WHAT HAPPENED YESTERDAY

As of New York Close 15 May 2020,

FX

U.S. Dollar Index, -0.06%, 100.40
USDJPY, -0.21%, $107.04
EURUSD, +0.10%, $1.0816
GBPUSD, -1.00%, $1.2106
USDCAD, +0.43%, $1.4110
AUDUSD,  -0.73%, $0.6415
NZDUSD,  -1.17%, $0.5933

STOCK INDICES

S&P500, +0.39%, 2,863.70
Dow Jones, +0.25%, 23,685.42
Nasdaq, +0.79%, 9,014.56
Nikkei Futures, +1.31%, 20,040.0

COMMODITIES

Gold Spot, +0.71%, 1,743.00
Brent Oil Spot, +4.75%, 30.88

SUMMARY:

The USD index was relatively unchanged but the USD itself made strong gains vs GBP, AUD and NZD as these currencies which have been trading weak in the last few sessions continued to sell. Gold and Silver gained 0.7% and 4.8%  respectively against the USD as hard assets continue to perform well in fiat money terms. With increasingly bad economic data, the expectations for money printing grow and that would mean more depreciation of fiat currencies against hard assets. 

U.S. Industrial production declined 11.2% m/m in April (consensus -12.1%), which was the largest monthly drop in the 101-year history of the index. The capacity utilization rate fell from 73.2% to 64.9% (consensus 64.0%), which is 14.9 percentage points below its long-run average and a record-low in a series that dates back to 1967. The University of Michigan’s Index of Consumer Sentiment rose to 73.7 in the preliminary reading for May (consensus 67.4) from 71.8 in April. Dollar has been largely range-bound with its safe-haven appeal keeping it well supported overall. Against a basket of currencies, it was last at 100.380, having drifted 0.7% higher last week. GBP touched a seven-week low at $1.2073 after the chief economist of the Bank of England said it was looking more urgently at options such as negative interest rates and buying riskier assets to prop up the economy.

Early in the U.S. session, economic data showed total retail sales declined a record 16.4% m/m in April (consensus -11.9%) and industrial production declined 11.2% m/m in April (consensus -12.1%). The market wasn’t visibly upset by the data, though, likely due to the prevailing view that it can’t get any worse. Instead, there was a negative reaction to the news that the Trump administration moved to block semiconductor shipments to China’s Huawei Technologies. With relations already strained because of the Covid-19 outbreak, the move renewed worries about potential Chinese retaliation against U.S. companies.

S&P 500 (+0.39%), Dow Jones Industrial Average (+0.25%), and Nasdaq Composite (+0.79%) ended Friday’s session modestly higher, recovering from early declines that followed more weak economic data and increased U.S.-China tensions. The Russell 2000 outperformed with a 1.6% gain after a rough week for the small-cap index. U.S. 2yr rates remained unchanged at 0.16% and U.S. 10yr rates rose 1bp to 0.64%.

Today, Japan’s economy slipped into recession for the first time in 4-1/2 years, GDP data showed this morning, putting the nation on course for its deepest postwar slump as the coronavirus crisis takes a heavy toll on businesses and consumers. GDP contracted an annualised 3.4% (vs expected -4.6%) in the first quarter as private consumption, capital expenditure and exports fell, preliminary official data showed. Analysts expect Japan’s economy to shrink an annualised 22.0% in the current quarter, which would be the biggest decline on record and underscores the collapse in activity that is expected to see the worst global slump since the Great Depression of the 1930s.

HOUSE PASSES $3 TRILLION COVID-19 AID BILL 

The U.S. House of Representatives on Friday narrowly approved a $3 trillion bill crafted by Democrats to provide more aid for battling the Covid-19 and stimulating a faltering economy rocked by the pandemic.

By a vote of 208-199 Democrats won passage of a bill that Republican leaders, who control the Senate, have vowed to block despite some Republican support for provisions aimed at helping state and local governments.

IMPACT: It directs nearly $1 trillion to state, local and tribal governments, including $500 billion in direct, flexible aid for state governments and an additional $357 billion for local governments and counties. And it adds $200 billion in pandemic hazard pay for essential workers and $75 billion for coronavirus testing, contact tracing, and treatment efforts. 

The incessant money printing might create a lot of excesses in the economy and cause inflation as too much capital is chasing lagging productivity in times ahead. Businesses are not light switches that can be turned on and off, some will be taken off the market permanently and fear might keep new entrants away. This inflationary environment is beneficial to hard assets like Gold and Silver (as we have pointed out in last week’s Trade Insights on Silver’s strong technical outlook, it has exploded +7.7% since then till current time of writing ).

FED WARNS OF ‘SIGNIFICANT’ FINANCIAL VULNERABILITIES FROM PANDEMIC

In its latest report on financial stability, the Fed said the global pandemic imposed sweeping risks. While policy actions from the Fed and others have helped bolster the economy, and the banking system has withstood the initial downturn, the report warned of major risks if the pandemic proves lengthy or more severe than anticipated.

“The COVID-19 outbreak poses severe risks to businesses of all sizes and millions of households,” the central bank said as it ran down a list of trouble spots that could arise depending on how long the virus persists and keeps the economy on its heels.

IMPACT: Governments are starting to warn about the lingering effects of the virus while a good number of market participants are calling for a “v-shaped” recovery. There is a good chance that we are near the end of the bear-market rally and a second wave of infection in the U.S. will dampen risk sentiment. Safe-Haven currencies like Japanese Yen should trade at a premium in the months ahead.

BOE LOOKING MORE URGENTLY AT NEGATIVE RATES

The Bank of England is looking more urgently at options such as negative interest rates and buying riskier assets to prop up the country’s economy to fight the coronavirus crisis, the BoE’s chief economist was quoted as saying.

The Telegraph newspaper said Andy Haldane refused to rule out the possibility of taking interest rates below zero and buying riskier assets under its bond-buying programme.

IMPACT: Top BoE officials have previously expressed objections to taking rates below zero – as the central banks of the eurozone and Japan have done – because it might hinder the ability of banks in Britain to lend and hurt rather than help the economy. But with the BoE’s benchmark at an all-time low of 0.1% and Britain facing potentially its sharpest economic downturn in decades, talk of cutting rates to below zero has resurfaced. BoE will be the latest developed world central bank to officially discuss the prospects other than the RBNZ. This will be bearish for Sterling, and given the heightened volatility in global markets and geopolitics, GBP/JPY might head much lower.  

DAY AHEAD

The coming week seems relatively quiet. The preliminary PMIs for April in the UK, US, and Eurozone will give us an update on how much businesses have suffered, while the minutes of the latest Fed meeting might reaffirm the central bank’s willingness to do even more, even as Powell hints that Congress should take the lead. Overall though, the most important variables for investors may be how quickly new virus cases increase now that economies are partially re-opening, and whether US-China tensions flare up any further.

SENTIMENT

OVERALL SENTIMENT: 

Stocks continue to trade well, but strangely risk currencies such as AUD and NZD could not rally. AUD is struggling due to the current trade tension between China and Australia and NZD is still suffering from RBNZ’s latest policy statement that it has asked banks to prepare for negative interest rates in time to come. GBP also trades extremely weak as Brexit negotiations are not making any headway and having no trade deal in the time of economic devastation is not a great place to be. Gold and Silver started to make the move against fiat currencies finally. Expect this move to be long-lasting. 

Concentrate on trades that work. Sell that which is weak and buy that which is strong.

FX

STOCK INDICES

TRADING TIP

Rise and Shine!

Gold and Silver finally woke up and are truly shining bright. Just like a broken record, we will be singing this tune for some time to come. In a world where the money presses are working overtime all around the world, fiat money will be devalued against hard assets. We spoke of the imminent Silver move late last week just before it exploded. The reasons then remain valid and will continue to drive it higher over time.

WHAT HAPPENED YESTERDAY

As of New York Close 14 May 2020,

FX

U.S. Dollar Index, +0.03%, 100.27
USDJPY, +0.30%, $107.36
EURUSD, -0.10%, $1.0806
GBPUSD, +0.02%, $1.2234
USDCAD, -0.48%, $1.4033
AUDUSD,  +0.24%, $0.6471
NZDUSD,  +0.33%, $0.6012

STOCK INDICES

S&P500, +1.15%, 2,852.50
Dow Jones, +1.62%, 23,625.34
Nasdaq, +0.91%, 8,943.72
Nikkei Futures, +0.19%, 20,153.0

COMMODITIES

Gold Spot, +0.99%, 1,732.93
Brent Oil Spot, +7.04%, 29.48

SUMMARY:

Dollar rose to a three-week high on Thursday as yet another week of roughly 3 million new jobless claims, evidence of a second wave of Covid-19-related lay-offs, became the norm. The Japanese Yen and Swiss Franc were both weaker against the Dollar and flat versus the Euro. Total jobless claims for the week ending May 9 totaled 2.981 million (consensus 2.475 million) while continuing claims for the week ending May 2 totaled 22.833 million. The elevated figures raised doubts on a timely economic recovery, but the data might have prodded lawmakers to act more quickly for additional fiscal stimulus.

Reports followed that the White House was interested in a bipartisan, fourth Covid-19 relief bill (although not the $3 trillion bill proposed by House Democrats). The possibility for more stimulus, coupled with a view that the recent weakness in the market provided a good entry point, helped ignite a buy-the-dip mindset.

S&P 500 advanced 1.2% on Thursday as stocks staged a comeback led by the beaten-up financial sector. The benchmark index was down as much as 1.9% in early action following a relatively disappointing weekly jobless claims report.

Sentiment might have also been boosted by an IEA report suggesting oil demand has been a little stronger than expected, The Wall Street Journal reporting that Taiwan Semi (TSM 52.10, +1.18, +2.3%) will announce plans to build an advanced chip factory in Arizona, and news that Connecticut overstated its weekly initial claims count by more than 200,000.

WHISTLEBLOWER WARNS OF ‘DARKEST WINTER’ IF U.S. DOESN’T PLAN AGAINST COVID-19

Hours after Trump railed against him on Twitter, whistleblower Rick Bright testified to a U.S. House of Representatives panel about readiness for the outbreak. Bright was removed last month as director of the Biomedical Advanced Research and Development Authority, or BARDA, which is responsible for developing drugs to fight the Covid-19.

“What we do must be done carefully with guidance from the best scientific minds. Our window of opportunity is closing. If we fail to improve our response now, based on science, I fear the pandemic will get worse and be prolonged,” Bright said.

IMPACT: Trump, who has been pushing for the U.S. economy to reopen quickly, dismissed Bright as a “disgruntled employee” on Twitter on Thursday morning before the hearing began. It is disturbing to see the Trump administration recklessly handling the virus situation, this is exactly the kind of hubris that will cause a second wave of infection and a protracted economic crisis in time to come. Safe Haven currencies like the Japanese Yen should trade at a premium relative to most counterparts.

UK ECONOMY FACES LONGER-TERM DAMAGE FROM COVID SHUTDOWN

Britain’s economy will suffer longer-term damage from the current Covid-19 shutdown but it remains highly uncertain how severe it will be, Bank of England Governor Andrew Bailey said on Thursday. Bailey also said in a webinar organised by the Financial Times that it was unclear whether a 30% drop in Britain’s economic output in the first half of 2020, as outlined as a possibility by the BoE last week, would prove overly pessimistic or an under-estimate of the damage.

IMPACT: Central Bankers around the world are warning of the protracted impact of the virus on the economy, whilst stocks are remaining nonchalant about it and front loading the effect of incessant money printing. As we have suggested, the chickens will eventually come home to roost and several legendary hedge fund managers have, over the past 2 weeks, warned that the end of the bear market rally is nigh.

TRUMP SAYS HE DOESN’T WANT TO TALK TO XI RIGHT NOW, COULD EVEN CUT CHINA TIES

Trump signaled a further deterioration of his relationship with China over the Covid-19, saying he has no interest in speaking to President Xi Jinping right now and going so far as to suggest he could even cut ties with the world’s second-largest economy.

In an interview with Fox Business Network broadcast on Thursday, Trump said he was very disappointed with China’s failure to contain the disease and that the pandemic had cast a pall over his January trade deal with Beijing, which he has previously hailed as a major achievement.

“They should have never let this happen,” Trump said. “So I make a great trade deal and now I say this doesn’t feel the same to me. The ink was barely dry and the plague came over. And it doesn’t feel the same to me.”

Trump was asked about a Republican senator’s suggestion that U.S. visas be denied to Chinese students applying to study in fields related to national security, such as quantum computing and artificial intelligence. “There are many things we could do. We could do things. We could cut off the whole relationship,” he replied.

IMPACT: Trump and his Republican backers have accused Beijing of failing to alert the world to the severity and scope of the Covid-19 outbreak and of withholding data about the earliest cases. The pandemic has sparked a sharp global recession and threatened Trump’s November re-election chances. Opponents of Trump have said that while China has much to answer for over the outbreak, he appears to be seeking to deflect attention from criticism over his response to the crisis. As tensions escalate, Safe Haven currencies will continue to trade well and growth currencies such as AUD will suffer. 

DAY AHEAD

Millions of Americans have been applying for unemployment benefits the past two months as the business pressure stemming from the Covid-19 crisis had led to massive layoffs, increasing concerns about how deep consumption, which accounts for two-thirds of the US economy, could crash at some point this year. US retail sales due later today are expected to reinforce those worries, reflecting the steepest monthly decline in spending. However, the data may not necessarily expose the Dollar to a notable sell-off as risk aversion is likely to take hold.

SENTIMENT

OVERALL SENTIMENT: 

The schizophrenia that has plagued risk sentiment of late remains. Almost inexplicably, weak stocks staged a comeback and ended the day on a strong note. This is despite various Fed speakers (Powell, Evans, Bullard) warning of a protracted downturn and that current data is not showing the true extent of the economic damage. Health experts, on the other hand, are warning of a worsening situation in the Covid-19 outbreak if action is not taken now and that the vaccine will take longer than the market expects (“12-18 months is an aggressive timeframe”).

The only people optimistic are politicians such as Trump and his cronies. We’ve seen this movie before. It does not end well.

FX

STOCK INDICES

TRADING TIP

All Aboard!

Gold was trading higher as stocks were down on the lows of the day, and as stocks recovered almost 3% from the lows, Gold remained close to the highs of the day. It seems that Gold has finally shook off the weak longs and looks about to take off. 

Silver was even better, it was at the highs of the day when stocks were at the lows, and it went a few percent higher as stocks went to the highs of the day!

We’ve said it once, we’ll say it again. Hard assets should and will benefit in the environment of incessant money printing. 

Enough said. Have a good weekend!

WHAT HAPPENED YESTERDAY

As of New York Close 13 May 2020,

FX

U.S. Dollar Index, +0.24%, 100.17
USDJPY, -0.20%, $106.93
EURUSD, -0.24%, $1.0821
GBPUSD, -0.18%, $1.2239
USDCAD, +0.09%, $1.4091
AUDUSD,  -0.26%, $0.6453
NZDUSD,  -1.34%, $0.5996

STOCK INDICES

S&P500, -1.75%, 2,820.00
Dow Jones, -2.17%, 23,247.97
Nasdaq, -1.55%, 8,863.17
Nikkei Futures, -0.86%, 20,115.0

COMMODITIES

Gold Spot, +0.94%, 1,718.68
Brent Oil Spot, +0.66%, 27.54

SUMMARY:

Dollar edged higher against a basket of currencies on Wednesday, after Federal Reserve Chair Jerome Powell rejected the idea of using negative interest rates as a stimulative tool, even as he sounded a gloomy note about economic growth. Traders of short-term U.S. interest-rate futures reduced bets the Fed will take the unprecedented step of pushing interest rates below zero. Yet futures contracts maturing in April 2021 and later still signalled expectations for negative rates, according to CME Group’s FedWatch tool.

S&P 500 lost 1.75% on Wednesday in a broad-based decline, as investors accounted for some cautious commentary from Fed Chair Powell. The Dow Jones Industrial Average declined 2.17%, the Nasdaq Composite declined 1.55%, and the Russell 2000 declined 3.3%. U.S. 2yr yield fell 1bp to 0.16% and U.S. 10yr yield fell 5bp to 0.64%.

In his speech prior to the open, Fed Chair Powell said the economic outlook remained highly uncertain and subject to significant downside risks, adding that recovery may take some time to gather momentum. Powell also said the Fed can do more to help the financial system but dismissed the notion of implementing negative interest rates.

Adding to U.S.-China tensions, the FBI confirmed that China-affiliated cyber actors have targeted U.S. organizations conducting Covid-19-related research. Also, a report out of China indicated that Beijing is mulling punitive countermeasures on the U.S. as a result of lawsuits that are seeking Covid-19-related damages.

Separately, valuation concerns were voiced by a couple of influential names. Legendary investor Stanley Druckenmiller said the risk-reward for equity is maybe as bad as he’s seen it in his career. Appaloosa Management’s David Tepper told CNBC that he hasn’t seen the market this overvalued since 1999.

RBNZ MONETARY DECISION

The RBNZ said it would almost double its bond-buying programme to $60 billion to help stimulate the economy as it goes through a Covid-19 driven downturn. The bank’s previous bond-buying, or quantitative easing (QE), limit had been set at $30 billion of Government bonds and $3 billion of local authority paper. As expected, the bank kept its official cash rate unchanged at 0.25 percent. 

The bank’s Monetary Policy Committee said it was prepared to use additional monetary policy tools “if and when needed”, including reducing the OCR further, adding other types of assets to the QE programme, and providing fixed-term loans to banks. It also said that it was advising financial institutions to be prepared for negative rates because although they have no plans to implement it at this time, it is an option at a later date if required. 

IMPACT: The Kiwi fell in the aftermath of RBNZ’s decision as the central bank signaled that they will do whatever it takes to support the economy. It was one of the only central banks that openly considered negative interest rates should the crisis worsen, and that is especially significant because RBNZ used to eschew QE and ultra-easy monetary policies. As geopolitical and trade tensions continue to increase, the NZD and AUD will continue to be pressured.

AS COVID-19 EBBS, EU SEEKS TO UNLOCK BORDERS FOR SUMMER

The European Union pushed on Wednesday for a safe reopening of borders, while insisting on protective measures such as masks on planes, to try and salvage the ravaged tourism sector for the lucrative summer season as Covid-19 infections recede. Though wary of new waves of COVID-19, the EU executive wants to revive what it can do for the June-August season normally worth 150 billion euros ($162.59 billion).

IMPACT: Consistent with our repeated warnings, better to face the lesser evil by being cautious now then to face a tsunami of infections should things go awry in the bid to boost the economy in the near term. Coupled with a fractured EU, the risks go beyond economic but include social and political upheaval if the crisis is not handled well. All these do not bode well for the Euro and more downward pressure is inevitable in the long run.

POWELL WARNS OF PROLONGED ECONOMIC WEAKNESS, CALLS FOR MORE FISCAL SUPPORT

Powell, in a sober review of where the U.S. economy stands on the cusp of its reopening, warned on Wednesday of an “extended period” of weak growth and stagnant incomes, pledged to use more of the central bank’s power as needed, and issued a call for additional fiscal spending.

Powell made clear, however, that the Fed won’t push interest rates below zero, as traders had been increasingly betting. Negative interest rates, he said, are “not something that we are considering.”

IMPACT: Powell became the latest in a parade of US policymakers to brush off the notion that they might push rates into negative territory after Fed Fund futures began pricing a small chance of sub-zero U.S. rates within the next year. His comments provided some support for the weak Dollar. U.S. data on weekly jobless claims due later today and a survey on U.S. manufacturing due Friday should offer more clues about the economic outlook and drive Fed Funds futures pricing for rates. 

DAY AHEAD

Germany will publish its preliminary GDP growth readings for the first quarter tomorrow. Although the Eurozone’s initial estimates have already revealed a 3.8% contraction for the aforementioned period, markets could still pay some attention to the German numbers as a concerning report out of the largest EU economy could drive Berlin’s skeptical response to the EU’s Covid-19 stimulus policies that are so desperately needed by the most-infected member states.

A worse-than-expected GDP reading out of Germany on Friday could pressure German lawmakers to relax their strict judgment on EU’s policies, keeping some floor under the battered Euro if the country indeed shows some willingness to collaborate in the near future. Otherwise, an upside surprise in the numbers may strengthen Germany’s negotiating position, prolonging its dispute with Brussels.

SENTIMENT

OVERALL SENTIMENT: 

Stocks started the early Asian hours weak but crept higher throughout the day. The rally at the start of NY session fizzled out as a reality check from Fed Chair Powell put a damper on things. Multi-billion dollar hedge fund Appaloosa’s David Tepper added his voice to the many high profile investors warning of the lofty stock prices, saying current markets are the most overvalued he’s seen since that of 1999. Reality is finally biting. 

Despite Fed Chair Powell pushing back against market pricing of negative Fed Funds rates, Gold ended close to the highs of the day. This positive price action could be a sign that the corrective phase of Gold price is almost over.

FX

STOCK INDICES

TRADING TIP

Reality Bites

For the longest time, and even now, many financial forecasters and even policymakers spoke of V-shaped recoveries and quick bounce backs in economic growth. As the economic realities set in, these hopeful delusions are being recognised for what they are. Many businesses and even industries will not only find it hard to regain past glories but may even cease to exist altogether. 

People who fear for their livelihoods do not rush out to ramp up their consumption just because there are avenues to consume again. The buoyant stock market may seem to indicate that all is going well again but it will soon prove to be an illusion as reality starts to bite.

WHAT HAPPENED YESTERDAY

As of New York Close 12 May 2020,

FX

U.S. Dollar Index, -0.21%, 100.02
USDJPY, -0.46%, $107.18
EURUSD, +0.36%, $1.0847
GBPUSD, -0.68%, $1.2253
USDCAD, +0.54%, $1.4083
AUDUSD,  -0.58%, $0.6452
NZDUSD,  -0.25%, $0.6066

STOCK INDICES

S&P500, -2.05%, 2,870.12
Dow Jones, -1.89%, 23,764.78
Nasdaq, -2.06%, 9,002.55
Nikkei Futures, -2.10%, 20,060.0

COMMODITIES

Gold Spot, +0.31%, 1,702.64
Brent Oil Spot, -1.90%, 27.36

SUMMARY:

Dollar was mixed on Tuesday, gaining against commodity currencies but lost ground against EUR and JPY as the mood turned cautious a day ahead of Federal Reserve Chairman Jerome Powell’s speech on economic issues and as investors weighed the chances of negative U.S. interest rates. Although Powell and Fed officials have all but ruled out cutting interest rates below zero, several markets have started to price in such a cut. Fed funds futures on Tuesday priced in negative interest rates of about half a basis point in April 2021.

S&P 500 fell 2.05% on Tuesday, with a bulk of losses coming in afternoon trade and into the close. The Dow Jones Industrial Average (-1.89%) and Nasdaq Composite (-2.06%) declined comparably to the benchmark index, while the Russell 2000 underperformed with a 3.5% decline. U.S. 2yr yield remained flat at 0.17% and U.S. 10yr yield fell 4bp to 0.69%.

The risk-off sentiment might have been fueled by legislation put forth by Senate Republicans to impose sanctions on China and by Los Angeles reportedly planning to extend the county’s stay-at-home order for another three months.

Bank stocks were pressured by a modest decline in Treasury yields and by Trump rehashing calls for negative interest rates. Airline stocks were pressured by Boeing (BA 125.22, -3.69, -2.9%) CEO Calhoun telling NBC’s “Today” show that a major U.S. airline could go bankrupt because of Covid-19 disruptions.

TRUMP ADMINISTRATION SEEKS TO STOP U.S. FEDERAL PENSION FUND INVESTMENT IN CHINESE STOCKS 

Trump administration is pressing a board charged with overseeing billions in federal retirement dollars to halt plans to invest in Chinese companies that Washington suspects of abusing human rights or threatening U.S. security. The issue is whether administrators of the Thrift Savings Plan (TSP), a retirement savings fund for federal employees and members of the military, should allow its international fund to track an index that includes some China-based stocks of companies under scrutiny in Washington.

IMPACT: Trump has accused Beijing of failing to alert the world to the severity and scope of the virus, which has killed over 80,0000 Americans and was first reported in the city of Wuhan, China late last year. China has denied the allegations. Expect more geopolitical volatility in the months ahead, any retaliation by China towards the U.S. and its allies will be bad for risk-currencies like the Aussie, especially since China has recently turned its sights onto Australia’s barley and meat export in light of PM Scott Morrison’s suggestion for an investigation on Covid-19.

FAUCI WARNS OF NEW OUTBREAK RISK IF U.S. STATES REOPEN TOO SOON

Fauci on Tuesday warned Congress that a premature lifting of lockdowns could lead to additional outbreaks of the deadly Covid-19, which has killed 80,000 Americans and brought the economy to its knees.

“There is a real risk that you will trigger an outbreak that you may not be able to control and, in fact paradoxically, will set you back, not only leading to some suffering and death that could be avoided but could even set you back on the road to try to get economic recovery,” Fauci said.

IMPACT: Trump, who previously made the strength of the economy central to his pitch for his November re-election, has encouraged states to reopen businesses that had been deemed non-essential amid the pandemic. His administration has largely left it to states to decide whether and how to reopen. State governors are taking varying approaches, with a growing number relaxing tough restrictions enacted to slow the outbreak, even as opinion polls show most Americans are concerned about reopening too soon. As we’ve seen with South Korea and China, a second wave of infection is a highly probable scenario even though strict measures have been taken to prevent the spread of the virus. With America’s relaxed measures, it is almost a certainty we will witness another spike in the number of cases. This will be bad for risk currencies and good for Safe Havens like the Japanese Yen. Opening states up prematurely only to have it shutdown again is amplifying the already protracted impact of the virus.

U.S. HOUSE DEMOCRATS FLOAT $3 TRILLION COVID-19 BILL

Democrats in the U.S. House of Representatives on Tuesday unveiled a $3 trillion-plus Covid-19 relief package with funding for states, businesses, food support, and families, only to see the measure flatly rejected by Senate Republicans.

The new legislation, which would more than double Congress’s financial response to the crisis, includes nearly $1 trillion in long-sought assistance for state and local governments that are bearing the brunt of a pandemic that has infected 1,359,000 in the United States and killed at least 80,600.

It also includes $75 billion for testing people for the novel coronavirus, direct payments of up to $6,000 per U.S. household, $10 billion in emergency grants for small businesses, and $25 billion for the U.S. Postal Service. The bill would also extend enhanced federal unemployment payments through next January.

The House is due to meet at 9 a.m. EDT on Friday for expected votes on the legislation and on a rules change allowing members to vote by proxy during the pandemic.

IMPACT: Republicans say they want to hold off on new coronavirus relief legislation to assess the impact of nearly $3 trillion in response assistance that Congress has allocated since early March, as states move to reopen a shuttered U.S. economy. The Fed and the U.S government has made it clear that they will backstop the American economy. Expect more incessant money printing and stimulus to be thrown at the situation as it turns south. This will be inflationary in the long run and good for Gold.

PROPOSED BILL TO SANCTION CHINA 

Sen. Lindsey Graham on Tuesday introduced legislation that would allow Trump to impose a wide range of sanctions on the Chinese government if it refuses to cooperate with an international investigation into the origins of the Covid-19.  “I’m convinced that without Chinese Communist Party deception the virus would not be here in the United States,” Graham said in a statement. “China refuses to allow the international community to go into the Wuhan lab to investigate. They refuse to allow investigators to study how this outbreak started. I’m convinced China will never cooperate with a serious investigation unless they are made to do so. This hard-hitting piece of legislation will sanction China until they cooperate with investigators.“

IMPACT: With regards to the bill, it would authorize the president to impose a range of sanctions, including asset freezes, travel bans and visa revocations, as well as restrictions on loans to Chinese businesses by U.S. institutions and banning Chinese firms from listing on U.S. exchanges. Embedded within the bill is the requirement that China releases HK pro-democracy advocates in post Covid-19 crackdowns. The Bill serves no purpose beyond antagonising China and it’s not going to end well. Expect more risk aversion inducing headlines as tensions continue to rise.

TRUMP’S DESIRE FOR NEGATIVE RATES & FED PUSHBACK

Trump on Tuesday tweeted that the US should accept the “gift” of negative interest rates, joining other countries that already have them. “As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT’. Big numbers!” Trump tweeted.

In an attempt to push back on the idea, St. Louis Federal Reserve Bank President James Bullard said negative rates would interfere with short-term funding markets that U.S. companies use for liquidity. “We’ve talked about negative rates on and off over the years,” Bullard said Tuesday in a webinar sponsored by the Official Monetary and Financial Institutions Forum. “It’s not a good solution in the U.S.”

Federal Reserve Chairman Jerome Powell is also expected to oppose the idea of negative interest rates when he speaks later today.

IMPACT:  Fed speakers have so far been consistently against negative rates. However, markets will continue to price for it as things worsen. The Fed funds futures on Tuesday priced in negative interest rates of about half a basis point in April 2021, this inadvertently led to Dollar weakness.

DAY AHEAD

It will be the UK’s turn next to post dire economic output figures as the Covid-19 leaves no country spared. First-quarter GDP estimates are due later today and they will likely only be a taste of what to expect in the second quarter. With Britain resisting the urge to relax social distancing measures too significantly, the economic costs of containing the virus outbreak are mounting, clouding the outlook for the GBP.

The Bank’s quantitative easing (QE) program is one of the most aggressive in the latest wave of central bank easing around the world and at the current rate of purchases, the BoE looks set to achieve its target of £200 billion sometime in early July. Hence, the odds that the size of QE will be boosted at the next meeting are very high and a weaker-than-expected GDP report would reinforce this.

SENTIMENT

OVERALL SENTIMENT: 

Stocks weakened aggressively towards NY close as increasingly tough rhetoric from US politicians against China and the bleak economic outlook painted by Fed speakers finally took its toll. Strained relations between the world’s two biggest economies is the last thing the world needs right now, but indications are that China is not about to just lie quietly and take the bashing as its actions against Australia thus far shows. 

Expect more headline bombs from this front going forward.

FX

STOCK INDICES

TRADING TIP

There Are Many Ways To Skin A Cat

It is a trying time for many investors and traders alike as a confluence of factors such as unprecedented monetary policies, rising geopolitical tensions, and crushed economic fundamentals are working together concurrently to skew asset prices in unfathomable ways no matter which angle you look at it. 

In a time of many unknown unknowns, there are still trends that will make sense in the grand scheme of things, like Gold and Tech Stocks. Do not miss the forest for the trees by focusing on short term myopic trading. If the going gets tough, take a step back and look for the inevitable trend. It may be a slower ride, but it sure is better than death by a thousand cuts in trying to trade the whipsawing market.