WHAT HAPPENED YESTERDAY

As of New York Close 30 Mar 2020,

FX

U.S. Dollar Index, +0.86%, 99.21
USDJPY, +0.15%, $108.06
EURUSD, -1.01%, $1.1029
GBPUSD, -0.69%, $1.2371
USDCAD, +1.44%, $1.4181
AUDUSD,  0.00%, $0.6166
NZDUSD,  -0.46%, $0.6009

STOCK INDICES

S&P500, +3.29%, 2,625.10
Dow Jones, +3.18%, 22,325.10
Nasdaq, +3.62%, 7,774.15
Nikkei Futures, +0.25%, 19,128.0

COMMODITIES

Gold Futures, +0.80%, 1,638.00
Brent Oil Futures, +6.14%, 26.46

SUMMARY:

Dollar advanced on Monday, snapping a week of declines, as investors braced for prolonged uncertainty as governments tightened lockdowns and launched monetary and fiscal measures. China’s central bank (People’s Bank of China) cut the 7D reverse repo from 2.4% to 2.2% when it injected CNY50 billion into the interbank market (Renminbi closed lower, -0.36%). Overall, FX moves on Monday were relatively well contained. 

S&P 500 climbed 3.29% on Monday, led higher by shares of healthcare and technology companies, even as the White House extended its social distancing guideline through the end of April. The Dow Jones Industrial Average (+3.18%) and Nasdaq Composite (+3.62%) also rose more than 3.0%, while the Russell 2000 increased 2.3%. U.S. 2yr Yield fell 2bp to 0.23% and U.S. 10yr Yield fell 2bp to 0.70%.

In addition, quarter-end rebalancing continued to play a factor in providing a bid in the stock market, while medical breakthroughs from Abbott Labs (ABT 79.34, +4.78, +6.4%) and Johnson & Johnson (JNJ 133.01, +9.85, +8.0%) helped sentiment. Specifically, Abbott Labs is launching a point-of-care test to detect COVID-19 in as little as five minutes, while JNJ said it selected a lead vaccine candidate that it plans to test in clinical trials by September.

Separately, oil prices continued to falter with WTI crude falling 6.6%, or $1.43, to $20.22/bbl, as the market remained plagued by excess supply and dwindling demand. On a related note, Putin and Trump discussed oil in a phone call on Monday, and ordered their energy ministries to hold further talks on global oil markets, the Kremlin said. The Kremlin did not say what exactly the ministers will discuss, but Moscow has previously signalled it would like to see more countries joining efforts to balance global oil markets following the collapse of its deal with OPEC earlier this month. 

FORD, GE TO PRODUCE 50,000 VENTILATORS IN 100 days

Ford Motor Co said on Monday it will produce 50,000 ventilators over the next 100 days at a plant in Michigan in cooperation with General Electric’s healthcare unit, and can then build 30,000 per month as needed to treat patients afflicted with Covid-19.

On Friday, Trump said he would invoke powers under the Defense Production Act to direct manufacturers, including Ford and General Motors Co, to produce ventilators. On Monday, the head of the United Auto Workers and other officials compared the auto industry’s effort to build ventilators to Detroit’s conversion to bomber production during World War Two. 

IMPACT: Firing up America’s manufacturing industry to help with the virus situation and pharmaceutical innovations made by Abbot, Gilead and Johnson & Johnson may be the turning point for America and global sentiment should these measures and drugs prove to be successful. It is important to note that there are turnaround times for these advancements to take effect and it’s the on-going narrative that markets are constantly pricing in. Until then, expect continued volatility in the market. 

BRAZIL’S BOLSONARO URGES NO MORE COVID-19 QUARANTINE, SAYS JOBS BEING LOST

Brazil’s President Jair Bolsonaro said on Monday that there can be no more quarantine measures imposed on the country than those already in place to combat Covid-19 because jobs are being destroyed and the poor are suffering disproportionately.

Brazil’s Senate passed a bill on Monday evening guaranteeing some of the country’s poorest citizens’ income of 600 reais ($117) a month for three months, a package that could cost almost 50 billion reais. According to Bolsonaro, all measures to combat the crisis could cost 800 billion reais, and the economy, which is expected to contract this year, could rebound and be back on track within a year.

Earlier on Monday, Bolsonaro had stepped up his stand-off with state governments, branding governors in the hardest-hit states “job-killers” and suggesting that democracy could be at risk if the Covid-19 crisis leads to social chaos.

IMPACT:  Brazil’s political leaders have been eager to negotiate emergency measures such as a “war budget” exempt from fiscal rules, but many have criticized the president, who lacks a solid alliance in Congress, for downplaying health risks. If Brazil does not handle the situation with prudence, the virus can wreak more economic and social turmoil than what Bolsonaro fears, what the president is insisting is the definition of “penny wise pound foolish” actions.  

U.S. CONGRESS EYES NEXT STEPS IN COVID-19 RESPONSE

Three days after passing a $2.2 trillion package aimed at easing the heavy economic blow of the Covid-19 pandemic, the U.S. Congress was looking on Monday at additional steps it might take as the country’s death toll approached 3,000.

Democrats who control the House of Representatives were discussing boosting payments to low- and middle-income workers, likely to be among the most vulnerable as companies lay off and furlough millions of workers, as well as eliminating out-of-pocket costs for Covid-19 medical treatment.

House Speaker Nancy Pelosi said she would work with Republicans to craft a bill that could also provide added protection for front-line workers and substantially more support for state and local governments to deal with one of the largest public health crises in U.S. history. Pelosi, the top U.S. Democrat, said she did not expect new legislation to be completed until sometime after Easter, which is on April 12.

IMPACT: More fiscal measures are coming as governments understand that the economic impact of the virus on families is another crisis that should be preemptively stemmed before it blows out into social unrest. 

DAY AHEAD

It’s a busy data week in America. Besides the nonfarm payrolls report, there’s also the latest ISM manufacturing and non-manufacturing PMIs coming up on Wednesday and Friday respectively. These surveys will give us a taste of how much damage the virus has inflicted on the U.S. economy and therefore, of how deep the upcoming recession will be. As far as economic data go these days, these are extremely important, and a serious disappointment could derail the latest rebound in stocks. 

SENTIMENT

OVERALL SENTIMENT: Though volatility remains high, market participants are getting conditioned to the swings. Sentiment has stabilised despite worsening news from the virus spread because everyone has become conditioned to bad news. The good news from policymakers have also been well publicised, so more of the same is unlikely to move the needle until some effects are felt. While the market waits for new drivers and expects volatility to remain high within a wide range.

FX

STOCK INDICES

TRADING TIP

Money for Nothing…

In the world to come, we will have unlimited supply of fiat money especially USD given that the Fed’s printing presses are working non-stop these days. Many central banks around the world are doing the same and this flow of money will eventually start to affect prices of things. 

When something is unlimited in supply, its value drops relative to things which are limited in supply. The task then is up to us to find what is it that is finite in supply and will be demanded in the world to come. So, the questions we must ask are what are the stores of value in this world that are finite in supply and what are the goods that have limited production and consumers will need in the world to come?

The answers to these questions will give you clarity on what are the trends that will soon emerge in time to come.

WHAT HAPPENED YESTERDAY

As of New York Close 27 Mar 2020,

FX

U.S. Dollar Index, -0.94%, 98.36
USDJPY, -1.54%, $107.90
EURUSD, +1.02%, $1.1142
GBPUSD, +2.09%, $1.2457
USDCAD, -0.27%, $1.3980
AUDUSD, +1.68%, $0.6166
NZDUSD,  +1.27%, $0.6037

STOCK INDICES

S&P500, -3.37%, 2,541.47
Dow Jones, -4.06%, 21,636.78
Nasdaq, -3.79%, 7,502.38
Nikkei Futures, +3.92%,19,080.0

COMMODITIES

Gold Futures, -1.59%, 1,625.00
Brent Oil Futures, -5.35%, 24.93

SUMMARY: 

Dollar continued its descent after a week of declines and the safe-haven Yen powered on, as Covid-19 lockdowns tightened across the world and investors braced for a prolonged period of uncertainty. The weekend brought more bad news on the virus front. The U.S. has emerged as the latest epicenter of the outbreak, with more than 137,000 cases and 2,400 deaths. Trump, who had talked about reopening the economy for Easter, on Sunday extended guidelines for social restrictions to April 30 and said the peak of the death rate could be two weeks away.

The S&P 500 declined 3.37% on Friday after a rebound effort faded into the close, the benchmark index had started the session down 4.2%, then cut its losses to just 0.5% after the House passed the $2 trillion stimulus bill in the afternoon. The Dow Jones Industrial Average lost 4.06%, the Nasdaq Composite lost 3.79%, and the Russell 2000 lost 4.1%. U.S. 2yr Yield fell 5bp to 0.25% and U.S. 10yr Yield fell 11bp to 0.73%. 

The stimulus bill will provide relief for U.S. households and businesses, as the rising number of Covid-19 infections continues to keep much of America in shutdown mode. On a related note, the U.S. surpassed China and Italy for the most confirmed cases of Covid-19.

Before the close, United Airlines (UAL 32.84, -2.71, -7.6%) said it isn’t going to conduct involuntary furloughs or pay cuts in the U.S. before September 30; however, it cautioned that air travel demand could remain suppressed possibly into next year. Within the Dow, shares of Boeing (BA 162.00, -18.55, -10.3%) fell 10% after Treasury Secretary Mnuchin said the company has no plans of using government aid at this time. 

U.S. VIRUS CASES EXCEED 100,000

Doctors and nurses on the front lines of the U.S. Covid-19 crisis pleaded on Friday for more protective gear and equipment to treat waves of patients expected to overwhelm hospitals as the sum of known U.S. infections climbed well past 100,000, with more than 1,600 dead.

“We are scared,” said Dr. Arabia Mollette of Brookdale University Hospital and Medical Center in Brooklyn. “We’re trying to fight for everyone else’s life, but we also fight for our lives as well, because we’re also at the highest risk of exposure.” One emergency room doctor in Michigan, an emerging epicenter of the pandemic, said he was using one paper face mask for an entire shift due to a shortage and that hospitals in the Detroit area would soon run out of ventilators.

IMPACT: The United States ranked sixth in death toll among the hardest-hit countries, with at least 1,632 lives lost as of Friday night, a record daily increase of 370 according to a tabulation of official data. Worldwide, confirmed cases rose above 720,000 with 33,958 deaths, the Johns Hopkins Covid-19 Resource Center reported.

HISTORIC $2.2 TRILLION COVID-19 BILL PASSES U.S. HOUSE, BECOMES LAW

The U.S. House of Representatives on Friday approved a $2.2 trillion aid package – the largest in history – to help cope with the economic downturn inflicted by the intensifying Covid-19 pandemic, and Trump quickly signed it into law.

The massive bill passed the Senate and House of Representatives nearly unanimously. The rare bipartisan action underscored how seriously Republican and Democratic lawmakers are taking the global pandemic that has killed more than 1,500 Americans and shaken the nation’s medical system.

“Our nation faces an economic and health emergency of historic proportions due to the Covid-19 pandemic, the worst pandemic in over 100 years,” House Speaker Nancy Pelosi said at the close of a three-hour debate before the lower chamber approved the bill. “Whatever we do next, right now we’re going to pass this legislation.”

IMPACT: The rescue package is the largest fiscal relief measure ever passed by Congress. The $2.2 trillion measure includes $500 billion to help hard-hit industries and $290 billion for payments of up to $3,000 to millions of families. It will also provide $350 billion for small-business loans, $250 billion for expanded unemployment aid and at least $100 billion for hospitals and related health systems.

U.S. COULD FACE 200,000 COVID-19 DEATHS, MILLIONS OF CASES, FAUCI WARNS

U.S. deaths from Covid-19 could reach 200,000 with millions of cases, the government’s top infectious diseases expert warned on Sunday as New York, New Orleans and other major cities pleaded for more medical supplies.

Since 2010, the flu has killed between 12,000 and 61,000 Americans a year, according to the U.S. Centers for Disease Control and Prevention. The 1918-19 flu pandemic killed 675,000 in the United States. The U.S. Covid-19 death toll topped 2,400 on Sunday after deaths on Saturday more than doubled from the level two days prior. The United States has now recorded more than 137,000 cases of COVID-19, the disease caused by the virus, the most of any country in the world.

IMPACT: Trump has bowed to the inevitable and accepted that his ambition of 12 April, Easter, as a date on which social distancing restrictions on Americans could start to be lifted was always a pipe dream. The new date he gave was the end of April. Whether that sticks remains to be seen. Tests to track the disease’s progress also remain in short supply, despite repeated White House promises that they would be widely available. As the crisis continues to escalate, the economic damage will get worse and will weigh heavily on market sentiment. 

DAY AHEAD

The global crisis from the Covid-19 pandemic has produced much turmoil in financial markets even though economic data on the impact has so far been scarce. That is about to change as March figures start rolling in. Given the extent of the market fallout, investors may already be expecting the worst. That’s not to say, however, that once the data lay bare the true scale of the economic damage, investors won’t be unnerved. The main releases this week that could jolt traders are the manufacturing PMIs out of China, and the ISM PMIs together with the latest jobs report from the United States.

SENTIMENT

OVERALL SENTIMENT: The virus spreads on relentlessly while Trump keeps talking about reopening the economy and questioning the requests for help from those at the frontlines of the outbreaks. It is a train wreck happening in slow motion. With all the measures introduced by the central banks and governments, the market now is left to struggle between the flow of unlimited money and the very real effects of a global economy being crushed by both demand destruction and supply disruption. 

The escalation in the US is inevitable. Expect more bad news in the days ahead.

FX

STOCK INDICES

TRADING TIP

Mind the Gap

There seems to be many weekend price gaps in markets recently where the opening levels on Monday mornings in Asia are substantially different from the prices that were last traded at New York close on Fridays. 

Traders should be aware of this risk as that would mean that even if you have stop-loss orders, you might not be filled at that level you wanted to exit the risk positions that you have. Losses that you actually take may be substantially more than what you were prepared for. 

As such, it is imperative to be cognisant of this risk and reduce your risk positions accordingly into the weekends, especially if the risks are skewed against your position. For now, the situation for the Covid-19 spread continues to deteriorate as the virus never sleeps, while policymakers tend to not be at work during weekends. With the policymakers having thrown almost everything they can think of at the problem, the likelihood of more measures is lessened unless there’s renewed panic in the markets. 

Always put yourself in the shoes of other investors as you face the prospect of the looming weekend. What would you do if you were the ones who were long instead of short and vice versa? 

When in doubt, just follow us on social media as that’s a constant topic of discussion for us! 😊

WHAT HAPPENED YESTERDAY

As of New York Close 26 Mar 2020,

FX

U.S. Dollar Index, -1.60%, 99.29
USDJPY, -1.87%, $109.13
EURUSD, +1.52%, $1.1048
GBPUSD, +2.57%, $1.2193
USDCAD, -1.05%, $1.4043
AUDUSD, +2.01%, $0.6079
NZDUSD,  +2.15%, $0.5975

STOCK INDICES

S&P500, +6.24%, 2,630.07
Dow Jones, +6.38%, 22,552.17
Nasdaq, +5.60%, 7,797.54
Nikkei Futures, -0.62%,19,120.0

COMMODITIES

Gold Futures, +0.18%, 1,636.40
Brent Oil Futures, -1.61%, 26.95

SUMMARY: 

Dollar traded lower against all of the major currencies after jobless claims topped 3.2 million. In anticipation of this blowout report, Powell gave a rare broadcast interview on NBC’s “Today Show” to reassure investors that the Fed is “not going to run out of ammunition” and they still have “policy room in other dimensions to support the economy.” The Dollar was the weakest of the major currencies by far, falling by -1.05% against the Loonie and up to -2.57% versus Sterling. 

S&P 500 extended its weekly rally by 6.24% on Thursday after the Senate approved the $2 trillion fiscal stimulus package for the economy, which saw a record surge in weekly jobless claims. The Dow Jones Industrial Average rose 6.38%, the Nasdaq Composite rose 5.60%, and the Russell 2000 rose 6.3%. U.S. 2yr Yield fell 4bp to 0.30% and U.S. 10yr Yield fell 5bp to 0.83%. 

Initial claims for the week ending March 21 was a whopping 3.2 million (consensus 1.6 mio), which was above most expectations but also unsurprising given the slew of economic shutdowns aimed at slowing the rate of Covid-19  infections. For the market, and Congress, it quantified how bad the situation has been for American workers. 

House Speaker Pelosi (D-CA) said the stimulus bill will be passed later today by voice vote with “strong bipartisan support” despite some speculation that objecting members would request a roll call vote, which would further delay its passage. The impending fiscal relief, then, provided investors some reassurance while doing some quarter-end rebalancing.

U.S. HOUSE LEADERS PLAN TO PASS $2.2 TRILLION COVID-19 BILL FRIDAY

U.S. House Speaker Nancy Pelosi said she expected the chamber to pass an estimated $2.2 trillion Covid-19 relief bill when it meets later today after the Senate overwhelmingly approved the unprecedented economic rescue legislation on Wednesday evening.

The legislation will rush direct payments to Americans within three weeks once the Democratic-controlled House of Representatives passes it and Republican President Donald Trump signs it into law, Treasury Secretary Steven Mnuchin said.

IMPACT: The unanimous Senate vote, a rare departure from bitter partisanship in Washington, underscored how seriously members of Congress are taking the global pandemic as Americans suffer and the medical system reels. The massive Covid-19 rescue bill follows two others that became law this month. The money at stake amounts to nearly half of the total $4.7 trillion the federal government spends annually. Trump has promised to sign the bill as soon as it passes the House.

BANK OF ENGLAND WARNS OF LONG TERM DAMAGE TO ECONOMY

The Bank of England has warned there are mounting risks of widespread job losses and companies going out of business across Britain as the economic costs of the Covid-19 outbreak become more apparent. In a reflection of the scale of the crisis, the central bank’s rate-setting monetary policy committee declared after its scheduled meeting on Wednesday that it “stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions and support the economy.

The MPC voted unanimously to maintain Bank Rate at 0.1% (expected). The committee also voted unanimously to continue with the program of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645 billion.

IMPACT: Sterling rebounded as the Bank of England kept interest rates unchanged at a record low of 0.1% and its asset purchase program steady at GBP200 billion.

NEW YORK, NEW ORLEANS HOSPITALS REEL AS U.S. LEADS WORLD IN COVID-19 CASES

The United States on Thursday surpassed China and Italy as the country with the most Covid-19 cases, as New York, New Orleans, and other hot spots face a surge in hospitalizations and looming shortages in supplies, staff, and sick beds. The number of U.S. cases of Covid-19 reached 81,378. China was second with 81,285 cases, and Italy third with 80,539 cases.

IMPACT: At least one New York hospital has begun a trial of sharing single ventilators between two patients. Dr. Craig Smith, surgeon in chief at New York-Presbyterian/Columbia University Medical Center in Manhattan, wrote to staff that teams had worked “day and night” to get the split-ventilation experiment going. The projected ventilator shortfall and the surge in hospitalizations have already raised the prospect of rationing healthcare. Asked about guidelines being drafted on how to allocate ventilators to patients in case of a shortage, New Jersey Governor Phil Murphy said such bioethical discussions “haunted him” but were unavoidable in the current situation.

China reached the peak in the number of cases after a total shutdown of the whole country, while the US has yet to do so and Trump is already contemplating reopening the places that have shutdown. The number of cases that we are about to see in the US will be unimaginable if the mismanagement continues.

DAY AHEAD

The next few jobless claims reports could be even worse, many investors are wondering if yesterday’s rally in stocks is indicative of a bottom. It is hard to imagine that being the case as this is only the start of a long period of very high jobless claims. The incessant fall in Treasury yields and decline in the Dollar indicates that investors are not convinced.

SENTIMENT

OVERALL SENTIMENT: 

The stock market roared back for a 3rd day of gains amid optimism on the much discussed multi-trillion dollar stimulus package. Month-end rebalancing (where pension funds sell bonds which have gone up a lot and buy stocks which have fallen a lot) were also a factor in the relentless buying of stocks. Free money from the government can change prices of assets when denominated in the currency that is being printed in huge quantities but what about prices when denominated in hard assets or other currencies with lesser supply? 

With the Fed now ready to supply the world with unlimited USD, the value of the USD will eventually be eroded against currencies with lesser supply.

FX

STOCK INDICES

TRADING TIP

There’s more to Life than Trading

Despite the recent doom and gloom amid the crazy market volatility, there’s always time to take stock and reflect on things that are important in life. This Covid-19 outbreak gives us an opportunity to take a step back from the relentless routine of life and re-evaluate what are the things that are important to us. 

Although, every message of mine is invariably about how bad it actually is and how much worse it will be (primarily because of inaction and mismanagement by policymakers), I do believe in spite of the carnage that is currently being wrought, it will eventually become better.

As human civilisation comes to grips with what is required to stop the spread of the virus, the planet in general is given an opportunity to heal. We, too, should take this required social distancing as an opportunity to reflect and reconnect with our loved ones. 

Take the time to listen to this song with headphones on both ears. You will be surprised by the effects of what they call 8D music. The music seems to come from somewhere further than the headphones. Enjoy the magic that technology brings to our lives as the song swirls around you. 

TGIF! The weekend is almost upon us. 😊

WHAT HAPPENED YESTERDAY

As of New York Close 25 Mar 2020,

FX

U.S. Dollar Index, -0.74%, 100.91
USDJPY, -0.34%, $110.85
EURUSD, +0.92%, $1.0889
GBPUSD, +0.77%, $1.1849
USDCAD, -1.65%, $1.4223
AUDUSD, -0.90%, $0.5904
NZDUSD,  -0.36%, $0.5807

STOCK INDICES

S&P500, +1.15%, 2,475.56
Dow Jones, +2.39%, 21,200.55
Nasdaq, -0.45%, 7,384.29
Nikkei Futures, -1.59%,18,810.0

COMMODITIES

Gold Futures, -1.35%, 1,638.45
Brent Oil Futures, +1.33%, 27.51

SUMMARY: 

To say volatility was high is an understatement. GBP opened at 1.1755 and crept higher throughout the day before rallying hard to a high of 1.1973. Then it started to fall like a rock to 1.1640s before bouncing hard all the way to 1.1912. All these movements could not really be explained by any headlines and left many traders scratching their heads and licking their wounds. 

The outperformer of the day was CAD which strengthened relentlessly throughout the day. The Dollar is waiting upon the U.S. Fiscal Bill approval and Unemployment Claims before making some purposeful headway. Expect elevated volatility in FX markets until these two key events are cleared. 

S&P 500 advanced as much as 5.1% on Wednesday, as investors continued to buy beaten-up shares of companies after the Senate agreed to a revised stimulus plan, but the market faltered into the close amid some political drama and profit-taking. The benchmark index finished up 1.15% for the session. The Dow Jones Industrial Average (+2.39%) outperformed on the back of a strong showing by Boeing (BA 158.73, +31.05, +24.3%). Boeing shares surged 24%, as the company stands to benefit from the stimulus bill that will rescue the airline industry. Reports indicated the company could also receive direct aid from Washington and that the company aims to restart production of the 737 MAX by May. The Russell 2000 increased 1.3%, while Nasdaq Composite declined 0.45%. U.S. 2yr Yields fell 4bp to 0.34% and U.S. 10yr Yields rose 4bp to 0.88%

An agreement was reached in the early hours of the morning, but a vote in the Senate was delayed due to a “massive drafting error” in the bill (error is explained more below). There was some hope that the House would then approve the bill with a unanimous consent resolution despite lingering complaints in order to provide financial relief for Americans and businesses as soon as possible.

Sentiment soured after Senator Sanders threatened to hold up the Covid-19 bill and demand new restrictions on the $500 billion fund for corporations. Rep. Alexandria Ocasio-Cortez also warned she may oppose the unanimous consent resolution, which could further delay financial relief. 

“Massive Drafting Error”: Four Republican senators are warning that they will oppose fast-tracking the $2 trillion coronavirus response package unless a “massive drafting error” in the legislation, which they say would create an incentive for employers to lay off employees, is fixed. The concern from Sens. Graham, Tim Scott, R-S.C., Ben Sasse, R-Neb., and Rick Scott, R-Fla., is that the current version could pay workers more in unemployment benefits than they’re currently making, by sticking a $600 per week payment on top of ordinary benefits that are calculated as a percentage of income. This could disrupt the labor market further, the lawmakers warn.

TEMPERS RISE AS U.S. SENATE AWAITS VOTE ON $2 TRILLION COVID-19 BILL

Republican and Democratic leaders of the U.S. Senate hoped to vote on Wednesday on a $2 trillion emergency package to alleviate the devastating economic impact of the Covid-19 pandemic but found themselves fending off critics from the right and left who threatened to hold up the bill.

Several Republican senators said the bill needed to be changed to ensure that laid-off workers would not be paid more than they earned on the job. “Why would the senators hold up this really important bill because they resent people at the low end of the spectrum who have lost their jobs, from getting $600?” House of Representatives Speaker Nancy Pelosi asked on CNN.

The legislation will also provide $350 billion for small-business loans, $250 billion for expanded unemployment aid and at least $100 billion for hospitals and related health systems. The rescue package would be the largest ever approved by Congress and follows two others that became law earlier this month. The money at stake amounts to nearly half of the $4.7 trillion the U.S. government spends annually.

IMPACT: The stimulus isn’t going to help slow down the rate of Covid-19 infections, but it may speed an economic recovery if the nationwide efforts to curb the virus prove successful. Granted, there’s still uncertainty about that outlook, but the market has gotten anxious about getting funding to the businesses and workers who need it most right now.

CANADA DOUBLES VALUE OF COVID-19 STIMULUS PACKAGE, PROMISES CASH, LOAN DELAYS

The package is worth C$52 billion ($36.62 billion), up from an initial C$27 billion outlined last week. More than a million people signed up for unemployment benefits last week. Oil companies asked Ottawa to free up cash and credit to survive, and banks could be hit harder than during the 2008 financial crisis. The package, which Parliament approved earlier on Wednesday, includes an additional C$55 billion in tax deferrals.

The aid package will give people affected by the outbreak C$2,000 a month and delay student loan repayments, among other measures to boost the economy, Prime Minister Justin Trudeau said. A portal will be set up by April 6 for people who have lost jobs or are unable to work to apply for monthly payments, which will run for four months. The plan delays student loan payments for three months.

IMPACT: The government said Canadians made nearly one million claims for unemployment benefits last week, which is equivalent to about 5% of Canada’s workforce. A survey found that 44% of Canadian households had someone who had lost hours due to the Covid-19 shutdown. A third said they were concerned about missing a mortgage or rent payment.

SPAIN’S COVID-19 DEATH TOLL OVERTAKES CHINA’S

Spain’s Covid-19 death toll jumped by 738 overnight to exceed that of China, as the country struggled to cope with an accelerating health crisis and another senior government minister was diagnosed with the virus.

With 3,434 fatalities, Spain now has the second-highest number of deaths globally after Italy’s 6,820. Nursing homes across the country have been overwhelmed by cases and a skating rink in Madrid has been turned into a makeshift morgue.

IMPACT: Spain is on Day 11 of a 15-day nationwide lockdown which is likely to be extended to 30 days. Schools, bars, restaurants, and most shops are shuttered. Social gatherings are banned. People are confined to their homes. Aside from the devastating health impact, the lockdown has dealt a punishing blow to the Spanish economy, with tens of thousands of workers temporarily laid off as sectors such as retail, tourism and manufacturing grind to a halt. One of Spain’s biggest employers, El Corte Inglés, said it would temporarily lay off 22,000 workers at its department stores. The Bank of Spain said on Wednesday that there had been severe disruption to the economy since early March and a sharp contraction in consumer spending.

DAY AHEAD

The panic that has gripped financial markets is unlikely to subside, and if anything, the upcoming Initial Jobless Claims data could pour more gasoline on the fire. All this time, investors had been ‘flying blind’ as they were merely guessing how big the virus impact would be – but this changes later today. The weekly numbers of Americans filing for unemployment benefits will give markets a taste of just how big the damage is.

And it’s likely to be enormous. Forecasts suggest that Initial Jobless Claims will shoot up to 1 million, from 281k last week. If true, this would be the highest print ever, far exceeding the previous record of 695k from back in 1982. In fact, the risks seem tilted towards an even bigger surge than what’s expected. Preliminary data from some US states that have reported their own claims already point to a much larger nationwide increase. Take Ohio for example – a state with less than 12 million in population – reported roughly 140k jobless claims for the week in question, a 28-fold increase from the previous week.

Similar increases have been reported in other states. The most worrisome part is that several states saw their employment websites crash due to a surge in traffic, so the real number of benefit seekers may be even higher than what’s been reported so far.

SENTIMENT

OVERALL SENTIMENT: 

It was the first two-day streak of gains for the US stock markets since Feb, amid improvement in sentiment due to more positive talk of the impending stimulus package. However, with key issues remaining to be sorted out, the world still needs to wait for the vote on the bill. With the Fed now focusing on the implementation of the various programmes that it had announced to stabilise the funding and credit markets, some sense of stability will slowly return. The fundamentals of the economy remain poor and will continue to plague the minds of investors. Trump’s insistence on re-opening the economy ASAP is a key risk and is much like the script of a movie where the mayor of a town insists on reopening the beaches because there hasn’t been a shark sighting for a few days. 

For those celebrating one of the biggest rallies in the stock markets in history, seeing when 9 of the other top 10 stock rallies in history occurred should adequately curb your enthusiasm.

FX

STOCK INDICES

TRADING TIP

Resist the FOMO

In volatile times like these, there will always be the Fear of Missing Out as markets swing from one extreme to the other. We are living through the biggest disruption to the world economy in years, if not ever. There will be many opportunities and a crisis such as this does not get resolved within a few weeks. 

Do not rush into chasing moves just because things are moving fast. Take a deep breath, focus on picking the lower hanging fruits as there are many opportunities and just because you miss one today, it doesn’t mean you have to settle for marginal trades.

The objective is to be profitable, not to be involved.

WHAT HAPPENED YESTERDAY

As of New York Close 24 Mar 2020,

FX

U.S. Dollar Index, -0.81%, 101.66
USDJPY, -0.08%, $111.13
EURUSD, +0.70%, $1.0798
GBPUSD, +2.07%, $1.1789
USDCAD, -0.39%, $1.4442
AUDUSD, +2.40%, $0.5968
NZDUSD,  +1.77%, $0.5824

STOCK INDICES

S&P500, +9.38%, 2,447.33
<b>Dow Jones, +11.37%, 20,704.91
Nasdaq, +8.12%, 7,417.86
Nikkei Futures, +10.58%,18,742.5

COMMODITIES

Gold Futures, +7.97%, 1,692.55
Brent Oil Futures, +2.33%, 27.66

SUMMARY: 

The Dollar remained on the backfoot on Wednesday as global markets await the stimulus package out of the U.S., before deciding if further flight to cash due to lack of cooperation from the government is necessary. Gold had a big up move, especially in the futures market (more on that below). JPY trades weak despite general USD weakness. No good reason can be found except that maybe Japanese investors are continuing to invest in overseas assets. The Japanese pension fund GPIF (160 trillion JPY (1.45 trillion USD)) is seeking approval to increase its allocation to foreign bonds from 15% to 25% with effect from 1 April. The final decision will be announced on 31 March.

S&P 500 surged 9.38% on Tuesday, as news that the elusive fiscal stimulus package was close to being agreed to in the Senate spurred a broad-based rebound. The Dow Jones Industrial Average climbed 11.37%, the Nasdaq Composite climbed 8.12%, and the Russell 2000 climbed 9.4%. U.S. 2yr Yield rose 10bp to 0.38% and U.S. 10yr Yield rose 8bp to 0.84%.

Lawmakers continued to narrow their differences on the stimulus bill, with Senate Minority Leader Schumer (D-NY) placing negotiations “on the two-yard line” around lunchtime. According to CNBC, the White House is hopeful to have an agreement in principle by “sunset,” but noted it was unlikely that an actual Senate vote would take place tonight.

An agreement is needed to restore some confidence for consumers, investors, and businesses during the economic shutdowns across the country. The Fed has already stepped in numerous times to expand credit and liquidity, while Trump today said he would like to have the economy to reopen by Easter (12 April) despite the outbreak.

New York Governor Cuomo, who has been very active in trying to slow the rising rate of infections, empathized with the president but argued that we shouldn’t “accelerate the economy at the cost of human life.” NYC Mayor De Blasio was blunter, saying Trump is wrong and April will be worse than March. 

The situation in NYC is extremely worrying as I personally have a few friends who are experiencing symptoms of Covid-19 infection but are not in the official statistics. They are quarantining themselves at home and will only seek treatment if their condition worsens because the hospitals are currently swamped.

$2 TRILLION COVID-19 AID DEAL TAKES SHAPE IN U.S. CONGRESS

Senior Democrats and Republicans in the divided U.S. Congress said on Tuesday they were close to a deal on a $2 trillion stimulus package to limit the Covid-19 pandemic’s economic toll, but it was unclear when they will be ready to vote on a bill.

The $2 trillion package includes a proposed $500 billion fund to help hard-hit industries and a comparable amount to send direct payments of up to $3,000 to millions of U.S. families, as well as $350 billion for small-business loans, $250 billion for expanded unemployment aid and at least $75 billion for hospitals.

House of Representatives Speaker Nancy Pelosi, the top Democrat in Congress, said the sides had agreed to more oversight provisions for the proposed $500 billion to help hard-hit industries, resolving a key sticking point. The latest version would increase unemployment benefits by up to $600 per week, ensuring that many who lose their jobs would not see a drop in income, according to a Democratic aide. Jobless benefits currently pay workers a fraction of their salaries.

IMPACT: Republicans normally hold a slim 53-47 majority in the Senate, meaning they need Democratic support to garner the 60 votes required to advance most legislation. But the Covid-19 has affected their ranks, giving Democrats more leverage. Republican Senator Rand Paul has tested positive for the Covid-19 virus and four other Republicans are also unable to vote because they were exposed to Paul or others with the virus. Wall Street bounced from three-year lows on Tuesday on hopes the Senate might be close to ending its standoff. Markets are buying on the rumour that it will soon be announced, what happens when it becomes fact?

MODI PUTS ALL OF INDIA UNDER LOCKDOWN FOR 21 DAYS TO  FIGHT COVID-19

Indian Prime Minister Narendra Modi said on Tuesday the government would impose a nationwide lockdown from midnight for 21 days to stem the spread of the Covid-19. “There will be a total ban on venturing out of your homes,” Modi said in a televised address. India has so far reported 482 confirmed cases of the Covid-19 and nine deaths.

IMPACT: Modi accepted the lockdown would come at an economic cost, while announcing 150 billion rupees (S$2.8 billion) for strengthening testing facilities, personal protective gear, isolation, and intensive care unit (ICU) beds and other essential equipment. With less than 500 confirmed cases, Modi is shutting a country with a population of 1.3 billion. He is doing what is required to stop the spread of the virus instead of waiting to react to the inevitable spread and make it even harder to contain the outbreak. 

AMID WORSENING PANDEMIC, TRUMP SAYS AMERICA SHOULD RE-OPEN FOR BUSINESS BY MID-APRIL

Trump pressed his case on Tuesday for a re-opening of the U.S. economy by mid-April despite a surge in Covid-19 cases, downplaying the pandemic as he did in its early stages by comparing it to the seasonal flu.

During a live town hall broadcast on Fox News Channel, he said he would like to have businesses opening their doors again by Easter, which will be celebrated on April 12. “I would love to have the country opened up and just raring to go by Easter,” he said.

Trump said the country did not take drastic measures to fight car crashes and flu deaths similar to those it is taking for the Covid-19. He said Americans could continue practicing social-distancing measures, which health experts say are crucial to prevent infection, while also going back to work.

“Our people want to return to work,” he said on Twitter earlier on Tuesday. “They will practice Social Distancing and all else, and Seniors will be watched over protectively & lovingly. We can do two things together. THE CURE CANNOT BE WORSE (by far) THAN THE PROBLEM!”

IMPACT: Trump and his economic and health advisers are mulling how to proceed after the 15-day period of tough measures to slow the pandemic. White House economic adviser Larry Kudlow, speaking to reporters at the White House, said the Trump administration was looking at low-infection areas where the economy might be reopened after a 15-day shutdown period ends next week. Trump’s desire to get the economy back to normal right away has faced criticism from Democrats and Republicans as the Pentagon and others forecast the outbreak could last for months.

CME TO LAUNCH NEW GOLD FUTURES CONTRACT WITH EXPANDED DELIVERY OPTIONS (DUE TO PHYSICAL GOLD SUPPLY DISRUPTION)

On Tuesday, Reuters reported the London Bullion Market Association (LMBA) and several major banks that trade gold had asked CME Group to allow gold bars in London to be used to settle its contracts to ease disruption to trading.

In response, U.S. exchange operator CME Group Inc said on Tuesday it was launching a new gold futures contract with expanded delivery options that include gold bars, in a bid to address the disruptions. The gap between gold futures on the CME’s Comex exchange in New York widened above London spot prices by as much as more than $70 per ounce (4%). 

IMPACT: The two usually remain within a few dollars of one another, and the gap skewed trading in the London market. This is a good example of how normal market pricing relationships breakdown in times of stress. This explosion in the difference of the April futures (which has 6 days left to Notice day) and spot cash price is due to a breakdown in logistics impairing the ability of gold miners/owners, who sold the futures to hedge, to deliver physical gold to the longs of the futures contract.

DAY AHEAD

In the U.S, all eyes will be on the weekly jobless claims, which will be released on Thursday. This will reveal how much damage the virus outbreak has already inflicted on the US economy, and investors are terrified that the number of Americans filing for unemployment benefits is about to skyrocket as consumption collapses and businesses lay people off. A huge surge in jobless claims could cement fears of a recession and therefore spell more trouble for stock markets, though the strong Dollar may not be affected as much. 

SENTIMENT

OVERALL SENTIMENT: Markets started celebrating the “imminent” approval of the stimulus package from the US with the biggest rally in history. Covid-19 infection continues to spread yet Trump is talking about reopening the economy in a matter of weeks. NYC Mayor immediately commented that Trump is wrong, and it will be much worse in April than in March. 

It is clear that Trump’s priority is to get the stock markets higher, but it will end up risking more lives and prolonging the crisis. Bear markets are full of fierce rallies but make no mistake, it remains a bear market.

FX

STOCK INDICES

TRADING TIP

The Cat Bounces High

Bull markets occur in typically low volatility environments because not only are the fundamentals driving the markets higher, there is no one opposing the move except the bears who are losing money. Policymakers are all busy congratulating themselves on a job well done and everyone else in general is doing well because of their 401k’s and passive investments. 

On the other hand, bear markets are never easy to trade as shorts will have to contend with policymakers who are incentivised to fight the fundamentals. As such, bear markets are characterised by aggressive rallies amid high volatility as central bankers and politicians alike implement policies to thwart the repricing of risk assets. 

As we’ve said before, markets rarely go down in a straight line. However, if you drop a cat from a high enough building, it will bounce. However high it bounces, the cat is still dead. The higher the bounce, the further it has to fall again.