕

When many key names in market fear “market shutdown,” let’s first hear Azeem: “Equity Futures
VG -12.32% from the US close on Friday. ES are in -5% limit down and SPY indicates that if we stay here the ES will hit the -7% limit down on the cash open and will go straight into auction again for 15mins with -13% limit. Lastly if the cash (and futures) move surpasses this CME will move the limit down to 20%. The the CME will follow the same rules as the cash. Post -20% the market may be closed – but again, dependent on whether the cash S&P closes.”

This is the way a client/friend put it to me on Friday: “Great read of the market buddy… While everyone has been looking for a sustainable bounce, you stuck to your guns on what is required to sustain such an event… We started to see it in Europe, but US?? ”

This is what I mean by humility, for example: Useless target settings! American bank: “We will bottom at 2000. Bloomberg TV” Why? Do u make vaccines too?

Bit quiet needed especially from past hurrah hurrah wrestlers.. 4% growth and TY crowd.

Fed has thrown everythinggg, trillions at the King Kong. But dollar is still not soft. Because we fear corporate credit crisis to be next and we should.

Rana T wrote a good article on it on today’s FT.

We should be very concerned about Market Liquidity here.

Hear my Alok Modi, head of EGBs trading: “people talking a lot about fundamentals and risk on/risk off. I get it but one of the biggest issues at the moment is liquidity.

Egb/EUR/USD rates markets are traditionally some of the deepest and liquid markets in the world but end of last week was as illiquid/uncertain as I have ever seen it.

Inter dealer quoting screens went blank on Friday and btp future, as an example, barely had any liquidity.

For me, this is of greatest concern and can cause its own risk off, regardless of fundamentals or wider risk environment.

If people feel they won’t have access to liquidity to exit positions, they tend to expedite their position culling but this then causes a negative spiral in and of itself.

Friday felt like half the market makers were either not at work or not in a position to make a price..”

Our Jim Reid has got more bearish on DM Credit & that’s been my call for a while: “This morning we’ve increased our US and EUR credit spread targets further. We’ve nearly hit our previously bearish US HY target of just under +750bps and now target +1000bps. This is discussed below but we’ll have a new note out this morning alongside increased IG targets. ***

What a weekend in terms of news-flow as more and more evidence mounted that the global economy is about to go into an unprecedented hibernation. Then just as I was going to bed last night the Fed cut rates 100bps to near zero and announced that it was going to increase their bond purchases by “at least” $700billion split $500bn Treasuries and $200bn MBS. The forward guidance is that they will keep them here until “confident that the economy has weathered recent events and is on track to achieve maximum employment and price stability”. The Fed also announced it was reducing reserve requirements for banks to zero as well as letting banks borrow at the discount window for up to 90 days. In a coordinated move with other central banks, the Fed lowered the rate on USD liquidity swap arrangement by 25 bps.”

My Yared & team turn about a turn? Perhaps a turn towards zero?? “Francis Yared notes that higher Treasury yields, term premium, and risk asset valuations remain fragile because the sell-off was completely driven by increases in real yields. The sharp retracement of broad dollar weakness was fueled in part by higher real yields on the margin. The decline in breakevens can become circular via the currency channel, as the stronger dollar increases downward pressure on commodity prices. While the dislocation of the term premium relative to model values is historically extraordinary, with the Fed priced to cut to zero and little prospect the Fed will “take back” eases as the virus shock dissipates, the slope of the curve will largely be driven by the direction of yields in the longer sectors of the curve. Francis suspects that the term premium dislocation will ultimately be resolved by lower implied volatility. That is, to the extent that the policy response stabilizes risk assets, implied volatility should decline, which would push the model value lower toward market levels. While policymakers’ rapid acknowledgement of the need for fiscal stimulus has been a positive surprise, thus far measures under discussion are insufficient to offset the likely magnitude of the COVID-19 shock. There is lingering risk of a “TARP moment”. While Francis suspect that the cyclical lows for yields have been established, the key to a viable increase in yields is an increase in breakevens, and absent that he sees the potential for yields to revisit the lows.”

I politely continue NOT to agree w/ my Aga on cyclical low in yields. We can go zero & negative everywhere, including USA!

What can be a Circuit Breaker? You must have heard me loud & clear, but here from our Ruskin, too: “He argues a real ‘circuit breaker’ likely to come from

China showing that it has the virus sufficiently under control and that it can quickly reactivate its manufacturing colossus
G10 countries showing they can replicate China’s virus infection rate inflection points, as the second derivative of new infections turns negative.
The market reaction to the Fed’s latest emergency easing, and, Pelosi’s fiscal proposal, provides scant evidence that US policy actions will act as a ‘circuit breaker’. Instead it is better virus statistics that will take on that circuit breaker role, and two statistics in particular matter most: i) Can China show that it has the virus sufficiently under control that it can quickly reactivate its manufacturing colossus (stage 17 below); and, ii) Can G10 countries show they can replicate China’s virus infection rate inflection points, as the second derivative of new infections turns negative (stage 18). Even if Q2 includes the worst 2 or 3 months of global real economy data in modern history, this can be ignored, if and only if the above two conditions on virus stats are fulfilled. The alternative is Stage 19 below, where the extended period of disruption makes it progressively more difficult for the authorities to credibly provide ‘life support’ for corporations that have been rendered unprofitable because of the virus, and the negative feedback loops become even more pronounced. Global asset markets are more realistically priced, but are still erring on the side of attaching a higher probability to a ‘best case’ virus scenario.”
Even at the headline of 100 bps cut, I was skeptical of BOOOOMs flying around, in my style. Sadly vindicated.
White House considers restaurant & bar closures. London school runs were full of “rightly nervous” parents. Boris & Cummings still don’t close schools. Mnuchin & Kudlow still push away “China tariff reduction” fearing their Boss.
I can write “human spirit messages” more authentically than most, but this is not Polyanna time.
So far real life worries have destroyed the sugar booom cliche
This is very different, my friends.
Shutdown .. parents lives. Real life.
We are at work. Mind at parents & children.
BOOOM sugar, even this now everybody’s memorization will not help human fear, also their jobs and livelihoods.
Cnbc joe on live TV to Navarro: “You won’t halt markets right?? We are capitalists” blah..
One of the oldest Rules in Market: If a question is asked, it’s out there..
Shutdowns needed more than financial targets & circuit breaker jargon.
The rest is shaving.
Be safe. Take care of your families.

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