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[Markets] Dow Jones Futures Plunge, Crude Oil Futures Crash On Rising Covid-19 Cases, OPEC Price War: Coronavirus Stock Market Correction Dow Jones futures with Covid-19 coronavirus cases ramping up and crude oil futures crashing in a price war. Published:3/8/2020 5:38:02 PM
[Markets] Market Massacre: Oil Crashes 30%, Dow Down 1,000, VIX Explodes As Spoos Crater Market Massacre: Oil Crashes 30%, Dow Down 1,000, VIX Explodes As Spoos Crater

Following what may have been the most drama-filled weekend since "Lehman Sunday", in which we saw not only another major spike in covid cases around Europe and the US, but also the total collapse of OPEC after Saudi Arabia unilaterally decided to flood the market with deeply discounted oil in a ballsy attempt to crush the competition, markets are reacting appropriately, and, well, just like during Lehman Sunday, everything is crashing:

S&P emini futures are down more than 4% in early trading, plunging as low as 2,845 and fast approaching their limit down price of 2,819 as investors around the world puke risk in an unprecedented fashion.

Dow futures are down more than 1,000 points...

... with VIX futures up 16%, so one can only imagine where spot will be soon.

Rates are soaring, with the Ultra bond up 7 to 232-16, while the 10Y yield is on pace to hit a record all time low of 0.50%, one which screams recession.

Naturally, the oil complex is imploding, with WTI down 27% to $30...

... and Brent plunging as much as 31%, to just $33 in early Sunday trading in what Bloomberg dubbed "one of the most dramatic bouts of selling ever"...

... in line with Goldman's shocking price target cut, which now expected Brent dropping into the $20s.

What happens now? Well, earlier today Morgan Stanley said that to stabilize markets, the Fed would need to announce not only a rate cut but also resume official QE...

We believe equity markets will struggle until policy-makers get back ahead of the curve with more interest rate cuts and an extension of the current balance sheet expansion and/or an official quantitative easing program – something we think is likely coming

... And with spot VIX likely set to trip 60, the Fed will need to do something or risk another Great Depression.

Or maybe Trump has something up his sleeve, who moments after futures opened tweeted a rather cryptic "nothing can stop what's coming."

One thing is certain: markets and traders will be closely watching and waiting everything that is coming, after more than a decade of Fed-inspired complacency, as price discovery returns with a bang.

Tyler Durden Sun, 03/08/2020 - 18:28
Published:3/8/2020 5:38:02 PM
[Markets] Market Bloodbath: Middle East Stocks Crater; Kuwait Halted; Aramco Below IPO; Dow Indicated Down 500 Market Bloodbath: Middle East Stocks Crater; Kuwait Halted; Aramco Below IPO; Dow Indicated Down 500

In case a global viral pandemic wasn't enough of a concern, on Saturday Saudi Arabia launched a global oil price war, when Aramco announced unprecedented discounts on Brent shipments to clients around the globe, with Bloomberg later reporting that the OPEC nation was set to flood the world with excess production potentially to as much as a record 12 million barrels a day, which in a world where oil demand has cratered due to China's economy remaining paralyzed due to the pandemic, assures that when Brent reopens for trading tonight it will be in freefall, tumbling into the $30s if not lower as OPEC is no more and every producer now scrambles to undercut everyone else in price, unleashing another deflationary massacre and forcing central banks to pull another market-supporting rabbit out of their hat.

Until they do, however, traders in the Middle East where markets have already reopened, decided to sell first and ask questions later, as stocks cratered ahead of the first official oil price prints, which will come after what was already the biggest one day drop in Brent since 2008 on Friday after news that the OPEC+ alliance had fractured. And now oil will have a Saudi oil price war to deal with, prompting some to speculate that the price oil could drop into the high teens, if not lower.

Kuwait led the sell-off, halting trading of the biggest and most liquid shares after its index tumbled 10% and bringing its losses this year to 18%, while every stock index in the region plunged. Dubai’s DFM General Index and Saudi Arabia’s Tadawul All Share Index clocked up the sharpest drop for a session since the 2008 financial crisis.

And, as we noted last night when we pointed out that Aramco's IPO top-ticked the market in both Brent and global investor stupidity...

... oil giant Saudi Aramco fell below its IPO price for the first time, plunging down over 9% to a record low of SAR30.00.

Elsewhere, Dubai’s DFM General Index and Saudi Arabia’s Tadawul All Share Index all posted the biggest one-day drops since the 2008 financial crisis.

Bank shares were hit the hardest: in Riyadh, Al Rajhi Bank finished 7% lower. Emirates NBD PJSC, Dubai’s biggest bank, fell 9.6%, while First Abu Dhabi Bank PJSC and National Bank of Kuwait SAKP ended 6.7% and 9.3% lower, respectively.

Some more details from Bloomberg:

  • Saudi Arabia’s Tadawul index was back to the level of November 2017, before its inclusion in the emerging-market gauges compiled by MSCI Inc. and FTSE Russell.
  • Dubai’s DFM General Index finished 7.9% lower, with real estate bellwether Emaar Properties down 9.7% to the lowest since 2012.
  • Kuwait’s main index extended losses this year to 18%, compared with a 32% gain in 2019 that was the best performance in the region.
  • Indexes in Saudi Arabia, Dubai, Abu Dhabi, Kuwait, Bahrain, Qatar, Egypt and Israel all traded below a technical threshold that indicated they were oversold.

Commenting on the bloodbath, Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital said that mideast markets "are finding it difficult to cope with all these variables that have been happening over the past 10 days. That’s why we see this panic-selling across the board taking certain markets to lows not seen even during the financial crisis."

"The sharp decline in oil prices is becoming a bigger concern for regional investors amid adverse global headlines," said Iyad Abu Hweij, managing partner at Allied Investment Partners in Dubai, who expects “heightened anxiety” to persist in markets.

Meanwhile, ahead of Monday's US open, UK spreadbetting service IG was indicating Dow futures to be down more than 500 points, as last week's violent selloff was set to return with a bang and as traders hoped that the Fed would make another emergency announcement later on Sunday to help ease the pain.

Tyler Durden Sun, 03/08/2020 - 11:01
Published:3/8/2020 10:06:23 AM
[Markets] Fed Chair Powell Confirms Fed's Role As The Great Enabler Fed Chair Powell Confirms Fed's Role As The Great Enabler

Authored by Bruce Wilds via Advancing Time blog,

As questions swirl about the Fed's independence Fed Chair Powell has been busy trying to explain his reason for the  "emergency" 50bps rate cut.

At Best, The Fed Is Simply A Flawed Institution

Regardless of what he says Fed Chair Powell has confirmed the Fed plans to continue its role as the great enabler. This means central banks across the globe can now lower their rates or do additional stimulus without damaging the delicate balance in the relationship in the value of one major currency to another. This is a delicate balance they have long held in check to stabilize the financial system and add credence to the myth no major currency can fail.

Powell said,  “My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook.”

Whether Powell succumbed to pressure from the highly critical words of the President for not acting immediately or fear the coronavirus would take a toll on the economy is not clear. As Powell tried to explain his actions, many of us who pay attention to such things cried "Bullshit." Not only is a rate cut uncalled for at this time, but because it will also do little to strengthen the economy. What it will do is continue to prop up asset prices and encourage risk-taking and malinvestment. This is a big deal and may even result in more negative interest rates across the world which could create greater problems.

In the Austrian business cycle theory, malinvestments are badly allocated business investments, due to the artificially low cost of credit and an unsustainable increase in the money supply. A strong case can be made that we already suffer from far to much leverage in our markets and this rate cut only encourages savers suffering from low-interest rates to take on more risk in search of higher yields. It has been pointed out on many occasions that low-interest rates do not extend down to low-income individuals with poor credit and many people fall into this category. Instead, over time these rates fuel inequality and punish the poor. Unfortunately, the concept that a rising tide floats all boats or trickle-down economics tends to heavily favor the rich.

We see this in housing where few of the new apartment construction funds are generated locally and much of the building is no-longer based on real need but centered around the whims of huge real estate companies. This is part of the reason roughly 80% of new apartment construction is now for the high-end luxury market. Again the government and Wall Street money is driving this train. While retailers close and large buildings go empty across the land new buildings are being put up on speculation and bogus public-private partnerships are plowing vast sums of money into projects geared to compete with those that already exist. the fact is all across America the Fed is putting the small guy out of business.

Feds Low Rates Have Enabled This

Of course, the elephant in the room is the stock market and not the economy. When people like Trump point to the market as proof that all is well they put stocks in front of the real indicator of our economic strength which is the middle and lower class. The disconnect between the working people and the financial community is apparent in the difficulty people with small businesses have getting loans or financing a project while big business is fed billions of dollars by the banks and Wall Street. If anyone is losing confidence in the system it is these people.

As you witness wild market swings and gyrations now taking place, it is important to realize this is part of the process necessary to break the well-ingrained habit of "buy the dip." This method of trading has worked since October 19th, 1987 when the Dow Jones Industrial Average (DJIA) dropped 22.6 percent in a single trading session. That is the day the actions by Fed Chairman Greenspan galvanized the mantras "buy the dip" and "don't fight the Fed." Greenspan did this by affirming the Federal reserve would be there "to serve as a source of liquidity to support the economic and financial system."

The trading patterns flowing from buying the dip have become ingrained and drive the algorithms embedded deep inside the computers that control much of the stock market's direction. As noted at the beginning of this article, to the chagrin of those with a negative view of the Fed, Powell has confirmed the Fed plans to continue as the great enabler allowing central banks across the globe to lower their rates or do additional stimulus without weakening their currency compared to the dollar. I continue to contend this explains the recent weakness in the dollar and the strength in the yen as wealth continues to flow out of China.

To be perfectly blunt, the rapid expansion of debt and credit during the last decade could have occurred without the Fed being complicit. When things move too far in one direction adjustments do occur. Do not be surprised if the dollar again jumps higher as the reality sets in that many countries will do far worse than America in the coming months. For now, we watch and wait while the market again tries to discover its true value both here in America and across the world.

Tyler Durden Sat, 03/07/2020 - 18:40
Published:3/7/2020 6:03:47 PM
[Markets] Goldman: A Corona Recession Will Send The S&P To 2,450 By Year End Goldman: A Corona Recession Will Send The S&P To 2,450 By Year End

It wasn't supposed to play out this way: on the day Jerome Powell surprised markets with an emergency intermeeting 50bps rate cut, the biggest cut by the Federal Reserve since 2008...

... stocks crashed, sparking a reflexive market panic because as BMO explained, "the biggest risk was always that by acting too proactively and aggressively Powell would signal that the situation is worse than initially feared. Check." And indeed, following the the rate cut, volatility exploded in the subsequent days as traders panicked from one market extreme to the other, with the VIX eventually blowing out above 54 on Friday, its highest print since the Lehman failure (as a Chicago market-maker reportedly blew up).

Amid this series of volatile moves, the S&P 500 tumbled 12% from its all-time high of 3,386 hit less than three weeks ago on February 19, and 4% since the Fed delivered its cut.

Initially, US stocks fell by 13% over the span of just 7 trading sessions, the fastest 10% correction in the Dow Jones index since a few weeks before the Great Depression started.

From the market peak, the decline in equity prices has lowered the P/E multiple from 19.4x to 17.0x while 10-year US Treasury yields have fallen by 80 bp to the lowest level in history (0.77%). Put together, Goldman notes that the yield gap (S&P 500 earnings yield less 10-year US Treasury yield) has widened to 510 bp, the widest since 2013 and considerably wider than the long-term average of 230 bp.

And speaking of Goldman, the bank's equity strategist David Kostin writes that - as one would expect - all its clients care about is the coronavirus correction. To allay their fears, the perpetually cheerful Kostin writes that his baseline assumption "is the COVID-19 virus becomes widespread but is relatively short-lived. We forecast flat earnings in 2020 followed by 6% growth in 2021. We estimate the yield gap will narrow to 395 bp by year-end as economic activity and confidence rebound, leading S&P 500 P/E to recover to 19.4x and the index to reach 3400, 14% above the current level."

That's the optimistic case.

In the not so optimistic one, Kostin admits that "the US  economy could slip into a recession if the coronavirus contagion lasts for an extended period of time"; as a reminder, just yesterday we noted that a global recession is now Bank of America's baseline assumption. In such a situation, Goldman estimates S&P 500 EPS would fall by 13% to $143 in 2020 and the index would decline to 2450 by year-end.

Extending Kostin's observations, he notes that under the surface of the S&P 500 volatile decline, "sector performance has been well-ordered" and since the S&P 500 peak, "realized sector performance has generally been in line with the return implied by each sector's beta to S&P 500 (Exhibit 2)." Sectors with the most notable deviation from this trend have been Energy (-15% vs. -9% implied), which has been driven by the 23% decline in Brent crude oil prices to $46/bbl, and Financials (-11% vs. -8% implied), which has underperformed sharply given the large decline in interest rates.

Looking at distinct industries, travel stocks have been among the most heavily monkeyhammered as virus concerns have intensified. Airlines, Casinos, Hotels, and Cruises have underperformed S&P 500 by 19 pp since February 19 (Exhibit 3). United Airlines announced that it would be cutting flights in April due to weaker demand amid coronavirus concerns. News broke on Thursday that authorities are holding another Princess cruise ship off the coast of California after a passenger died from the coronavirus and hotels have warned that occupancy rates are likely to dip amidst increasing travel restrictions

Meanwhile, as we warned almost a month ago, semiconductor stocks have also come under pressure due to the industry’s outsized exposure to China. Semiconductors derives 85% of revenues from international sources, the highest of any S&P 500 industry group. 47% of sales come explicitly from Greater China. Despite a recent spate of negative guidance, the median semiconductors firm has experienced a 1-month 2020E EPS revision of just -0.2%. Goldman also cautions that while most companies have slashed 1Q guidance, they have not yet addressed the longer-term or full-year outlook.

Finally, looking at single-names, a number of companies we which Goldman had previously screened as secular growth stocks have also been hard-hit by virus concerns. While coronavirus may reduce the near-term earnings of some of these firms, certain companies have declined by more than 20%. Some of these secular growth companies trade at valuations below the 20th percentile relative to the past 5 years. In contrast, 19 S&P 500 stocks have actually generated a positive absolute return since the market’s recent peak. Regeneron Pharmaceuticals, which expects to have a vaccine ready for human trials by August, is the bestperforming stock and has risen by 23% during the past week. Gilead Sciences (GILD, +19%), Newmont Corp. (NEM, +13%), Kroger Co. (KR, +8%), and Campbell Soup (CPB, +8%) round out the top five stocks

* * *

It's not just the coronavirus that is behind the market's violent moves: also this week, Joe Biden celebrated a number of big
wins on Super Tuesday, increasing his prediction market-implied probability of winning the Democratic primary to 83% from as low as 7% in early February.

Biden currently leads with 664 pledged delegates compared to Senator Bernie Sanders’ 573 delegates. Candidates will need to amass 1991 delegates to win the nomination on the first ballot.

Managed Care stocks have outperformed sharply this week as the odds of a progressive candidate winning the Democratic nomination have fallen. During the last several months, Managed Care stocks have demonstrated the strongest sensitivity among US equity industries to the Democratic primary race. These stocks outperformed by 6% on Wednesday after Joe Biden’s Super Tuesday win dramatically decreased the perceived likelihood of major health care policy reform.

On the other hand, the recent performance of stocks with high tax rates appears to reflect the increasing likelihood that Democrats could control both the White House and Senate after November. Following Super Tuesday, the prediction market odds of a Democratic president have risen to the highest level since early February (49%) and the odds of Democratic control of the Senate have risen to the highest level in more than a year (41%). As Goldman previously noted, prospective changes to tax policy would likely be similar regardless of which Democratic candidate won the White House. Exhibit 5 shows a list of 40 S&P 500 stocks that experienced a large boost to earnings from the Tax and Jobs Act of 2017 and outperformed their beta-implied returns in the months following the law’s passage. These stocks have lagged the S&P 500 by 130 bp since Super Tuesday.

Tyler Durden Sat, 03/07/2020 - 11:39
Published:3/7/2020 11:00:55 AM
[] Trump: I don't want to bring quarantined people off the cruise ship because I don't want "the numbers" to double overnight Published:3/6/2020 6:56:13 PM
[Markets] Stocks end lower but off worst levels as Wall Street wraps up roller-coaster week in positive territory U.S. stocks finished well off their worst levels Friday, but eked out respectable weekly gains as investors continued to react to rising infections of coronavirus. A 10% decline for oil after an OPEC deal collapsed also weigh on market sentiment. The Dow Jones Industrial Average closed about 253 points, 1%, lower, near 25,868, while the S&P 500 lost about 52 points, 1.7%, to close near 2,972. The Nasdaq Composite closed down about 163 points or 1.9%, at about 8,577. All three benchmarks were sharply lower midday but pared losses in the final half-hour of trade. The Dow finished the week up 1.8%, the S&P 500 rose 0.6% and the Nasdaq edged up 0.1%. Bank stocks were hammered as benchmark interest rates plunged, highlighted by the 10-year Treasury note yield hitting a historic intraday low below 0.70%. Bank of America Corp. shares ended down 10% for the week and shares of JPMorgan Chase Inc. fell about 7% in that period, as its CEO Jamie Dimon is recovering from emergency heart surgery. Published:3/6/2020 3:28:10 PM
[Markets] "What We Have Here Folks Is Destruction By Definition" "What We Have Here Folks Is Destruction By Definition"

Authored by MN Gordon bia EconomicPrism.com,

Major U.S. stock market indexes yo-yoed about all week.  On Monday, panic selling from last week turned to panic buying.  Decades of Fed intervention have conditioned stock market investors to step in front of semi-trucks to scoop up nickels.

The Dow Jones Industrial Average (DJIA) jumped 1,290 points.  This marked its biggest-ever single day gain in terms of points.  Can the economic destruction wrought by coronavirus containment really be overcome with what former New York Fed President, Benjamin Strong, once called stock market “coup de whiskey?”  We doubt it.

But we are fairly confident Fed stimulus will have the offensive consequence of widening the gap between sky high asset prices and weak economic fundamentals.  Fed Chairman Powell certainly understands this.  Nonetheless, on Tuesday, he went forward with the dirty deed.

After an early morning teleconference with various G7 poohbahs, Powell cut the federal funds rate by 50 basis points.  This took the Fed’s target range to between 1 and 1.25 percent.  As far as we can tell, Powell’s dirty deed achieved the exact opposite of its intent.

U.S. stock market indexes didn’t go up.  Rather, they went down.  In fact, they went down a lot.  The DJIA, for example, gave back 785 points.  Here’s why…

The Fed’s rate cut was an act of fear.  Investors smelled it out and circled like a pack of wild hyenas.  Powell may be able to expand the supply of money and credit.  But he can’t make up for the economic destruction of a global economy that’s grinding to a halt to stem the spread of coronavirus.  Cutting rates 50 basis points won’t cut it.

“This Sucker’s Going Down”

Bull markets, like myths and legends, die hard in America.  By Wednesday, the bulls were back at it…bidding up share prices like 17th century tulip bulbs.  The DJIA, baited by promises for fiscal stimulus, jumped 1,173 points – back above 27,000.

Could it be that the bull market is not dead after all?  Is Dow 30,000 back on the table?

Not quite.  On Thursday, investors lost their nerve.  The DJIA puked back 969 points.

The fact is, these wild market gyrations are not indicative of a healthy market.  Rather, they’re representative of a grisly, ghastly, and grim market.  One that by all rational accounts should be deflating, but for desperate Fed attempts to inflate it.

Remember, Fed Chair Powell is first beholden to the reserve systems member banks.  After that, and when it aligns with the Fed’s main objective of perpetual credit creation, Powell will oblige the haranguing of President Trump.

But the real news.  The news stock market investors would be wise to heed.  The yield on the 10-Year Treasury Note slipped below 1 percent for the first time ever. 

Treasury investors, no doubt, can read the writing scribbled on the wall by George Dubya in late 2008: “This sucker’s going down.”

Destruction By Definition

Coronavirus – and the fear of coronavirus – is spreading around the globe.  This week, in fact, it attacked our own hamlet.  The authorities, in the form of the Los Angeles County Department of Public Health, declared a local health emergency on Wednesday.

Then, in the form of a preemptive measure, our immediate government, City of Long Beach, declared a local health emergency.  This declaration, in all seriousness, was made prior to a single confirmed coronavirus case within the city.

But everyone knows there are already hidden carriers roaming about from Pine Street to the outer tip of Belmont Veterans Memorial Pier.  Better to be poised than passive.

Regardless, the economic damage has already been done.  From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come into focus.  These elements, even for the most untrained of eyes – and ears – are impossible to miss.  Namely, foghorns are less frequent.  Zero Hedge delivers the grim particulars:

“The Port of Long Beach, the second-largest containerized port in the US, has had two top officials warn in the last several weeks of chilling effects of supply chain disruptions from China. 

“Last week, the Deputy Executive Director of Administration and Operations for the Port of Long Beach Noel Hacegaba warned China’s economic paralysis led to the increase of blank sails between China and the US.  He said port activity plunged in January and February, with expected weakness to continue through March.

“Hacegaba said the slowdown at Long Beach is starting to hit the local economy around the port.  He said it could only be a matter of time before it triggers a broader slowdown in the region, and even maybe in the overall US economy.”

What we have here, folks, is destruction by definition.  

Supply chain disruptions breed consumer good disruptions, which breed declining sales, which breed disappearing cash flow, which breed layoffs, which breed less Ford F-150 sales, which breed shrinking tax receipts, which breed unserviceable public and private debt, which breed mass bankruptcies, which breed game over.

Yep, whether coronavirus spreads out across the LA Basin en masse or not, this sucker’s going down…and it will take the stock market down with it.  In the meantime, you can lock in a 30 year fixed rate mortgage refi for under 3.5 percent.  Yee-Haw!

Tyler Durden Fri, 03/06/2020 - 15:18
Published:3/6/2020 2:26:05 PM
[Markets] Apple's iPhone 'demand risk is increasing' in the near term, UBS says UBS analyst Timothy Arcuri said that Apple Inc.'s "near-term demand risk is increasing" as the coronavirus impact continues to spread beyond China. "We had moved some demand from March into June but given the broader impact, we now think the demand impact could continue into June," Arcuri wrote. He didn't make changes to his March-quarter estimates, which are 6% below Apple's original forecast, though he said that he expects demand in China to "remain weak" as it will take time for consumer confidence to reach normal levels again. He trimmed his June-quarter iPhone unit estimates by 2 million, to 38 million, "given shortages and potential broadening demand impact." On the supply side, Arcuri cites research from UBS's Asia team, which indicates that Apple's March-quarter iPhone builds are off 45% on a quarter-over-quarter basis, compared to a normal season drop of 32% to 35% from back when Apple disclosed iPhone unit-sales numbers. "Expectations from supply-chain companies is for production to gradually return by end of Q1 and normalize in Q2 though we think there is still some uncertainty of component shortages on the assembly side," he wrote. Arcuri has a buy rating and $350 target price on Apple shares, which are off 2.4% in Friday trading. The stock has lost 12% over the past month, as the Dow Jones Industrial Average has dropped 13%. Published:3/6/2020 11:58:05 AM
[Markets] Dow Jones Dives As Stocks Sell Off Despite Jobs Data; Coronavirus Cases Top 100,000 The Dow Jones index tumbled as much as 891 points before trimming its losses, as coronavirus cases topped 100,000, overshadowing strong U.S. jobs data. Published:3/6/2020 11:30:09 AM
[Markets] Stockman: "Hey, Jay, Enough Of Your Stinkin' Easy Money!" Stockman: "Hey, Jay, Enough Of Your Stinkin' Easy Money!"

Authored by David Stockman via LewRockwell.com,

It doesn’t get any more pathetic than this. The Fed cuts the absurdly low money market rate by another 50 basis points at 10AM and before noon the Donald is banging the podium for more.

So if you ever needed a final warning to get out of the casino, today’s back-to-back eruption of financial insanity from the two most powerful economic actors on the planet should be it.

Even then, we might be inclined to give the Donald a tad bit of slack. After all, he’s an absolute dunderhead on economics and spent a lifetime as a leveraged real estate speculator, where, in fact, lower rates are always, but always, to be welcomed when you’re rolling the dice with other people’s money.

Still, it doesn’t get any more primitive or dangerous than the Donald’s current conviction that the price of money should be graduated lower based on the current year international league tables of GDP growth or the level of presidential braggadocio, as the case may be.

Effectively, however, the tiny posse of fools who run the ECB and the BOJ are burning down the financial foundations of their own economies. So the Donald insists we burn down ours, too.

Folks, that’s the sum, substance and full extent of his “thinking”:

“As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive,” Trump said, referring to the Fed chairman.

“The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”

By contrast, the empty suite and sniveling coward who announced this week’s emergency 50 basis point cut deserves no quarter whatsoever. The man is so petrified of a hissy fit by the boys, girls and robo-machines in the trading pits that he has just plain abandoned any pretense of rational financial thought.

In fact, you could dismiss his meandering comments at the post-announcement presser as risible drivel and be done with it.

Except, except….Powell and his merry band are so drunk with financial power that they now believe any ragged, threadbare, illogical excuse to display their muscle and placate the crybabies and bullies of Wall Street is all that’s required. That is, there are no tradeoffs, no risks – just cut and print, rinse and repeat.

Thus, spake Pusillanimous Powell, averring that the central bank’s action would provide –

“….a meaningful boost to the economy” by loosening financial conditions and shoring up business and household confidence.

“We saw a risk to the outlook for the economy and chose to act,” Powell said, noting the impact on tourism and travel and on company supply chains. “I do know that the U.S. economy is strong…I fully expect that we will return to solid growth and a solid labor market as well.”

“We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain; we get that, we don’t think we have all the answers,” Powell said. Still, he said, it will help support “overall economic activity.”

Needless to say, this is group think run amuck. There is apparently no longer a single Fed head who understands that interest rates are not merely one-way control dials, which exist solely to enable the FOMC to fine-tune the path of the nation’s $22 trillion GDP.

Somewhere over the last decades of Keynesian central banking, the truth that savers are being harmed every time the Fed pleasures Wall Street speculators with another rate cut has been lost completely. So has the notion that rate signals intended to encourage homeowners to buy a house or businesses to build a plant also foster ever more carry trade speculation on Wall Street and reward C-suites for investing in Wall Street pleasing buybacks and M&A deals, not productive investment in plant, equipment, technology, intellectual capital and human resources.

Accordingly, we have now reached the point were the Fed is no longer even in the business of safeguarding sound money and financial system efficiency and stability. Instead, it’s morphed into a grand macroeconomic underwriter, purporting to insure the US economy against any and all bumps in the road, regardless of their origin.

We already had them insuring against the Donald’s Trade War madness with 3 rate cuts last summer. Then with their repo facility madness in the fall, they were essentially insuring against the adverse rate and growth impacts of Washington’s borrowing binge.

And now they are throwing the untoward impacts of plagues and flood onto their underwriter’s table. So presumably anything could be next – even a mass outbreak of hangnails and toe fungus.

In fact, the true nature of central bank intervention in financial markets is just the opposite. To wit, tampering with asset prices is the most dangerous and potentially destructive thing any agency of the state could undertake because it fuels greed, recklessness, speculation, malinvestment and economic errors throughout the length and breadth of the system; and, to paraphrase Keynes’ famous observation about inflation, in ways that not one in a million central bankers could possibly comprehend.

In other words, what was announced this morning had nothing to do with central banking by any even loose historical definition of the term. It was actually another, even more over-the-top exercise in monetary central planning of the GDP and all that is subsumed under its $22 trillion girth.

But why in the world would anyone – even arrogant, self-regarding Fed heads – believe they can comprehend the infinite complexities and feedback loops of the GDP? That is, the $22 trillion here and the $85 trillion worldwide economy in which it is intricately and intimately intermeshed.

Yet if you presume to know that a 1.05% money market rate rather than a 1.55% rate will produce optimum economic outcomes under the shadow of Covid-19 uncertainty and disruption, then you positively do need to comprehend all the highways and bi-ways weaving through $22 trillion of input/output tables that only crudely comprehend the blooming, buzzing mass of activity which is actually the US economy.

Self-evidently, the Fed heads no longer even try to explain the macroeconomics of rate-cutting when they are cheek-by-jowl with the zero bound. They just assert ex cathedra that it will do some good – and not even from the actual quantitative flow economics that the Fed historically avowed.

That is, back in the day, if credit was not flowing to homeowners because high rates made borrowing prohibitive, it turned the rate dials lower in order to reduce bank disintermediation and thereby give S&Ls the means to lend, home-buyers the incentive to borrow and home-builders a boost to their order books.

And, by contrast, if rates got so low as to cause building activity to skyrocket, thereby fueling rampant wage, lumber and building lot inflation, they proceeded to dial up rates to cool things down.

We think the powers of the free market were always up to the task of credit flow regulation on their own: Freely mobilized interest rates always clear markets and bring forth more savings if needed, and more credit demand where economics require.

So central bank regulation of credit flows was never really necessary, but here’s the thing: In the present regime of massively subsidized and mispriced capital which the world’s central banks have fostered, there simply isn’t any credit flow channel to regulate.

Debt capital has become virtually unlimited and tantamount to free so there simply are no interest rate or credit supply barriers to spending and investment.

Likewise, the world economy has become so over-invested and malinvested in physical production capacity that the old-fashioned “demand-pull’” inflation just doesn’t happen. Or at least until now it hasn’t because the subsistence rice paddies and villages of the developing world had not yet been drained of cheap labor.

That’s why today’s monetary central planners don’t even talk about credit flows to the main street economy any more. There is no problem there for their ministrations to solve.

Instead, they talk about “easing financial conditions” and “supporting financial confidence”. That is to say, monetary policy is no longer even about money or credit; it’s an exercise in state-directed psy-ops.

And when you look into the real purpose of Fed psy-ops, which was the explicitly acknowledged purpose of today’s emergency rate cut, you quickly come to understand why Wall Street has morphed into a casino and the Fed its dutiful handmaid.

To wit, “easier” financial conditions mean low credit spreads and high stock prices or “risk on”. By contrast,”tighter” financial conditions are defined by widening credit spreads and falling stock prices and PE multiples and “risk off”.

Needless to say, in today’s debt-entombed main street economy, the Fed’s psy-ops with respect to “financial conditions” are neither here nor there. No wannabe homebuyer is influenced by the Fed’s psy-ops and no businessman stocks or destocks inventories or adds or subtracts from CapEx budgets based on whether the casino has been coaxed into a temporary risk-on or risk off mood by the Fed heads.

Stated differently, Fed policy is now almost exclusively about keeping stock prices high and rising, and nipping any even half-assed effort at correction in the bud, and violently so.

Self-evidently, this week’s grand exercise in psy-ops failed spectacularly and like never before. The casino shifted by 1200 Dow Points between the post-cut announcement high and the intra-day low. And in the wrong direction!

Moreover, that bust comes on top of the 4800 Dow point plunge from the February 19th high to the February 28th intra-day low, which was followed by a 2000 point rise from last Friday’s low to Monday’s insane closing high.

In other words, the Fed long ago exited the sound money business. After the great financial crisis and its balance sheet pumping spree thereafter it also existed the credit flow control business.

And with today’s monumental error, it has now, apparently, euthanized its psy-ops tool, as well.

In the days ahead we will elaborate on the truly dangerous new financial world that now exists in the wake of the Fed’s self-defenestration. But in the meanwhile, Gary Kaltbaum captured the madness now loose in the land in his trenchant commentary issued immediately after the Fed’s announcement:

Powell lowered rates in the past few minutes because the market was heading lower today. He wasn’t going to make the move today until he saw the DOW down 300 early. This is not about a virus. This is not about an economy. This is about the markets…AGAIN! This is about the Bernanke, Yellen, Powell, Kuroda, Carney, Draghi, LaGarde markets that have made markets addicted to their easier money moves with an unaccountable and limitless amount of conjured up money. Do you not think he sees what we have reported to you? That like a well-trained dog, markets react to his every whim?

So what did Powell just do…or at least try to do:

He screwed Aunt Mary and Uncle Bob…AGAIN! Yes…how dare you want risk-less income investments! How dare you want a decent money market rate! Screw you Mr. and Mrs. Saver.

The continuation of the asset bubble. (SEE A CHART OF ANY INDEX PAST 11 YEARS)

A widening of the wealth gap. Yes…all these politicians complaining about the wealth gap? Look no further.

The continuation of the distorting or price and yield in bond markets.

BOTTOM LINE:
Another in a long line of moves to stanch any bleeding in the markets. Mr. Powell is easily Mr. Obvious. By the way, do you know how pundits and futures markets give percentage chances of rate cuts in the future? Since we have nailed these rate cuts all the way down, here is our latest.

WE GIVE IT A 100% CHANCE THAT WE WILL NOT ONLY EVENTUALLY BE BACK AT 0% BUT WE WILL EVENTUALLY DO THE NEGATIVE RATE DANCE. BOOK IT NOW!

LASTLY:
If we ever get to the day where markets do indeed shoot the middle finger back at these market interlopers…head for the hills. If we ever get to the day where the markets see these moves as desperation…head for the hills. Initial reaction…rally 700 points in minutes…drop 600 points in minutes…rally back 300 points in minutes. Welcome to your central bank markets.

He got that last bit right. It may well have happened within minutes after he hit the send button.

*  *  *

Originally posted at David Stockman’s Contra Corner.

Tyler Durden Fri, 03/06/2020 - 11:50
Published:3/6/2020 10:55:47 AM
[Markets] The odds of a 2008-like stock-market meltdown are low Over the past two weeks, the stock market has had some of its biggest drops since the 2008 financial crisis. Unlike COVID-19, the stock market is a quantifiable barometer of group think, a reflection of collective human emotion. For example, there was enough fear to cause the S&P 500 index (SPX)  to drop 10.7% from its closing record high on Feb. 19 through Thursday, and it’s plunging again Friday morning, Of course the Dow Jones Industrial Average (DJIA) Nasdaq Composite (COMP) , and Russell 2000 (RUT)  have been clobbered too. Published:3/6/2020 9:55:50 AM
[Markets] JPMorgan Chase, American Express share losses lead Dow's 750-point fall DOW UPDATE Shares of JPMorgan Chase and American Express are seeing declines Friday morning, leading the Dow Jones Industrial Average slump. Shares of JPMorgan Chase (JPM) and American Express (AXP) have contributed to the blue-chip gauge's intraday decline, as the Dow (DJIA) was most recently trading 755 points (2. Published:3/6/2020 9:02:11 AM
[Markets] "This Is It! The Party's Over" - Will Covid-19 Cause A New Financial Crisis? "This Is It! The Party's Over" - Will Covid-19 Cause A New Financial Crisis?

Authored by Michael Snyder via The Economic Collapse blog,

The term “black swan event” is increasingly being used to describe this coronavirus outbreak, and many are concerned that what we are headed for will be much worse than what we experienced in 2008 and 2009.  Already, we have witnessed a staggering drop in global demand, Wall Street has had to deal with the wildest week in eight years, and people all over the globe are hoarding toilet paper, face masks and hand sanitizer.  That may sound like a plot from one of my books, but it is not.  This is actually happening, and it appears that we are still only in the very early chapters of this crisis.

It seems like just yesterday that everyone was freaking out because there were a few dozen confirmed cases here in the United States.  Now there are 70 in the state of Washington alone

A cruise ship remains at arms length from San Francisco and the number of confirmed cases of coronavirus in Washington state ballooned to 70 on Thursday – pushing the U.S. total above 220 – as the global struggle against the outbreak intensified.

The nation’s death toll rose to 12, 11 of them in Washington. Fifty-one of the confirmed cases are in King County, home to Seattle, where ten of the deaths have occurred, state health officials said.

As I write this article, the total number of confirmed cases in the U.S. has now risen to 233, but of course that number is going to go much higher now that the U.S. has finally decided to ramp up testing for the virus.

If you live in the Seattle area, you are going to want to avoid public places for the foreseeable future.  In fact, officials in King County are already recommending that all businesses “allow their employees to telecommute throughout March”

A Washington state county, where 31 coronavirus cases and 9 deaths have been reported, has recommended to its 2.2 million residents that they should work from home to help slow the spread of the infectious disease, and further urged everyone over 60 to stay indoors.

Public Health officials in King County on Wednesday recommended that businesses allow their employees to telecommute throughout March in an effort to reduce the amount of face-to-face contact between large numbers of people during this “critical period” in the COVID-19 outbreak.

Unfortunately, other hotspots are starting to emerge as well.  The total number of cases in California is up to 53, and the number of cases in New York just doubled

California declared a state of emergency after a coronavirus-related death and 53 confirmed cases in the state. The number of infections in New York also doubled overnight to 22 as the state ramps up its testing.

Predictably, U.S. stocks plunged on Thursday as the bad news came rolling in.  By the end of the trading session, the Dow Jones Industrial Average was down 969 points

Stocks plunged on Thursday, erasing most of the steep gains in the previous session, as markets remained highly volatile in the face of the fast-spreading coronavirus.

The Dow Jones Industrial Average ended the day 969.58 points, or 3.5%, lower at 26,121.28 after tanking nearly 1,150 at its session low. The S&P 500 dropped 3.3%, or 106.18, to 3,023.94 and the Nasdaq Composite fell 3.1%, or 279.49, to 8,738.60. All 11 S&P sectors finished the day in the red. Stocks turned sharply lower as the 10-year Treasury yield fell to an all-time low below 0.9%.

This is precisely the sort of wild market behavior that we witnessed during the financial crisis of 2008.  One day stocks would be way down, and the next day they would be way up.  When we see extreme volatility such as this, it is a clear indication that investors are very nervous.

After watching what transpired on Thursday, one trader described the market’s current behavior as “a super-puke”

Watching the markets today  – as The Dow plunged 1000 points, Treasury yields collapsed to record lows, credit markets imploded, and demands for more Fed intervention exploded – has one veteran trader remarking, “this is becoming a super-puke.”

Of course if this coronavirus outbreak starts to fade, it is entirely possible that the markets could settle back down.

But that hasn’t happened so far, and experts are warning that we should expect to see more market volatility ahead.  Here is one example

“We expect markets to remain volatile,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note. “The unfolding nature of the coronavirus threat—both real and perceived—is not yet quantifiable, and, as such, the current global policy response can’t immediately be judged as sufficient or insufficient for restoring investor confidence in the short term.”

Meanwhile, the fear that this coronavirus outbreak has created is hitting the real economy exceedingly hard.

In fact, the CEO of Southwest Airlines says that his company “lost several hundred million dollars in a week’s time” because people are so afraid to travel right now…

Southwest Airlines CEO Gary Kelly told CNBC on Thursday that the company has lost several hundred million dollars in a week’s time thanks to a decline in bookings amid increasing fears over COVID-19. Kelly added that the drop-off was “noticeable” and “precipitous” and has continued declining on a daily basis.

We are seeing similar things happen in industry after industry.

So what is going to happen if this outbreak continues to intensify in the months ahead?

Needless to say, we could soon be facing a worst case scenario for the global economy.  According to Egon von Greyerz, the party is indeed “over” and we are headed for the worst economic crisis that any of us have ever experienced…

This is it! The party is over. The world is now facing the gravest economic and social downturn in Modern Times (18th century). We are now entering a period of global crisis that will change the world for a very long time to come. This should come as no surprise to the people who have studied history and also read my articles for the last few years. Many others have also warned about the same thing. But since MSM never talks about the excesses in the world or the risks, 99.9% of people are totally unprepared for what is coming next.

Will he be correct?

We shall see.

It would be wonderful if this virus would just go away and life could get back to normal.  Unfortunately, this crisis just seems to escalate with each passing day.

On Thursday morning, police were actually called out to a Costco in southern California because “toilet paper, paper towels, and bottled water were out of stock”

Deputies responded to the Chino Hills Costco at 10.15am on Thursday morning after receiving a report of a disturbance, a San Bernadino County Sheriff’s Department spokeswoman told DailyMaill.com.

On the scene, deputies learned that ‘a large group of customers were upset’ that items such as toilet paper, paper towels, and bottled water were out of stock, said Public Information Officer Cindy Bachman.

All over America, people have been hoarding essential supplies like crazy.  If people are this delirious already, how are they going to act once things start getting really bad?

It was inevitable that stock prices would crash from the ridiculously elevated levels that we witnessed earlier this year.

And the next economic downturn has been building for a really long time.

But now events are starting to move at a pace that is absolutely breathtaking, and it looks like all of our lives are about to change in a major way.

Tyler Durden Fri, 03/06/2020 - 08:55
Published:3/6/2020 7:56:23 AM
[Markets] Meltdown: Stocks Tumble, Yields Crater As Coronapanic Infects Traders Meltdown: Stocks Tumble, Yields Crater As Coronapanic Infects Traders

Stock markets tumbled, and bond yields cratered on Friday amid a rising trader panic as the number of coronavirus infections neared 100,000 and the economic damage wrought by the outbreak intensified resulting, appropriately enough, in business districts around the world that have begun to empty amid coronavirus evacuations.  As a result, global markets were a sea of red amid mounting concern over the economic fallout of the spreading coronavirus.

European shares opened sharply lower, with travel stocks bearing the brunt. The pan-European STOXX 600 index, set for a second day of sharp losses, was down as much as 3.6%, with Germany's DAX, Britain's FTSE 100 and France's CAC 40 all in freefall.

The MSCI All-Country World Index was down 0.72%; all 19 industry groups in the red, as the cost of insuring the region’s high-yield corporate debt climbed to the highest since 2016. After their worst weekly performance since the 2008 financial crisis, global stocks as measured by the index are up 1.7% this week, as sentiment recovered on the back of stimulus from policymakers to combat the economic fallout of the virus. However, at this rate panic is moving markets this morning, we may soon see all of this week's gains - which include two 1,000+ Dow point gains - reverse.

In the US, contracts on all main index futures pointed to heavy losses at the open after Thursday’s rout, as officials and companies in Britain, France, Italy and the United States are struggling to deal with a steady rise in virus infections that have in some cases triggered corporate defaults, office evacuations, and panic buying of daily necessities.  Overnight S&P Index futures slumped as much as 2.5%... 

...while the VIX soared as high as 47 on Friday during Asian hours. The number of coronavirus cases worldwide approached 100,000 as the outbreak in the U.S. gathered pace, while China and South Korea continued to report new infections and deaths.

The latest leg of the sell-off kicked off in Asia, where stocks from Tokyo and Sydney to Hong Kong and Seoul slumped more than 2%, falling only for the first time this week, led by energy and finance companies, on mounting concerns over the economic impact of the spreading coronavirus. All Asian markets dropped, with Japan’s Topix index completing a fourth week of declines and Australia’s S&P/ASX 200 closing at its lowest level in almost a year. The Topix declined 2.9%, with Raccoon Holdings and Curves HD falling the most. The Shanghai Composite Index retreated 1.2%, with Ningbo Fuda and Shanghai Lonyer Fuels posting the biggest slides. Shares in China CSI300 finally fell 1.22%, while stocks in Hong Kong, another city hard hit by the virus, fell 2.12%.

However, while stocks were in freefall, the biggest move was in rates, where the 10Y crashes as low as 0.70% overnight...

... with the entire yield curve now trading below the effective fed funds rate suggesting the Fed may have to cut as much as 75bps in two weeks.

The yields on both 10-year and 30-year treasuries fell to fresh record lows as investors fretted over an expanding health crisis that risks disrupting global supply chains. Germany’s benchmark 10-year Bund yield fell to a six-month low within striking distance of last year’s record lows.

Minneapolis Federal Reserve President Neel Kashkari said late on Thursday the Fed could cut rates further if needed. ANd indeed, money markets are pricing in more than 50 basis-point-cut from the current 1% to 1.25% range at the next Fed meeting on March 18-19.

The corona outbreak has now spread across the United States on Thursday, surfacing in at least four new states. "The interplay of virus containment fears and stimulus measures means that in the near term we expect market volatility to persist,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

An increasing number of people faced a new reality as many were asked to stay home from work, schools were closed, large gatherings and events canceled, stores emptied of staples like toiletries and water, and face masks a common sight. In London, Europe’s financial capital, the Canary Wharf district was unusually quiet. S&P Global’s large office stood empty after the company sent its 1,200 staff home, while HSBC has asked around 100 people to work from home after a worker tested positive for the illness. In New York, meanwhile, JPMorgan divided its team between central locations and a secondary site in New Jersey while Goldman Sachs sent some traders to nearby secondary offices in Greenwich, Connecticut and Jersey City.

While concerted efforts from central banks and governments to soften the blow from the virus spurred gains across equity markets earlier in the week, investors were clearly back to taking risk off the table and piling into the world’s safest and most liquid assets. The number of coronavirus cases globally approached 100,000, as more infections were reported in the U.S., Germany and South Korea.

"The focus is very much on the spread of coronavirus outside China and really markets aren’t going to settle until we see some sort of peak,” QIC managing director Susan Buckley told Bloomberg TV. “This is going to go on longer than most of us expected."

In FX, plunging yields hammered the dollar, which fell to a six-month low versus the yen and close to a two-year trough against the Swiss franc. The yen rallied to its strongest since August versus the dollar, advancing against all G-10 peers. The euro climbed to $1.1324, its highest level since mid-2019, and was set for its best week against the greenback since 2016, even thought markets in the euro zone are pricing in a 93% chance that the European Central Bank will cut its  deposit rate, now minus 0.50%, by 10 basis points next week. The single currency has now reversed all its earlier losses for the year, rising from below $1.08 a few weeks ago to above $1.13. ING analysts said they were targeting $1.15 in the coming weeks as aggressive U.S. rate cuts contrasted with the limited room for action at the European Central Bank. "For now, expect USD weakness vs G10 FX to continue, and the G10 FX segment outperforming EM FX, with carry trades under pressure," they said in a research note.

In commodities, oil plunged below $44 per barrel in New York and was set for even greater losses if OPEC failed to reach a production cut with Russia. Focus for the crude complex remains on today’s OPEC+ meeting, where we are still awaiting remarks from Russian Energy Minister Novak himself after OPEC yesterday agreed to a 1.5mln BPD cut and an extension of existing measures. However, comments this morning from a Russian high-level source that Moscow will only agree to extend the existing OPEC+ oil cuts, will not agree to extra cuts and its position will not change caused a significant drop in crude prices.

The price action in metals has been just as fervent and spot gold has printed a new multi-year high at USD 1689.99/oz, surpassing the USD 1689.29/oz which was set last month; a high which takes us all the way back to January 2013.

To the day ahead now where the focus is on the February employment report in the US while the January trade balance and January wholesale inventories are also due to be released. Expect the Fedspeak to also be a big focus today with Evans, Mester, Bullard, Williams, Rosengren and George all due to speak.

Market Snapshot

  • S&P 500 futures down 2.1% to 2,951.00
  • STOXX Europe 600 down 2.7% to 370.50
  • MXAP down 2% to 156.87
  • MXAPJ down 2% to 516.33
  • Nikkei down 2.7% to 20,749.75
  • Topix down 2.9% to 1,471.46
  • Hang Seng Index down 2.3% to 26,146.67
  • Shanghai Composite down 1.2% to 3,034.51
  • Sensex down 2.3% to 37,589.36
  • Australia S&P/ASX 200 down 2.8% to 6,216.21
  • Kospi down 2.2% to 2,040.22
  • German 10Y yield fell 3.7 bps to -0.723%
  • Euro up 0.4% to $1.1282
  • Italian 10Y yield rose 5.4 bps to 0.901%
  • Spanish 10Y yield rose 4.1 bps to 0.254%
  • Brent Futures down 2.6% to $48.67/bbl
  • Gold spot up 1% to $1,688.42
  • U.S. Dollar Index down 0.8% to 96.07

Top Overnight News from Bloomberg

  • Markets aren’t prepared for how severe the fallout of the global spread of coronavirus could get, according to the manager of a fund which outperformed 98% of its peers over the last month
  • The number of coronavirus cases globally approached 100,000 as the outbreak in the U.S. gathered pace, and China and South Korea continued to report new infections and deaths
  • Dollar-funding markets are showing signs of stress as U.S. stocks tank and rates markets price for aggressive easing by the Federal Reserve resulting in a regime change of rates
  • German factories saw a rebound in demand just before China became engulfed by the coronavirus outbreak that has since spread across the globe.
  • A key indicator of Japan’s economic outlook fell to its lowest level since the global financial crisis, offering an early official sign that the coronavirus is pushing Japan’s economy into recession.
  • Federal Reserve Bank of Dallas President Robert Kaplan said the pace of acceleration in the coronavirus across the U.S. will be an important factor as he weighs the need for another interest rate cut when policy makers meet later this month
  • The Fed’s surprise emergency interest-rate cut has put the central bank in a good position to shelter the record U.S. economic expansion, New York Fed President John Williams said
  • China’s 10-year sovereign bond yield fell to the lowest since 2002, joining a global rally of government debt as concern mounts that the coronavirus outbreak will derail economic growth this year
  • Oil extended its slide from the lowest close in more than two years as investors wait for a Russian response to OPEC’s plan for deeper and longer cuts to offset the demand destruction caused by the coronavirus

Asian equity markets slumped across the board as the sell-off rolled over from Wall St. where all major indices declined over 3%, led by a near 1000-point drop in the DJIA amid coronavirus fears which spurred a mass flight to safety and pressured US 10yr  yields to fresh record lows. ASX 200 (-2.8%) fell deeper into correction territory as tech and financials resumed their recent underperformance although defensives and gold miners showed some resilience on the safe-haven play, while Nikkei 225 (-2.7%) was the worst performer and retreated below the 21000 level to a 6-month low with losses exacerbated by detrimental currency flows and contractions in Household Spending. Elsewhere, Hang Seng (-2.3%) and Shanghai Comp. (-1.2%) were also heavily pressured alongside the global stock rout and continued PBoC liquidity inaction. On the coronavirus front, the pace of additional confirmed cases and deaths in mainland China continued to show a mild improvement, although this failed to spur markets as attention was also on the increasing number of cases in other countries leading to fears of a global pandemic. Finally, 10yr JGBs were higher amid the bloodbath in stocks and as bond prices tracked their US counterparts higher against the backdrop of record low US 10yr Treasury yields, while the JSCC noted an emergency margin call was triggered for long-term JGB futures and China’s 10yr yield also slipped to its lowest since 2002.  

Top Asian News

  • China Bond Rally Pushes 10-Year Yield to Lowest Since 2002
  • Virus Adds to Woes of Indonesian Carrier Facing Big Debt Payment
  • Indian Bank Meltdown Takes Out Walmart’s Leading Payments App
  • Erdogan’s Ottoman Dreams Lie Broken on the Syrian Battlefield

Further pain for European equities this morning (Eurostoxx 50 -3.1%) as losses in global stock markets show no sign of letting up. Once again, there hasn’t been too much in the way of notable macro newsflow, instead, attention remains on the ongoing climbing case count with particular focus Stateside amid a pickup in COVID-19 diagnosis’ and reports of 2733 people being quarantined in New York City. Commentary around the 2020 Presidential election race continues to impose itself on the market narrative, however, it appears to still be playing second fiddle to the fallout from COVID-19. Furthermore, the market is also trying to wrestle with the narrative over who will be the most favourable candidate for Trump to face in November with Biden viewed as more market-friendly than Sanders, with Sanders an easier candidate for Trump to defeat. In terms of price action in Europe, the sell-off for the DAX gathered momentum early doors (as did other global asset classes) with the Mar’20 contract taking out support at 11617 (March 2nd low) before finding some composure after stalling at 11600. However, as the session progressed, the velocity of the price action in markets accelerated dramatically with the index eventually troughing at 11446. Stateside, futures unsurprisingly indicate a negative open with the e-mini S&P lower by circa 80 points. All ten sectors in Europe are lower with slight underperformance in industrials, consumer discretionary and IT names, whilst consumer staples and telecoms are faring marginally better than their peers, however, are ultimately lower on the session. In terms of individual movers, there is a distinct lack of green on the board with focus instead, once again, to the downside with Capita (-12.6%) the notable laggard in the Stoxx 600 after adding to yesterday’s dire performance. Elsewhere, Prysmian (-9.5%) are markedly lower following disappointing FY results, Atlantia (-8%) are being weighed on after its Autostrade unit delayed results, Airbus (-6.0%) are being sold after posting no new orders in February, whilst executives at Boeing remain bullish on a return of the 737 MAX by mid-year.

Top European News

  • German Factories Saw Signs of Recovery Before Coronavirus Hit
  • Deadly Bridges Expose Italy’s Toxic Red Tape and Self Interest
  • Ray-Ban Maker’s Management Dispute Smolders Amid CEO Search
  • Hammerson Falls to Lowest Since 1993 After Goldman Downgrade

In FX, the Dollar continues to slide vs major peers while outperforming against the majority of its EM counterparts as US Treasury and other core global bond yields tank amidst more pronounced bull-flattening across the debt curves. As a result, the DXY has extended post-Fed emergency ease lows to 95.993 and there’s little in the way of technical support ahead of 95.950 if the purely psychological or sentimental round number really gives way. NFP looms and usually matters, but in the current environment China’s COVID-19 and contagion appears all consuming

  • NZD/JPY/CHF/EUR/AUD/GBP - The strongest G10 currencies and roughly in descending order, partly due to relative rate differentials and grades of safe-haven appeal, as Nzd/Usd gathers pace through 0.6350 and Usd/Jpy recoils from 106.30+ overnight peaks below 105.00 (touted as the BoJ’s tolerance line), with supposed bids around 105.50 filled effortlessly along the way. Meanwhile, Usd/Chf is now under 0.9400 and Eur/Chf is threatening another downside breach of 1.0600 that will no doubt ring alarm bells at the SNB, especially as Eur/Usd is bid and now testing 1.1300. Back down under, Aud/Usd has been hampered to a degree by weak Aussie retail sales, though still comfortably above 0.6600, and Cable is approaching 1.3000 even though Eur/Gbp is hovering just shy of 0.8700. In terms of upside bullish objectives, contacts are flagging the 200 WMA around 1.3021, but chart levels are hardly being observed let alone respected at present.
  • CAD/NOK/SEK - The Loonie is lagging given more dovish BoC guidance in wake of Wednesday’s ½ point rate cut, as Usd/Cad hugs 1.3400 and the same goes for the Scandinavian Kronas irrespective of ordinarily supportive Norwegian GDP and manufacturing production in advance of Riksbank remarks from Ohlsson pledging prompt action (stimulus) if required and then a relatively bland official statement effectively delivering the same message.
  • EM - In short, risk aversion akin to a rout has taken a toll on all regional currencies, but with the Rouble also undermined by sinking Brent prices awaiting OPEC+, and actually Russia to give its approval to a deeper output cut pact that looks highly unlikely given comments attributed to a top ranking source. However, some solace for the Lira via truce in Syria, albeit fragile.

In commodities, focus for the crude complex remains on today’s OPEC+ meeting, where we are still awaiting remarks from Russian Energy Minister Novak himself after OPEC yesterday agreed to a 1.5mln BPD cut and an extension of existing measures. However, comments this morning from a Russian high-level source that Moscow will only agree to extend the existing OPEC+ oil cuts, will not agree to extra cuts and its position will not change caused a significant drop in crude prices. Prior to this, price action was very much subdued anyway in-line with overall sentiment as the rot in global yields and broad-based safe haven flows has exacerbated this morning to such an extent that WTI and Brent crude futures are posting losses in excess of USD 2/bbl at present, and have breached the USD 44/bbl and USD 47/bbl to the downside; with price action generally showing little signs of abating at present. Note, next week does see the monthly oil market reports released and ahead of this OPEC’s 2020 global oil demand forecast is expected to be at 480kBPD, which is a reduction from the 990kBPD mark in February. Moving to metals, where price action has been just as fervent and spot gold has printed a new multi-year high at USD 1689.99/oz, surpassing the USD 1689.29/oz which was set last month; a high which takes us all the way back to January 2013.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 175,000, prior 225,000
    • 8:30am: Change in Private Payrolls, est. 160,000, prior 206,000
    • 8:30am: Change in Manufact. Payrolls, est. -3,000, prior -12,000
  • 8:30am: Unemployment Rate, est. 3.6%, prior 3.6%
    • 8:30am: Underemployment Rate, prior 6.9%
    • 8:30am: Labor Force Participation Rate, est. 63.4%, prior 63.4%
  • 8:30am: Average Hourly Earnings MoM, est. 0.3%, prior 0.2%; Average Hourly Earnings YoY, est. 3.0%, prior 3.1%
  • 8:30am: Average Weekly Hours All Employees, est. 34.3, prior 34.3
  • 8:30am: Trade Balance, est. $46.1b deficit, prior $48.9b deficit
  • 10am: Wholesale Inventories MoM, est. -0.2%, prior -0.2%; Wholesale Trade Sales MoM, prior -0.7%
  • 3pm: Consumer Credit, est. $16.5b, prior $22.1b

DB's Jim Reid concludes the overnight wrap

Market participants are scrambling to look at big data techniques to analyse real time global economic data at the moment. Indeed we’ve had great success in looking at our shipping data in China. My slightly less sophisticated model is looking at the people traffic at Heathrow yesterday and judging by my experience it was around 10-20% lower than when I last travelled a couple of weeks ago. Supermarkets must be seeing an increase in spending though. Early last week I discussed how at home we thought ourselves clever by getting an extra big shop last week. However the online delivery services in our area now have no slots for 5 days (you can normally get one next day) and we’re running out of normal supplies. So while we have toilet roll and nappies in abundance we don’t have much fresh food or milk (it’s gets drunk by the gallon in our household). Hopefully we can find some through the inconvenience of going to an actual shop this weekend.

Yesterday we updated our credit spread view from our 2020 outlook “Wider spreads...but how wide?” to bring forward the peak of the widening and increase the magnitude. In broad terms we think EU/US IG and HY have around 40bps and 250bps of widening still to come. I would like to think we are the only team on the street that have tightened their YE 2020 spread targets in this sell-off over the last two weeks though. The basic argument being that if the peak comes quicker so does the recovery relative to our previous expectations. See the full report here for more details. In addition the payments expert in my team Marion published a fascinating note yesterday about the spread of the virus via cash notes, the fact that China have destroyed cash because of it, and how it might speed up digitalisation, especially in China. See her report here.

Another day, another wild swing for markets as 2-4% moves in either direction for equities are becoming more commonplace. As for bonds it’s not either direction it’s just a straight line down in yields at the moment. The S&P 500 closed down -3.40% and this week alone we’ve seen 4 moves of at least 2% every day either up or down – the last time that happened was August 2011, when the US credit rating was cut. The market came close in August 2015, when there were 5 of 6 days in a row that saw those outsized moves. If we extend that analysis to last week then of the 9 trading days, 7 have featured moves of at least 2% which is the most since December of the global financial crisis, which was also the last time we saw a full 5 day week of such moves. Along a similar vein, the VIX closed over 30 for a full calendar week for the first time since October 2011.

Last week was all about the negatives of the virus, whereas this week there has been much more tension between worsening virus news but increasing chatter of and actual stimulus. Yesterday the bad news won out though. Indeed the developments over the last 24 hours include NYC reporting news cases, a first case in San Francisco, over 2 million being urged to work from home in Washington County, HSBC partially clearing its London trading floor following a reported case, Switzerland and the U.K. reporting their first deaths, France, Germany and Italy reporting a big jump in cases and the Trump administration admitting that the US will be unable to meet its target of having a million coronavirus tests available by the end of this week. Here in the UK we also saw Flybe go into administration – albeit a budget airline which was already under considerable pressure prior to the coronavirus. This hurt the global travel industry more yesterday. Travel and Leisure was the 3rd worst sector in the STOXX 600 yesterday down -2.90 %, with airlines making 4 of the worst 8 performers – similarly Airlines in the US were down -8.19% and the worst performing industry in the SPX. Driving the point home on airlines and travel, TUI and Air France-KLM widened +122bps and +128bps respectively yesterday to 690bps and 453bps respectively. Lufthansa was the worst performing European IG CDS yesterday widening +44bps to 160bps. It was below 60bps just two weeks ago.

Risk off has continued in Asia this morning with the Nikkei (-2.95%), Hang Seng (-2.16%), Shanghai Comp (-0.94%) and Kospi (-2.16%) all down. As for FX, the Japanese yen is up +0.32% while most EM fx is trading weak this morning and the US dollar index is down -0.29%. Elsewhere, futures on the S&P 500 are down a further -1.36% while yields on 10y USTs are down another -10.3bps to an all-time low of 0.811% and those on the 30y are down -12.5bps to 1.417% - also a record low and first time below 1.5%. Brent crude oil prices are down -1.24% to $49.37 this morning and gold prices are up +0.42%. As we go to print, Bloomberg is reporting that Thailand’s government is planning to give cash handouts to its citizens to combat the virus induced slowdown. With this it becomes 2nd country after Hong Kong to suggest such a measure. Helicopter money is coming.

Back to yesterday where there were also big moves lower for the NASDAQ (-3.10%), DOW (-3.58%) and STOXX 600 (-1.43%). Oil also fell -2.25% despite OPEC trying to lay the ground to cut daily crude output by 1m barrels in the second quarter with further cuts also expected from non-OPEC allies. But the oil producing nations are facing opposition from Russia, and could make the cuts contingent on them joining, which sent Brent lower in the NY afternoon session. In bonds, US 10y yields went under 1% again, rallying 14.0bps to 0.912%, breaching the low mark of 0.924% from earlier this week. Front end yields fell a similar amount keeping the 2s10s curve around 31bps while it’s worth noting also that Freddie Mac 30y mortgage rates fell to a record low 3.29%. In Europe we saw 10y Bund yields down 4.8bps to -0.69% while the periphery sold-off 5-7bps. European Banks were actually down -3.89% with the index testing the August lows again and down -23.78% since the local peaks just 2 weeks ago. Credit markets were also weaker with cash HY spreads in the US 26.4bps wider. Finally the USD was weaker, with the DXY down -0.53%.

30y US Treasuries closed at fresh lows of 1.54%, which is the first time it has closed lower than the SPX div yield for multiple days since the financial crisis. Staying with long bonds, the 100 year Austrian bond (2117 maturity) now trades at a price of over 218 having started the year at around 158 - nearly a 40% return in just over two months. At the start of March last year it was just under 120. I can’t help wishing I had a long dated fixed income pension portfolio in Austria. I also can’t help wishing I was still alive when it matures.

After the close last night we heard from a few Fed officials. Fed president Williams said that his baseline outlooks for the US was still “pretty darn good”, yet he saw risks for the outlook around growth in China and the global economy. He saw inflation moving up to the 2% goal, with growth around 2.25%, even with issues around the virus on China’s growth outlook. Finally he cited his concerns surrounding the transition from Libor, and called it the “biggest challenge to our financial system.” Fed president Kaplan was equally concerned about the virus and said that the spread would be important to view when deciding on whether another interest rate cut was needed, but did not view the equity moves as tightening financial conditions excessively. Fed president Kashkari cited the cut this week as insurance against negative economic effects from the spread of the virus, but acknowledged that more cuts may be needed.

Moving on. While today’s payrolls report would usually be the focal point for markets, for now the data is very much playing second/third/insert as necessary* fiddle to what is going on with the coronavirus given that it’s all too backward looking. So it’s likely markets will somewhat look beyond what the data shows however for completeness the consensus for today is 175k following a 225k print last month. This should be enough to keep the unemployment rate at 3.6% while average hourly earnings are expected to rise +0.3% mom with the annual rate at +3.0% yoy.

The same can be said for the data that was released yesterday. In fairness the claims data was about as real time as we can get and that showed no deterioration (216k versus 219k the week prior). Expect the market to be focused on this data from next week onwards however. Elsewhere Q4 nonfarm productivity was revised down to 1.2% qoq and core capex orders were unrevised in January at +1.1% mom. In Europe the only data of note was the February construction PMI in Germany which rose 0.9pts to 55.8 and the highest since January 2018.

To the day ahead now where this morning the data includes January factory orders in Germany. This afternoon the focus is on the February employment report in the US while the January trade balance and January wholesale inventories are also due to be released. Expect the Fedspeak to also be a big focus today with Evans, Mester, Bullard, Williams, Rosengren and George all due to speak.

Tyler Durden Fri, 03/06/2020 - 07:32
Published:3/6/2020 6:35:13 AM
[Markets] Dow futures slump 600 points, Europe stocks slide nearly 4% in coronavirus panic Dow futures slump 600 points, Europe stocks slide nearly 4% in coronavirus panic Published:3/6/2020 4:52:47 AM
[Markets] Stoxx Europe 600 index opens down 1.6% and Dow futures down nearly 200 points Stoxx Europe 600 index opens down 1.6% and Dow futures down nearly 200 points Published:3/6/2020 2:22:38 AM
[Markets] Dow risks longest Friday losing streak in 14 years as coronavirus has Wall Street dreading weekends That is not the case for traders with stocks in the Dow Jones Industrial Average, which is on pace for a dubious distinction if the 124-year-old index finishes in negative territory tomorrow. Published:3/5/2020 6:21:03 PM
[Markets] "We Don't Know What's Going On": Wall Street Admits It Is Clueless "We Don't Know What's Going On": Wall Street Admits It Is Clueless

When the stock market was melting up virtually every day from the launch of QE4 until the end of January, Wall Street's "expert" strategists always had a ready explanation "why": solid earnings, strong fundamentals, traders climbing a wall of worry, a global economic rebound, inflation picking up, blah blah blah (just not the Fed, never the Fed as that would mean Wall Street professionals as a group are now worthless in a world where only the Fed matters if stocks go up or down). In short, there was always a reason to keep buying the dip, even when there was no dip to buy.

Then everything changed, and starting in late February, the meltup, which until that point even ignored the second guidance cut by AAPL in 13 months ended with a bang, and volatility exploded. Here too, the experts were ready to "explain" what's gong on: traders are jittery, they are overreacting to the coronavirus, it's all the algos' fault, traders are tumbling down the wall of worry, oh and once Powell eases, everything will be back to normal.

Only, Powell did ease and suddenly the narrative broke down completely when the S&P suffered not one but two 3% drops after the emergency 50bps cut, sparking speculation that the Fed's bazooka is now a water pistol and the US central bank has been rendered powerless to restore the rally in the face of a microscopic, viral nemesis, one most likely created in a Chinese P-4 bioweapons lab.

And so, suddenly the goalseeking narrative that was meant to "explain" not only what just happened but what will happen, broke down as every explanation failed. Bloomberg put it best:

Pessimism over Fed policy. Optimism over the government’s response. Pessimism over the government’s response. The Beige Book. Joe Biden.

The ink’s barely dry on one view, and the market goes careening the other way. It’s a futile, and infuriating, situation for investors and analysts. Forget about trying to predict where stocks will be in six months or a year. These guys can’t even figure out where they’ll be tomorrow. Everything depends on how the virus outbreak will play out. And nobody has a clue.

Too lazy to read the quote above? Then look at the chart below showing the market's harrowing moves in just the past 10 days. It hardly needs an explanation, especially since one doesn't exist for what is clearly a regime change in market sentiment, one which has resulted in four 1,000 point Dow Jones closing moves in the past ten days (today we were just 31 points away from a 5th)...

... and one where nobody really knows what's going on any more. But don't take our word for it.

"When you have a 4.5% up day in the market and a 2% down day - what does that mean?” Kathryn Kaminski of AlphaSimplex Group told Bloomberg. "It just means we don’t know what’s going on."

That may be the first honest analyst assessment we have read in the past week - one which admits nobody has a clue. Indeed, anyone who has pretended to have an idea of what the market will do next, has been humiliated: as Bloomberg notes, the past ten days has seen a burst of historical turbulence, with swings that rank with those observed during the financial crisis. The VIX, has remained above 30 for six consecutive sessions, the longest streak since 2011, and is poised to close above its EM counterpart by the most on record, based on data going back to 2011.

Yet this is hardly the first time when markets have seen an explosion of volatility after a volumeless meltup - surely the old faithful maxim will work now as it did every time before. We are talking of course about "Buy the dip?"

Or maybe not: "This time, it’s a little harder to say whether that’s the right thing to do," said Chris Zaccarelli, CIO at Independent Advisor Alliance. “Until you have better clarity on whether or not it could cause a recession or a dramatic slowdown, the likes of which the bond market is indicating, it may be a little premature."

Some are actually doing the opposite, and selling the rip:

Cantor Fitzgerald says use any rally based on central bank actions to sell equities. JPMorgan Chase & Co. says the responses will succeed: time to wade in. Bloomberg Intelligence’s Gina Martin Adams points to a spike in high-yield spreads -- bad for shares. Deutsche Bank Securities Inc. strategists see the sell-off continuing.

So with everyone clueless, perhaps the history books have some insight? As Bloomberg notes, citing Deutsche Bank analysts, in times when volatility increased relative to historical levels, it’s taken an average of six to seven weeks for it to subside, with the S&P taking another four to five months to recoup losses after that. A 30% drop from recent peaks, their most severe scenario, corresponds to an average recession sell-off.

Elsewhere, Citigroup said it’s unwise to do anything before data catches up with the virus, including earnings revisions. “We admit that we cannot fully capture what are fluid developments,” the group led by Tobias Levkovich wrote in a note.

Perhaps it's already too late, as suggested by the Fed's emergency rate cut - something that has historically happened just ahead of recessions, and which as we showed last night, has resulted in a down market 1 year out on 5 out of 7 times after an emergency cut.

For some the recession is already here: on Monday SocGen's Andrew Lapthrone showed that the average stock is already in a bear market, down 20% from its all time highs if still 15% above their one-year lows, .

Other companies will soon follow: a string of corporations have warned of hits to profits but few have said how big. Goldman Sachs and JPMorgan have cut their earnings forecasts in recent days. Cumberland Advisors, a money management firm with over $3 billion in assets, has taken down its projections three times, according to David Kotok, the firm’s chief investment officer.

“We aren’t getting guidance from companies because companies don’t know what to give,” Kotok told Bloomberg TV this week. “But we do know pain is coming on the earnings front.” The firm projects earnings of $160 for 2020, but may lower them again, he said. “We don’t know what the final numbers will be.”

That said, we do know know that virtually every firm with direct exposure to China expects a collapse in revenue as supply chains implode.

We also know that Wall Street's traditional ability to come up with any ridiculous story to explain what has happened, and to predict what will happen, is now crushed: “It’s definitely volatile. Once things get to this point, it normally takes a few weeks for things to settle down,” Michael Shaoul, chief executive officer at Marketfield Asset Management LLC, told Bloomberg TV. "All we know now is that we don’t really understand what’s going to happen next. It’s probably 4, 6, 8 weeks before we’re going to have any useful information as to what the trajectory of the virus is or what the actual economic fallout looks like."

In conclusion, we will note that this is the perfect environment for talented if unknown traders to emerge from the crowd of mediocrity and to impress with their returns. Unfortunately, few if any such cases have emerged, and we can only assume that that is due to more than one generation of trader having been so habituated to getting bailed out by the Fed every time the market drops, that virtually nobody has any clue what to do when the market finally does crash.

Tyler Durden Thu, 03/05/2020 - 17:45
Published:3/5/2020 4:50:28 PM
[Markets] TGIF? Dow industrials are on pace for the longest Friday losing streak in 14 years as coronavirus has Wall Street dreading weekends That is not the case for traders with stocks in the Dow Jones Industrial Average, which is on pace for a dubious distinction if the 124-year-old index finishes in negative territory tomorrow. Published:3/5/2020 4:20:48 PM
[Markets] Market Extra: TGIF? Dow industrials are on pace for the longest Friday losing streak in 14 years as coronavirus has Wall Street dreading weekends That is not the case for traders with stocks in the Dow Jones Industrial Average, which is on pace for a dubious distinction if the 124-year-old index finishes in negative territory tomorrow.
Published:3/5/2020 4:20:48 PM
[Markets] Dow Jones Tumbles 1,000 Points As Coronavirus Fears Take Stock Market Down The Dow Jones Industrial Average closed off session lows but sold off nearly 1,000 points Thursday, as coronavirus fears struck again. Published:3/5/2020 3:49:52 PM
[Markets] "Super Puke" - US Stocks Crash As Credit Markets & Yields Collapse "Super Puke" - US Stocks Crash As Credit Markets & Yields Collapse

So much for the 'Biden Bounce'. Watching the markets today  - as The Dow plunged 1000 points, Treasury yields collapsed to record lows, credit markets imploded, and demands for more Fed intervention exploded - has one veteran trader remarking, "this is becoming a super-puke."

It seems the stock market is 'stuffed' with Fed intervention and 'just one waffer-thin mint' more may spark the total destruction of markets.

The market is in panic mode - demanding over 50bps more rate-cuts in March as stocks collapse...

Source: Bloomberg

Credit spreads are exploding wider (decompressing 9 of the last 11 days - the biggest blowout since June 2013) - now at their widest since 2016...

Source: Bloomberg

Sending an ugly message to stocks...

Source: Bloomberg

10Y Treasury yields plunged to new record lows...

Source: Bloomberg

And gold (safe-haven) was aggressively bid...

In fact, since The Fed enacted an emergency 50bps rate-cut, Gold is soaring as the dollar and stocks faded...

And before we dive into some of the details, this made us laugh - China - the epicenter of the collapse in global supply chains - has seen its stock market MIRACULOUSLY soar back to pre-Covid-19 levels... as Europe and US crash...

Source: Bloomberg

Amid all this chaos, Dow, Nasdaq, and S&P are still up 2-3% on the week, Small Caps and Trannies are red though...

Dow tumbled back below 26k and then the battle began for the algos...

Yesterday's top was at an almost perfect 50% retrace of the initial crash...

Another 1000-point day for the Dow - just how crazy is this vol? It's the most extreme since the very peak of Europe's debt crisis...

Source: Bloomberg

On the week, Defensives have dominated with Cyclicals unchanged (although today saw both hit just as hard)...

Source: Bloomberg

Bank stocks entered a bear market today, tumbling to their weakest since Jan 2019...

Source: Bloomberg

Global Systemically Important Banks are collapsing...

Source: Bloomberg

The Big US Banks were clubbed like baby seals...

Source: Bloomberg

VIX smashed higher, back above 42 intraday...

The VIX term structure is its most inverted since Lehman...

Source: Bloomberg

While stocks feel like they have plunged, they have a long way to go to catch up to bonds' reality...

Source: Bloomberg

Treasury yields crashed today down 10-15bps across the curve with the long-end outperforming...

Source: Bloomberg

Yields are hitting record or cycle lows across the entire curve...

Source: Bloomberg

The Dollar slipped back to post-Powell-cut lows - this is the lowest for the dollar since January...

Source: Bloomberg

Cryptos were bid today, lifting all the major coins into the green for the week...

Source: Bloomberg

Commodities were clearly divided today with gold and silver soaring and copper and crude crushed...

Source: Bloomberg

WTI plunged back to a $45 handle after OPEC+ talks did not seem to go well (damn you Putin!)...

Gold soared higher all day - to its highest close since Jan 2013

And also surged again Yuan...

Source: Bloomberg

Finally, with a h/t to John Lohman, the Coronavirus Fear Index is exploding... "Long panic-buying food, short travel and entertainment"

"Probably nothing!"

Tyler Durden Thu, 03/05/2020 - 16:01
Published:3/5/2020 3:20:46 PM
[Markets] Dow books more than 950-point loss as virus fears rattle investors Dow books more than 950-point loss as virus fears rattle investors Published:3/5/2020 3:20:46 PM
[Markets] Dow Drops 1,000 Points Because Coronavirus Fear Has Seized the Stock Market The Dow started the day down around 700 points, but seemed content to hold around there through the morning. It wasn’t until early afternoon that investors decided that the stock market needed to fall even more. Published:3/5/2020 1:22:41 PM
[Markets] The Dow is down 1,000 points as wild swings in stocks continue The Dow is down 1,000 points as wild swings in stocks continue Published:3/5/2020 12:49:14 PM
[Markets] 10-year Treasury note yield carves out fresh nadir below 0.90% in midday Thursday action, as stocks resume tumble The benchmark 10-year Treasury yield on Thursday fell below 0.9%, carving out a new historic low for the benchmark debt as investors continued to wrestle with the economic implications of the outbreak of COVID-19, the infectious disease that reportedly originated in Wuhan, China in December and has sickened more than 95,000 people world-wide. Bond yields fall as prices rise. The 10-year note yield fell as low as 0.898%, according to FactSet data. The slide in the 10-year note comes as stock-markets are selling off on Thursday, fueling fresh flows into assets considered havens like gold and government debt. The S&P 500 is down 3.3% and the Dow Jones Industrial Average was trading 900 points lower, or off 3.4%, at last check. Concerns around the outbreak of COVID-19 led the U.S. central bank on Tuesday to announce an emergency cut to interest rates to a 1%-1.25% range, but investors fear that global and domestic growth will be impeded by the epidemic. Published:3/5/2020 12:22:36 PM
[Markets] Peter Schiff: They're Gonna Need A Bigger Rate Cut! Peter Schiff: They're Gonna Need A Bigger Rate Cut!

Via SchiffGold.com,

Stop and pause for a moment and think about what just happened. The Federal Reserve says the US economy is strong, but it just initiated emergency monetary policy last seen during the worst financial crisis since the Great Depression.

Something doesn’t add up.

The Fed cut rates 50 basis points on Tuesday. It was the first interest rate move between regularly schedule FMOC meetings since the 2008 financial crisis. The Fed funds rate now stands between 1.0 and 1.25%.

The decision to cut rates was unanimous.

As the Wall Street Journal pointed out, this kind of Federal Reserve move has been reserved for “when the economic outlook has quickly darkened, as in early 2001 and early 2008, when the US economy was heading into recession.” The 50-basis point cut was the first cut of such magnitude since December 2008. Pacific Management investment economist Tiffany Wilding called it a “shock-and-awe approach.”

It may have been shocking, but the results weren’t awesome.

Stocks tanked anyway.

The Dow Jones closed down 785.91 points, a 2.94% plunge. The S&P 500 fell 2.81%.  The Nasdaq experienced a similar drop, closing down 2.99%.

Meanwhile, gold rallied, quickly pushing back above $1,600 and gaining over $50. Wednesday morning, the yellow metal was knocking on the door of $1,650.

Bond yields sank again as investors continued their retreat into safe-havens. The yield on the 10-year Treasury dipped below 1%.

In a press conference after the announcement, Federal Reserve Chairman Jerome Powell said the central bank “saw a risk to the economy and chose to act.”

“The magnitude and persistence of the overall effect on the US economy remain highly uncertain and the situation remains a fluid one. Against this background, the committee judged that the risks to the US outlook have changed materially. In response, we have eased the stance of monetary policy to provide some more support to the economy.”

Just the day before, Powell hinted at the possibility of a rate cut while insisting “The fundamentals of the US economy remain strong. However, the coronavirus poses evolving risks to economic activity.”

Mises Institute senior editor Ryan McMaken pointed out that Powell’s statement sounds an awful lot like John McCain in September 2008 when he said, “The fundamentals of our economy are strong, but these are very, very difficult times.”

McMaken raises the crucial question: If fundamentals are so strong, why the need to enact the biggest rate cut in more than a decade?

And further, “If the Fed is slashing interest rates while ‘fundamentals are strong,’ what must it do when things aren’t so ‘strong?’ Negative rates and QE seem to be the logical next step.”

Of course, the Fed has been engaged in QE that it calls “not QE” for months already.

In his podcast Tuesday, Peter Schiff put it another way.

You shoot your bullets at Super Man and they bounce off his chest; then what do you do?”

Schiff said his first reaction was, “They’re going to need a bigger rate cut.”

Just like the guy from Jaws, ‘We’re gonna need a bigger boat to catch this shark,’ the Fed is going to need a much bigger rate cut if they want to stop this bear market.”

But Schiff said he doesn’t think there’s a big enough rate cut to do it.

I think the air is coming out of this bubble. As I said, the coronavirus was the pin. At this point, it doesn’t matter what happens to the pin. They could find a cure for the virus. It doesn’t matter. Once the pin pricks the bubble, doesn’t matter what happens to the pin. What matters is the air is now coming out of that bubble and that’s exactly what’s happening.”

From a practical standpoint, it remains unclear how an interest rate cut will solve the potential economic problems associated with coronavirus. It appears that the move was primarily intended to rescue the financial markets. This is not unlike the way the Fed moved when stocks started to tank in the fall of 2008. In a rather convoluted statement, Powell even conceded that rate cuts won’t address the specific economic issues raised by the virus.

A rate cut will not reduce the rate of infection. It won’t fix a broken supply chain. We get that. But we do believe that our action will provide a meaningful boost to the economy.”

The real worry for the Fed is that the stock market will pull the economy down with it. After all, the central bank built the economic “recovery” after the 2008 financial crisis on a “wealth effect.” Easy money pumped up asset prices and made people feel richer. If that wealth effect unwinds, the underlying economy will likely unwind with it.

[ZH: the market is already pricing in 50bps more rate-cuts in March...]

Schiff said another concern is the amount of debt built up in the economy going into the next recession. Normally, during an expanding economy, people pay down debt. But over the last decade, Americans have piled on debt. The federal government is running trillion-dollar deficitsConsumer debt is at record levels. Rising levels of corporate debt have even set off warning bells at the Fed.

So, if we have another economic downturn, that debt is a much bigger problem than its ever been in other recessions. It’s likely going to cause a worse financial crisis than the one we had in 2008. And so to try to keep that from happening, the Fed is cutting rates, because it wants to make it easier for people who have debt to service that debt. And it also wants to delay the recession it knows we can’t survive.”

The Fed simply doesn’t have the bullets in its arsenal to fight a deep recession. That’s why it is firing them know, hoping to hold it off. But Schiff said the best-case scenario is that they buy some time. To do that, they’re going to need bigger rate cuts.

Tyler Durden Thu, 03/05/2020 - 10:15
Published:3/5/2020 9:20:27 AM
[Markets] All 30 Dow stocks fall premarket, led by Goldman Sachs; only 1 stock is down less than 1% Shares of all 30 components of the Dow Jones Industrial Average are falling in premarket trading Thursday, with 29 losing more than 1%. The unanimous selloff comes as Dow futures tumbled 363 points, or 2.1%. The biggest decliner was Goldman Sachs Group Inc.'s stock, which dropped 3.2%, while the most-active stock was Apple Inc.'s , which fell 2.4%. The best performer was Johnson & Johnson's stock which slipped 0.8%. Published:3/5/2020 8:18:16 AM
[Markets] The Dow Soared 1,173 Points Because Joe Biden Is Riding High Both the S&P 500 and the Dow jumped over 4% on Wednesday, boosted by big victory of former Vice President Joe Biden coming out of Super Tuesday primaries, and Congress’s latest $8.3 billion funding package to tackle coronavirus. Published:3/4/2020 4:17:10 PM
[Markets] Boeing Stock Barely Rallied in a Blowout Day for the Market. That’s Strange. Boeing was the worst performer in the Dow—which rose an incredible 1,173 points—on Wednesday. Shares are still stuck around $280, as investors await more updates about the troubled 737 MAX jet. Published:3/4/2020 3:46:16 PM
[Politics] Dow surges 1,173 points on Biden wins, coronavirus funding The Dow rose more than 1,000 points on Wednesday as Wall Street cheered Joe Biden’s surprise Democrat primary wins over Sen. Bernie Sanders. The Dow Jones industrial average closed the day up 1,173.45 points, or 4.5 percent, to 27,090.86 on Biden’s Super Tuesday surge to the front of the Democratic presidential race ahead of Sanders,... Published:3/4/2020 3:46:16 PM
[Markets] Dow soars over 1,100 points as U.S. stocks end sharply higher Dow soars over 1,100 points as U.S. stocks end sharply higher Published:3/4/2020 3:17:01 PM
[Markets] 'Joementum' Sparks Stock Buying-Panic, Rate-Cut Hopes Soar 'Joementum' Sparks Stock Buying-Panic, Rate-Cut Hopes Soar

Some success, after weeks of doldrums, for Joe Biden's campaign sparked a massive surge in prediction markets' view of his likelihood of getting the Democratic nomination surged to record highs (as Bernie and Bloomberg crashed)...

Source: Bloomberg

And it is this phoenix-like rise that is being proposed as driving today's surge in stocks...

Source: Bloomberg

And intraday, as various results came in with Biden winning, the market legged ever higher...

Source: Bloomberg

Do traders really believe this guy can win?

Prediction markets disagree, and Trump's odds of victory actually improved overnight

Source: Bloomberg

So maybe, just maybe, Biden's gains mean Trump more likely to win... and that's what sent stocks higher?

But, there is another factor - the market is now demanding almost 2 more rate-cuts in March...

Source: Bloomberg

And an increasing number of traders are betting on The Fed going ZIRP/NIRP soon!

Source: Bloomberg

So maybe - as usual - it's just the market demanding more liquidity, knowing The Fed will never let it down?

US markets erased yesterday's losses and gamma lifted them after that...

S&P Futures moved above a key level of support (as Nomura's Charlie McElligott warned, a close above 3079 today would see the signal go from current "+16%" (long) back to "+100%" signal, leading to further aggressive buying and more shorts squeezed), and that sparked the gamma flip melting futures up towards yesterday's rate-cut highs...

Dow Desperately wanted 27k...

Another 1000-plus-point range day in the Dow has sent realized vol to its highest since mid-2011 - the heart of the European Financial Crisis...

Source: Bloomberg

Stocks desperately didn't want to be outdone by gold post-Powell...

Value was monkey-hammered as the equity momentum factor had its best 3-day surge since June 2016 (Brexit vote)...

Source: Bloomberg

Biden's victory over Bernie did spark a very real resurgence in healthcare stocks however...the biggest daily jump since Nov 2008...

Source: Bloomberg

FANG Stocks managed gains today but only marginal...

Source: Bloomberg

And bank stocks managed gains - after 10 days of carnage...

Source: Bloomberg

VIX tumbled 5 vols today after spiking down yesterday on the rate-cut and then surging higher...

Bonds and stocks continue to decouple... again...

Source: Bloomberg

Treasury yields were very mixed today with the short-end tumbling as the long-end chopper around, ending flat...

Source: Bloomberg

The 2Y Yield plunged again...

Source: Bloomberg

The yield curve steepened significantly - to its steepest since June 2018...

Source: Bloomberg

But, don't get all excited - Indeed, the last time the curve rose so fast from such a low base was in 1990, 2001, and 2008, months before the U.S. economy entered recession each time...

Source: Bloomberg

And before we leave bond-land, we note that the spread between 'cheap' China bonds and 'expensive' US bonds is at its highest in 5 years...

Source: Bloomberg

And on the other side, US yields have collapsed relative to German yields...

Source: Bloomberg

The Dollar rallied today, desperately trying to erase the rate-cut crash from yesterday...

Source: Bloomberg

Cryptos legged lower today...

Source: Bloomberg

Commodities were generally unchanged today, but PMs held their post-rate-cut gains...

Source: Bloomberg

Oil surged overnight on OPEC+ hopes, and inventory data, but Russia's lack of cooperation appeared to spook investors...

Gold future hovered around $1640, holding on to the post-Powell spike...

Gold's historical vol has exploded to 4 year highs...

Source: Bloomberg

And gold continues to track the global volume of negative yielding debt extremely closely...

Source: Bloomberg

Finally, this could be a problem for the bears... Bloomberg notes that as of March 2, short sellers had increased outstanding contracts to the highest level since June 2014, according to IHS Markit data.

Source: Bloomberg

Which might fit with the bounce we saw in 2000, after The Fed's Y2K liquidity program ended...

Source: Bloomberg

Tyler Durden Wed, 03/04/2020 - 16:01
Published:3/4/2020 3:17:01 PM
[Markets] Dow books nearly 1,200-point gain, reclaims perch above 27,000 as stock market focuses on coronavirus response U.S. stocks on Wednesday shot higher as investors appeared to react positively to early signs of efforts to address the outbreak of COVID-19, the infectious disease that reportedly originated in Wuhan, China in December and has claimed more than 3,100 lives. Some of the gains also were attributed to a victories by former Vice President Joe Biden in Super Tuesday election contests to help determine the Democratic nominee who will face off against incumbent President Donald Trump. The advance for markets also come a day after the Federal Reserve cut benchmark interest rates by a half a percentage point to a range of 1%-1.25%, marking the first such emergency cut since the 2008 financial crisis.Fed Chairman Powell said the cut was to preemptively combat the negative impact of the viral outbreak but markets reacted negatively to them. On Wednesday, the Dow Jones Industrial Average rose 1,171 points, or 4.5%, to end around 27,090. The blue-chip index fell nearly 800 points in the previous session. The gain marks the second gain of at least one thousand points for the 124-year-old equity index. The S&P 500 gained 4.2%, driven higher by the health-care sector. The technology-heavy Nasdaq Composite Index closed rose 3.9%. Shares of UnitedHealth Group Inc. led the day's gains in the Dow, up almost 11%, with analysts attributing the health-care company's gains to Biden gaining traction over Democratic rival Bernie Sanders. The Vermont Sen. had been perceived as less friendly to the health-care industry. U.S. lawmakers were reached an agreement on funding a roughly $8 billion response to the coronavirus, the Wall Street Journal reported. Law makers are expected to approve more than $3 billion for developing treatments for COVID-19 and $2.2 billion for containment. Published:3/4/2020 3:17:01 PM
[Markets] Dow's up more than 1,000 points, trading at session high Dow's up more than 1,000 points, trading at session high Published:3/4/2020 2:45:58 PM
[Markets] Dow Jones Storms 800 Points Higher On Joe Biden Bounce, $8 Bil Coronavirus Deal The Dow Jones industrials soared 800 points Wednesday afternoon, thanks to a Super Tuesday Joe Biden bounce and an $8.3 billion deal to combat coronavirus. Published:3/4/2020 12:44:06 PM
[Markets] Dow opens 700 points higher Wednesday, as stocks attempt to rebound after Fed emergency interest-rate cut U.S. stocks rebounded Wednesday, one day after a surprise Federal Reserve interest-rate cut spooked investors, with some attributing gains partly to a reaction from oversold conditions. The gains for equity gauges also come after former Vice President Joe Biden won a string of key Democratic victories in the Super Tuesday primaries. The Dow Jones Industrial Average opened about 606 points, 2.3% higher, near 26,524, while the S&P 500 was 1.1%, 32 points, higher, opening near 3,036. The Nasdaq Composite jumped 1.7%, 150 points, to open near 8,834. Biden racked up the most victories in the Tuesday primaries. That helped boost shares of UnitedHealth Group Inc., which had rocketed more than 10% higher pre-market. Health insurers had been seen as losing out under a "Medicare For All" regime which was advocated by Democratic rival Bernie Sanders. Published:3/4/2020 8:44:52 AM
[Markets] The Next Economic Downturn May Last Forever And A Day The Next Economic Downturn May Last Forever And A Day

Authored by Bruce Wilds via Advancing Time blog,

Based on how Japan has fared over the last several decades it is difficult to see the green shoots of a global economic spring forth as a result of lower interest rates.

In fact, the next economic downturn will likely envelope the planet and may last forever and a day. This is because central bank intervention and manipulation often carries with it negative unintended consequences. People often forget how lucky Japan has been during its trying times to be located next to China. Because of China's years of booming growth, Japan has been able to mitigate much of the pain that occurred when its economic bubble burst in 1992.

In the decades since, Japan's stock market has never again come near the lofty peak it hit back then. During the years after Japan's fall from grace, it was able to soften the impact of its economic problems by strengthening ties with rapidly growing China which needed help in developing its export-driven economy. Today many people feel the global economy is in a bubble eerily similar to the one experienced by Japan before its implosion. The question is not whether the market and economy are about to undergo a massive reset but when. Concern is also growing as to how deep, painful, and long the next downturn will last.

A huge factor in the world trudging forward following 2008 is the massive growth in the money supply and debt over the last several decades. This growth in debt and credit has exploded making the financial sector a far bigger part of our economy than it should be. The economy has become more about asset values than solid growth in production, this has added to inequality and this does not create a healthy environment for investors. Much of this trend has been predicated on central banks continuing to move interest rates lower and lower. While rate cuts may temporarily mask economic weakness or halt declining asset prices they come at a price, this can be seen in the way they destroy true price discovery.

Following the financial crisis of 2008, governments and bankers have joined together to form the "Financial-Political Complex." Years ago President Eisenhower warned the American people about the Industrial Military Complex, but nobody warned us of this new threat. Instead, we were told to embrace the closer ties between the bankers and government officials as a good thing. While this evil alliance halted and reversed the carnage taking place in the stock markets it did little to solve the core issues we faced, in fact, by allowing the government to ignore and avoid necessary reforms it has made them far worse.

We have dodged many economic challenges since 2008 as the so-called economic recovery grew long in the tooth. Time after time, the creative folks that make up the Financial-Political Complex have been able to pull rabbits out of their hats and manipulates asset prices ever higher.

This has extended the illusion that all is well. Today, they are faced with a new challenge, the coronavirus, it has battered markets as it spreads across the globe. This monster has halted travel, put hundreds of millions of people into weeks of lock-down quarantines, disrupted supply chains, and respects no borders.

The economic impact of this event cannot be simply brushed aside or denied. Because it strikes at the very heart of  the economy it cannot be easily fixed by lowering interest rates. It attacks both supply and demand as well as production and productivity. It will also hit hard the small businesses that form the backbone of our communities and make things work. While large companies can get loans and money from Wall Street and banks, small business is often shunned by both as an area where it is difficult to make a profit. Most small businesses with just a few workers do not have the financial resources to suffer through weeks or months where employees don't work and they have no income. In most cases, their bills will continue to roll in and this means many will be forced to close.

On Monday the Financial-Political Complex again defied the markets will by thwarting its effort to correct. The BOJ which already owns 80% of all outstanding ETF's bought a record 101 billion yen of ETFs to stabilize the market. China's PBOC also jumped in with promises of support and so did the IMF. This was followed by Kudlow and Mnuchin calling for Fed Chairman Jay Powell to do what Trump wants, which is to rapidly lower interest rates. Near the end of the day, Trump was able to shore up the markets by voicing an optimistic tone about progress on vaccines and treatments. All this resulted in the Dow finishing the day a massive 1,850 points off its overnight lows.

The problem is that for a decade the actions of the Financial-Political Complex have destroyed true price discovery and increased inequality. Their policies have rewarded the same group of people, banks, and institutions that created many of our financial problems.

It is time they face reality and admit they are on the wrong path. The argument all this has been done for the greater good is beginning to fall on deaf ears as confidence in the financial system weakens. This can be seen in the Sanders for President movement, a growing number of voters have joined Sanders in demanding change, when he calls for a revolution they hear him, and say yes.

Tyler Durden Tue, 03/03/2020 - 17:25
Published:3/3/2020 4:38:48 PM
[Markets] Not-So-Super Tuesday: Fed's Shock-And-Awe Fails, Sparks Market Turmoil Not-So-Super Tuesday: Fed's Shock-And-Awe Fails, Sparks Market Turmoil

People were already panicking... (empty water shelves at Costco)

And now the market and The Fed are too...

After Friday's greatest Dow point loss ever was followed by yesterday's greatest Dow point gain ever, the question is - after The Fed unleashed $100 billion of repo liquidity and 50bps of rate cuts today, but leaving stocks lower - will it work (whatever work means)?

Scott Minerd doesn’t think so.

“While I believe this rate cut is a necessary act, I doubt it is sufficient to bail out the market. Now is the moment of truth...

...We will now see how impotent monetary policy is at addressing this crisis.”

Last week, amid the collapse in markets, Minerd, who is Guggenheim’s CIO, said the outbreak is “possibly the worst thing” he’s seen in his career because of its potential global spread and the Fed’s limited tools to staunch potential economic fallouts.

“This has the potential to reel into something extremely serious,” Minerd told Bloomberg TV last week.

“It’s very hard to imagine a scenario where you can actually contain this thing.”

And no matter what The Fed delivers, it will never be enough as Minerd sees the 10Y Treasury yield hitting 25bps by the time this is over... and another 15% or so lower in stocks.

This is the largest rate-cut since the fall of 2008, and just the ninth emergency rate cut in history...

So, The Fed cut 50bps... but the market quickly priced in demands almost two more rate-cuts in March!!

Source: Bloomberg

But lost in much of the hype around the rate-cut was the fact that term and overnight repo liquidity exploded to its highest since the crisis began last September...

Source: Bloomberg

Bets on interest-rates going to zero, or negative, have exploded...

Source: Bloomberg

Believe it: MESTER: FED'S FRAMEWORK REVIEW INCLUDES STUDYING NEGATIVE RATES

And as rates plunged and that headline hit, bank stocks cratered...

Source: Bloomberg

Airline stocks also tumbled back to their lowest close since Oct 2016...

Source: Bloomberg

US markets were briefly exuberant after The Fed cut rates, then the questions began...

US markets also fell back into correction (sub-10%) territory today...

Futures show the real action on the day as buyers panicked into stock on the rate-cut but were devastatingly rejected...

Nasdaq closed below its 100DMA and S&P closed below its 200DMA...

No one should be surprised by this drop... earnings had plunged before it...

Source: Bloomberg

VIX trading was insane today, flash-crashing below 25 when The Fed cut rates, only to explode back higher, topping 40 intraday, before fading back in the last hour...

Source: Bloomberg

Stocks continue to catch down to bonds' reality...

Source: Bloomberg

Treasury yields plunged today after The Fed rate-cut...

Source: Bloomberg

With yields at or near new record lows across the curve...

Source: Bloomberg

10Y plunged below the Maginot Line of 1.00% yield...

Source: Bloomberg

The yield curve steepened (as the short-end was utterly destroyed)

Source: Bloomberg

30Y TIPS yields crashed into negative territory for the first time ever...

Source: Bloomberg

The Dollar puked lower on the rate-cut, holding at 4-week lows...

Source: Bloomberg

JPY weakened notably against gold today, erasing the forced selling from last week...

Source: Bloomberg

Cryptos rolled over today amid the market slump, with Bitcoin back below $9000...

Source: Bloomberg

Commodities initially all spiked on the rate-cut, then oil and copper plunged as PMs held gains...

Source: Bloomberg

Gold soared higher today after The Fed cut rates, erasing last week's puke with futures tagging $1650 intraday...

WTI traded up to $48.50 intraday, but ended back below $47.50...

So, finally, we ask, did The Fed just swing from omnipotence to impotence?

It seems an emergency rate-cut of 50bps has done more to damage confidence that rebuild it... "what do they know?"

Did The Fed get an early glimpse of this week's payrolls data?

We wonder what Powell and Trump are thinking?

As Rabo noted earlier, in order to decide what to do after The Fed cut, answer this first, key question:

what level of interest rates is required to incentivize you to risk the death of yourself and your family?

I am sure that there are policy wonks out there who believe they can correctly capture that precise equilibrium level on monetary policy. The point is that lower rates don’t help in this situation at all. If demand is destroyed by people bunkering down at home for weeks, and supply chains being disrupted, all lower borrowing costs can do is help tide businesses over if banks agree to extend loans and credit cards, etc. (as China is already now doing) – and all that does paint us further into the corner we are already in, because those rates won’t be able to rise again.

Of course, if we don’t see any major fiscal stimulus then it’s hard to imagine how one can remain too optimistic either.

It seems the current Fed is ignoring the risks that former Dallas Fed President Richard Fisher warned last week...

"Does The Fed really want to have a put every time the market gets nervous? ...Coming off all-time highs, does it make sense for The Fed to bail the markets out every single time... creating a trap?"

"The Fed has created this dependency and there's an entire generation of money-managers who weren't around in '74, '87, the end of the '90s, anbd even 2007-2009.. and have only seen a one-way street... of course they're nervous."

"The question is - do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?"

And they will never learn, as we noted above, the market is now demanding more rate-cuts...

Because, as Fisher concluded ominously: "the market is dependent on Fed largesse... and we made it that way... but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put."

And then there's this... Biden and Bernie all tied up in the prediction markets ahead of tonight's Primary...

Tyler Durden Tue, 03/03/2020 - 16:00
Published:3/3/2020 3:08:34 PM
[Markets] The Dow falls 900 points to session lows as stocks choke on Fed rate cut The Dow falls 900 points to session lows as stocks choke on Fed rate cut Published:3/3/2020 1:39:31 PM
[Markets] Dow creeps back into positive territory in late-morning trades Dow creeps back into positive territory in late-morning trades Published:3/3/2020 10:06:39 AM
[Markets] Dow industrials return to negative territory just 15 minutes after Fed surprise Dow industrials return to negative territory just 15 minutes after Fed surprise Published:3/3/2020 9:25:43 AM
[Markets] Rabobank: What Level Of Interest Rates Will Incentivize You To Risk The Death Of Yourself And Your Family Rabobank: What Level Of Interest Rates Will Incentivize You To Risk The Death Of Yourself And Your Family

Submitted by Michael Every of Rabobank

“Tonight the super trouper lights are gonna find me
Shining like the sun (sup-p-per troup-p-per)
Smiling, having fun (sup-p-per troup-p-per)
Feeling like a number one…”

So sang markets yesterday in excitement as we enter what I am dubbing “Super Trouper Tuesday”. Indeed, the Dow Jones went up a whole baseball cap-and-a-bit to close at 26,703 even as the 10-year US remain at an unprecedented 1.12%. Not because the Fed mumbled something on Friday, but didn’t act, and not because the BOJ pumped all of USD4.6bn into markets yesterday, and not because the RBA cut rates 25bp to a new low of 0.50% earlier today, meaning that they now have one more cut left to go before it’s “Oz-QE, Oz-QE, Oz-QE” (Oi!Oi!Oi!) time. (Good timing not only due to Covid-19, as building approvals tumbled -15.3% m/m in January anyway.)

It’s also not due to more signs the virus spread is in “uncharted territory” according to the WHO (which means “pandemic” but is contractually obliged not to ever say it, it seems), with more deaths, and as UK police and army draw up lockdown plans and supermarkets plot their own contingency plans, for just one real-life example.

Rather it’s a reflection of the fact that the not-so-magnificent G-7, and G-7 central banks, have pledged that they will meet today to act jointly on the virus, and the IMF and World Bank are also prepared to help if needed; Covid-19, it seems, is a threat that requires immediate action in a way that the potential risk of the end of life on earth (if you are Green), or increasingly Victorian/Gilded Age levels of wealth inequality (if you are Piketty) are not. Then again we have to recall that stocks had just fallen by over 10% in a week, and that house prices risk following: Come on you cynical people, priorities, please!

So here we are at Super Trouper Tuesday. I am sure that a global virus-crisis meeting led by none other than world-famous virus expert US Treasury Secretary Steven Mnuchin will provide us all with the kind of comfort that deserves a whole baseball-cap in Dow movement. I am just not sure which direction.

Answer this first, key question: what level of interest rates is required to incentivize you to risk the death of yourself and your family? I am sure that there are policy wonks out there who believe they can correctly capture that precise equilibrium level on monetary policy. The point is that lower rates don’t help in this situation at all. If demand is destroyed by people bunkering down at home for weeks, and supply chains being disrupted, all lower borrowing costs can do is help tide businesses over if banks agree to extend loans and credit cards, etc. (as China is already now doing) – and all that does paint us further into the corner we are already in, because those rates won’t be able to rise again.

Nonetheless, those rates cuts are coming – because they push up equities very near-term. Indeed, our Fed watcher Philip Marey, who had already been calling Fed cuts this year, has now revised his 2020 rates call. He now expects the Fed to start cutting rates in March instead of April, with a 50bp reduction this month, again in June, and in September. In other words, it is back to the zero-bound by autumn (ahead of his original call, which was December).

Arguably even more interesting are the other rumours that are flying about over the G-7 meeting. Crucially, will this be the start of an open coordination between the government and central banks? Will central banks say that states can spend whatever they want to get us through Covid-19, and they will cover the required deficits? In other words, MMT? I would like to remind regular readers that such ‘unthinkable’ policy options are something we have openly flagged as a logical inevitability, even in developed markets: we just felt that the Green New Deal, or a war somewhere, would be the better ‘sell’ to the public. There are also enormous downside risks to any such strategy, which we have covered before in detail. Not everyone can “get away with it”, meaning a huge shift in relative power. Moreover, once you have shown that you CAN get free money like this, how is that genie put back in the bottle politically? This is actually an anti-Piketty argument: his view that we are doomed to see inequality rise is based on the concept that capital is the result of accrued savings rather than being created de novo as needed by (central) banks.

Of course, if we don’t see any major fiscal stimulus then it’s hard to imagine how one can remain too optimistic either. Notably, Mnuchin is keen on a tax cut rather than any higher state spending, and if that is any indication of what the G-7 will agree on, then we are in real trouble. All that returned cash is going to sit there on hold until the virus has been and gone, however long that is; and then the recovery will be too aggressive the other direction. The change in baseball caps that will be required up and down and up again could be extremely challenging, especially now Chinese supply chains to the US for things like baseball caps are damaged.    

At the same time, it’s also Super Trouper Tuesday in US politics, where Joe “White Walker” Biden has been levelled up to become the Night King; that after Pete Buttigieg came, was from Indiana and spoke Norwegian, and went, and Amy Klobuchar, came, was from Minnesota, and went, both dropped out and backed Biden. Ahead of the slew of states voting in primaries today that means it is Game of Thrones vs. Curb Your Enthusiasm. Oh, and Mike Bloomberg is still in the race too, and very generously doing what Piketty et al., have long argued billionaires should be doing: redistributing lots of their own wealth to no particular end.

“But it’s gonna be alright; (You’ll soon be changing everything)

Everything will be so different; When I’m on the stage tonight

Tonight the super trouper lights are gonna find me

Shining like the sun (sup-p-per troup-p-per)

And I’ll go long too (sup-p-per troup-p-per)

‘Cos juicing stocks is what they do”

Tyler Durden Tue, 03/03/2020 - 10:20
Published:3/3/2020 9:25:43 AM
[Markets] Dow slumps at the open as stock market pulls back after finance ministers fail to outline specific coronavirus steps U.S. stocks opened lower on Tuesday as investors weighed the economic impact of joint efforts by global central banks and governments to avert the damage from the coronavirus outbreak. The Dow Jones Industrial Average fell about 0.4% at 26,598, after blue-chips rose 1,300 points, the biggest point gain ever and marked the best percentage rise, 5.1%, since March of 2009. The S&P 500 index edged down 0.4% at 3,076, while the Nasdaq Composite Index was about 0.2% lower at 8,929. All three benchmarks had enjoyed powerful bounceback on Monday after a withering week of trading last week, which market its worst weekly decline since the 2008 financial crisis. Finance ministers and central bankers from the Group of Seven countries spoke at 7 a.m. Eastern Time, where they vowed to put in place measures to contain the economic fallout of the coronavirus outbreak. However, the promises fell short of the more specific and detailed coordinated policy response that markets hoped for. Secretary of State Steven Mnuchin will be speaking in front of the House Ways and Means Committee at 10 a.m. Eastern Time and may provide more insight about any coordinated plan by central banks and governments to stem the harm from the COVID-19 outbreak. Published:3/3/2020 8:39:31 AM
[Markets] Washington Ramps Up Testing, Beijing Adopts New Travel Bans As Global Case Total Passes 90,000: Live Updates Washington Ramps Up Testing, Beijing Adopts New Travel Bans As Global Case Total Passes 90,000: Live Updates

Following the longest publicly-disclosed illness of Pope Francis's papacy, the Vatican has confirmed that the leader of 1 billion Catholics has tested negative for the coronavirus. After days of insisting that the pope didn't have the virus...somebody at the Vatican was clearly worried that the Pope might have been exposed.

Pretty soon, millions of Americans and Europeans will know that feeling, if they don't already.

Yesterday, the death toll in the US climbed to 6, while the death toll across Europe has moved closer to 100. Late last night, officials in Washington State confirmed what many probably already suspected: 4 of the six deceased were either patients or staff at a nursing home in Kirkland, suburban Seattle.

Yesterday, the Dow posted its biggest one-day rebound in points as an endless parade of strategists and talking heads on CNBC jawboned hopes of 'coordinated central-bank intervention' into reality, though in the hours since Monday's close, though hopes have dimmed somewhat, thanks in part to this Reuters report. As G7 finance minister and central bankers prepare for Tuesday morning's conference call, it seems traders around the world have suddenly remembered that there's not much central banks can do, even after the OECD called for a mix of monetary and fiscal stimulus to rescue global growth.

In the span of days, the number of confirmed coronavirus cases in the US has climbed to more than 100 across 15 states if we include the evacuees, along with six deaths so far. the White House, and other governments, are shifting their focus, according to the New York Times, to distributing tests and focusing on early identification and containment instead of trying to keep the virus out.

This comes as the number of cases worldwide surpassed 90,000 on Tuesday.

In China, Communist Party officials are luxuriating in their success, or at least a convincing image of success, in suppressing the outbreak: Now that the novel coronavirus appears to be on the decline, vindicating Beijing's heavy handed tactics (for weeks, 760 million were subjected to some form of restriction on their movements, while 100 million faced punishment for leaving their homes without permission).

On Tuesday, Shanghai and Beijing instituted 'travel bans' directed at travelers from hot zones including Italy, South Korea and - of course - the US, turning President Trump's 'racist' travel restrictions on their head. Here's more from the NYT:

Major cities across China have announced new travel restrictions on people who have recently visited countries where coronavirus infections are on the rise.

On Tuesday, the authorities in Shanghai said that all travelers entering the city who had visited countries with significant outbreaks within the last two weeks must undergo a 14-day quarantine at home or at an approved isolation center. Officials in Guangdong Province announced similar measures, the state news media reported on Tuesday.

And a city official in Beijing announced on Tuesday that all arrivals into the capital from countries struggling with outbreaks — including Iran, Italy, Japan and South Korea — would be subject to a 14-day quarantine.

At least 13 people in China were found to be infected with the coronavirus after returning from countries such as Iran and Italy, two places that have seen some of the most severe outbreaks outside of Asia in recent days, according to the authorities.

A 31-year-old Chinese woman had worked in a restaurant in the Italian city of Bergamo before returning home to Qingtian County, in the southeastern province of Zhejiang, where she tested positive for the virus. Seven more people who worked at the same restaurant in Bergamo were later found to be infected after they returned to Zhejiang, the local authorities said.

In recent days, county officials in Qingtian have urged overseas residents to reconsider any plans to return home, citing the challenges they could pose to China’s efforts to control the epidemic.

Minutes ago, South Korean health officials released their second coronavirus update for Tuesday: Another 974 confirmed cases raised the country's total to 5,186. Meanwhile, South Korea's death toll climbed to 34.

Public fury in SK so far has been directed at a strange, cult-like church called Shincheonji. Its leader issued an apology yesterday following reports that public prosecutors were being pressed to charge him and 11 other church leaders with murder. Now, investigators are looking into two church members who traveled to South Korea in January from Wuhan. One of them have tested positive, while the other tested negative, according to CNN.

In Japan, another case was reported in Tokyo Tuesday, along with two additional cases in Osaka, and six cases between Nagoya and Kyoto.

Over in Europe, UK Prime Minister Boris Johnson said "we are ready for potential economic downside" as the UK faces a "national challenge" in defeating the virus.

Johnson added: "I am very confident that Britain will get through it in good shape."

Asked about school closures, Johnson said "we don't think schools should be closing in principle - they should stay open," he said. But the public must follow the advice of Public Health England. However, given that children are actually considered "low risk" for COVID-19, Johnson said school closures might not fit into the government's strategy. On Tuesday, cases in the UK climbed to 40.

In France, the increasingly unpopular "President for the Rich" Emmanuel Macron has become the latest victim of coronavirus rumors, after the president reportedly caught a cold and tried to pull out of an event. He has now reportedly been cajoled into visiting a hospital ward in Paris to try and dispel rumors that he's dying of pneumonia.

In Iran, where the virus has killed at least 77 people (and more than 200 according to some reports), public health officials (at least those who haven't already succumbed to the virus) confirmed that 2,336 cases have been counted. As case totals in Qatar, Bahrain, Saudi Arabia, Jordan, Qatar, Oman, the UAE and Egypt climb, Iran's regional neighbors have shut their borders and severed travel and trade links with the Islamic Republic. The head of Iran's emergency medical services has become at least the fifth senior government official to be diagnosed with the virus after a senior advisor to the Ayatollah died yesterday. Additionally, 23 Iranian MPs were among the new cases on Tuesday.

As more companies restrict employee travel, Google on Tuesday told the bulk of staff at its European headquarters in Dublin have been asked to work from home after a staffer reportedly caught the flu.

As more countries cancelled cultural and sporting events across Europe, the head of European football's government body said Tuesday that the Euro 2020 soccer tournament would move ahead as planned.

"You don't know how many concerns we have when we organize a big competition […] We have security concerns, we have political instability concerns and one of those concerns is the virus. We are dealing with it and we are confident that we can deal with it," said UEFA President Aleksander Ceferin at a presser in Amsterdam.

As the total number of cases in Spain climbs to 129, a person in Gibraltar has tested positive, the first case identified in the British territory on the southern coast of Spain.

Thailand has imposed compulsory self-quarantine on travelers arriving from hot zones in Asia, the Middle East and Europe following a spate of deaths in the country.

But now that the G7 communique has dashed the market's hopes, get ready for another wild day.

Tyler Durden Tue, 03/03/2020 - 08:02
Published:3/3/2020 7:05:57 AM
[Markets] Frentic Rally Reverses On Speculation G-7 Stimulus Will Disappoint Frentic Rally Reverses On Speculation G-7 Stimulus Will Disappoint

Monday's ferocious rally halted and reversed on several occasions overnight, following a report that the G7 meeting that started moments ago, at 7am ET this morning, and which sparked a record point gain in the Dow Jones Index, may disappoint. Specifically Reuters reported that while G7 finance officials and central bankers will discuss ways to bolster their economies against the impact of the spreading coronavirus outbreak, the meeting will not be another Shanghai Accord (contrary to widespread speculation) as they are not expected to specifically call for new spending or coordinated interest rate cuts, but merely will pledge to work together to mitigate damage on economies from coronavirus spread.

As reported yesterday, finance ministers and central bank governors from the G-7, led by Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin will hold a conference call at 700AM ET/1200 GMT to discuss the outbreak. But according to the official, who declined to be identified, a statement they are crafting and which is expected to be released on Tuesday or Wednesday, does not detail any fiscal or monetary steps, which is hardly what the market - which is now pricing in as much as 25 to 50bps in emergency rate cuts by the Fed was expecting. As a result, while global stocks and oil prices made a torrid recovery afters policymakers indicated on Monday a willingness to help ease the economic fallout from the coronavirus, worries about the outcome of the Group of Seven heads’ discussion kept a lid on gains.

“The market is very much wanting a coordinated policy response, but the question here is whether a conventional interest-rate response is sufficient, or whether it requires also a fiscal response,” said Sameer Goel at Deutsche Bank. “The problem is, the severity of the problem is not very clear.”

Yet even as traders got cold feet in the last moment that the G7's response will be far less forceful than expected, with Reuters once again warning not to expect too much:

  • EU FINANCE MINISTERS UNLIKELY TO TAKE ANY DECISIONS AT WED CALL ON CORONAVIRUS RESPONSE - OFFICIALS
  • G7 STATEMENT AS OF NOW DOES NOT INCLUDE SPECIFIC LANGUAGE CALLING FOR FRESH FISCAL SPENDING OR COORDINATED INTEREST RATE CUTS BY CENTRAL BANKS - G7 SOURCE

... the momentum alone from yesterday's record US move higher was enough to send Europe's Stoxx 600 Index at one point more than 3% up as every sector in that region rallied, even as the euro slipped after data showed inflation slowing to a three-month low in February, in part due to slumping energy prices.

Yet despite the early loss in futures, the overall improved sentiment - which apparently improved on an event which may not even happen but traders were too busy buying stocks to ask any questions - helped U.S. S&P 500 futures climb as much as 1% overnight before fading again, while MSCI’s world stocks index was up 0.6% having scored its best day since 2011 on Monday after a roaring Wall Street pushed it up just over 3%.

“Markets will have to decide if the promise of concerted and possibly co-ordinated action from fiscal and monetary authorities will be enough,” said James Athey, senior investment manager at Aberdeen Standard Investments. “For most shocks you would probably say yes, but the scale, magnitude and sheer unknowable nature of this one makes that an open question.”

Earlier in the session, Asia-Pacific shares outside Japan ended 0.8% higher, off earlier peaks but still marking the second straight session of rises. Most markets in the region were up, with Thailand’s SET gaining 3% and Jakarta Composite rising 2.9%, while Japan’s Topix Index dropped 1.4%. Trading volume for MSCI Asia Pacific Index members was 16% above the monthly average for this time of the day. The Researve Bank of Australia on Tuesday cut interest rate by 25 basis point to a record low, although the cut was seen by many as not enough. Still, Australian shares ended up 0.7% after the central bank cut interest rates to a record low of 0.5%, the fourth reduction in less than a year.  The Topix declined 1.4%, with Land Co and HIS falling the most. The Shanghai Composite Index rose 0.7%, with Jinzhou Port and Baoding Tianwei Baobian Electric posting the biggest advances.

The decision to hold a G7 call came after the head of the European Central Bank, Christine Lagarde, on Monday joined the chorus of heavyweight central bank chiefs signalling a readiness to deal with the threat from the outbreak. Earlier messages from the U.S. Federal Reserve that it was prepared to act continued to weigh on the dollar, having fueled expectations of a sizable rate cut at its meeting in two weeks.

The rout in global stocks last week had already prompted Fed Chair Jerome Powell and Bank of Japan Governor Haruhiko Kuroda to flag a readiness to move. “It is reasonable to expect a response that reflects a combination of fiscal measures and central bank initiatives,” Bank of England Governor Mark Carney said on Tuesday.

As a result, money markets are fully pricing in a cut of at least 0.25 percentage points to the current 1.50%-1.75% target rate at the Fed’s March 17-18 meeting as well as a 0.10 percentage point cut to the ECB’s minus 0.5% key rate at March 12 meeting. The frantic moves by policymakers reflected growing fears about the disruption to supply chains, factory output and global travel caused by the new epidemic just as the world economy was trying to recover from the effects of the U.S.-China trade war.

Coronavirus, which has already claimed more than 3,000 lives, now appears to be spreading much more rapidly outside China than within the country. That leads the world into uncharted territory, although the World Health Organization has so far stopped short of calling it a pandemic.

“Barring any further deterioration of the coronavirus outbreak, we believe that the global cyclical recovery is likely to gain further momentum,” Schroders’ Asian multi-asset team said in a report. “This is likely to benefit stocks with higher leverage to global growth, as stronger earnings could support dividend growth.”

Against the yen, the dollar lost 0.4% to 107.95 yen, slipping towards a five-month low of 107 set on Monday. The Australian dollar, seen as a proxy bet on China, sat above a recent 11-year low largely on short covering after its central bank cut interest rates by 25bps, or less than many traders expected, earlier in the day.

In commodities, Brent oil prices gained another 2% after a jump of more than 4% on Monday. U.S. WTI crude futures went to $47.8 a barrel while Brent crude stood at $52.9.

Aside from watching the market, U.S. citizens in states including California and Texas will vote on “Super Tuesday” for a Democratic candidate to run against President Donald Trump in November’s election.  AutoZone, Target, and Veeva are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 1% to 3,096.00
  • STOXX Europe 600 up 2.8% to 386.55
  • MXAP up 0.04% to 156.90
  • MXAPJ up 0.8% to 517.29
  • Nikkei down 1.2% to 21,082.73
  • Topix down 1.4% to 1,505.12
  • Hang Seng Index down 0.03% to 26,284.82
  • Shanghai Composite up 0.7% to 2,992.90
  • Sensex up 1.1% to 38,568.09
  • Australia S&P/ASX 200 up 0.7% to 6,435.68
  • Kospi up 0.6% to 2,014.15
  • German 10Y yield rose 3.3 bps to -0.591%
  • Euro down 0.2% to $1.1108
  • Italian 10Y yield rose 3.5 bps to 0.969%
  • Spanish 10Y yield fell 3.5 bps to 0.251%
  • Brent futures up 2.7% to $53.28/bbl
  • Gold spot up 0.5% to $1,597.81
  • U.S. Dollar Index up 0.1% to 97.49

Top Overnight News

  • Group of Seven finance chiefs will hold a rare conference call Tuesday under pressure from investors to match their pledges to shield the world economy from the coronavirus with action. Bank of England Governor Mark Carney said policy makers are crafting a “powerful and timely” defense of the world economy
  • After financial markets effectively browbeat global central banks into at least verbal action in recent days, the reaction to Australia’s interest-rate cut Tuesday showcased the danger of under-delivering
  • Former Vice President Joe Biden did something in 24 hours he couldn’t do for more than a year -- coalesce the Democratic Party’s establishment around him as he tries to thwart Bernie Sanders on Super Tuesday
  • Swiss economic growth slowed slightly at the end of 2019, highlighting some fragility as it faces the impact from the coronavirus outbreak.
  • Plans by two distressed Chinese companies to ease their imminent debt crisis are betraying a subtle shift in Beijing’s delicate balancing act between combating financial risk and preserving stability as the coronavirus outbreak continues
  • Andrew Bailey, the man who becomes Bank of England governor in less than two weeks, is set to make the first public appearance connected to his new role on Wednesday. The appearance is all the more important since his views on policy remained virtually unknown, giving investors little insight into the direction the BOE may take when he takes over
  • The Bank of Japan conducted an unscheduled debt buying operation for a second day amid growing expectations of a coordinated effort by global central bankers and finance ministers to mitigate the economic impact of the coronavirus. Group of Seven finance ministers and monetary officials will speak by teleconference on Tuesday, people familiar with the matter said
  • Japanese Prime Minister Shinzo Abe told parliament his government is paying close attention to the effects of the coronavirus on the economy, as it implements a series of measures aimed at stemming the disease. Won’t hesitate to introduce more economic measures if necessary, Abe says. Japanese Finance Minister Taro Asocalls for coordination with other nations on virus
  • The Trump administration is discussing a series of steps to contain the economic and market fallout from the rapidly spreading coronavirus, including a push for the Federal Reserve to enact an emergency rate cut and a possible tax cut.
  • Joe Biden is consolidating support for his Democratic presidential campaign as centrists line up behind him to effectively try to block Bernie Sanders from winning the party’s nomination. Pete Buttigieg, who dropped out of the campaign Sunday night, appeared with Biden at a Dallas restaurant and gave his endorsement. Amy Klobuchar ended her presidential bid earlier Monday and planned to endorse Biden at a rally
  • Oil extended its rebound from last week’s slump as global policy makers pledged to safeguard markets from the coronavirus, while OPEC and its allies are expected to deepen production cuts.

Asia traded mostly higher as the region took impetus from the rally on Wall St amid hopes of a coordinated effort to address the fallout from the coronavirus, with G7 Finance Ministers and Central Bankers planning a call to weigh the coronavirus response which will be led by US Treasury Secretary Mnuchin and Fed Chair Powell, while FFR futures were now pointing to a 75bps cut by the Fed this month. This inspired a surge across the major US indices led by the DJIA which rose over 5% which was the most in over a decade and posted its biggest point gain on record of nearly 1300 points. ASX 200 (+0.7%) and Nikkei 225 (-1.2%) were lifted at the open with Tech and Healthcare frontrunning the broad sector gains in Australia and as markets also awaited the widely anticipated rate cut by the RBA, while the Japanese benchmark was less decisive and retraced all its gains amid detrimental flows into the currency. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (+0.7%) were positive in which the latter breached the psychological 3000 level with sentiment supported by the global stimulus hopes and a continued decline in the pace of coronavirus cases in mainland China. Finally, 10yr JGBs slumped to below 153.50 on spill-over selling from USTs amid the rally in stocks, although JGBs later found reprieve despite mixed 10yr JGB auction results, as the sentiment in Japan deteriorated and following the BoJ announcement for another JPY 500bln unscheduled repo operation.

Top Asian News

  • BOJ Displays Resolve on Calming Markets With Another Repo Move
  • Legally Embattled Netanyahu Claims Victory After Turbulent Year
  • IPhone Maker Expects Return to Normal in China by End- March
  • Local Funds Snap Up Philippine Stocks While Foreigners Sell

European equities (Eurostoxx 50 +2.1%) trade with firms gains as market participants continue to place bets on a coordinated policy response with G7 Finance Ministers and monetary policy officials scheduled to hold a call at 1200GMT/0700EST today. Ahead of this call, a draft version of the statement appears to make no specific calls for fresh fiscal spending or coordinated rate cuts, however, world leaders will pledge to work together to mitigate the economic fallout from COVID-19. Furthermore, reports ahead of the call at midday were based on a draft version of the text, which could ultimately be revised to provide more of a robust response, should it be deemed to be necessary. In terms of sector specific performance in Europe, gains have been relatively broad-based with all ten key sectors trading markedly higher. Travel names including Deutsche Lufthansa (+9.5%), Air France (+6.5%), and Tui (+5.5%) have been granted some reprieve from recent losses, albeit, it’s difficult to gauge exactly how much the sector would benefit from a response by monetary authorities given that travel restrictions would likely remain in place regardless. Elsewhere, Qiagen (+18.7%) sit at the top of the Stoxx 600 after Thermo Fisher announced a USD 10bln deal to buy the Co, Direct Line (+4.3%) trade higher post-earnings, whilst support has been seen for the Spanish banking sector after a court ruling over mortgage terms could prevent lenders from having to make large compensation payments to customers. To the downside, Hiscox (-4.7%) lag peers over concerns about coronavirus-related claims, a disappointing earnings update for Ashtead (-0.5%) has weighed on Co. shares, whilst Novartis (flat) are marginally softer after the Co.’s subsidiary are to pay USD 195 over antitrust violations.

Top European News

  • ECB Joins Central Banks Pledging Coronavirus Action If Needed
  • Bailey Faces First BOE Test as Coronavirus Rewrites Outlook
  • Spanish Banks Soar After Mortgage Cases Sent to Local Courts
  • Six Kids, $17 Billion and Plans to Keep Russia Wealth Stable

In FX, the Dollar is on a firmer footing after extending declines on Monday and the DXY briefly breaching Fib support (97.193) just ahead of 97.000, but crucially from a tech perspective managing to ‘close’ back above. Meanwhile, the Greenback has also gleaned some traction from a rebound in US Treasury yields amidst a strong recovery in equities and risk assets in general on the premise that more global monetary authorities are providing ammunition to combat COVID-19, with additional supportive policies in the pipeline. On that note, G7 Finance Ministers and Central Bankers are holding a conference call around 12GMT to discuss whether the situation warrants coordinated action, which has helped the index return to the 97.500 axis.

  • GBP/AUD - Somewhat perversely perhaps, the Pound and Aussie are among the major outperformers even though BoE Governor Carney and MPC members Tenreyro are hinting at some form of policy stimulus at the post-Budget meeting pending what new UK Chancellor Sunak has in store on March 11. Cable is back above 1.2800, albeit with the aid of an encouraging construction PMI as the headline reclaimed 50+ status, while Eur/Gbp has retreated through 0.8700 after running into resistance fractions shy of the 200 DMA and with contacts noted decent model/program offers on the way back down. Back down under, Aud/Usd has been volatile following the RBA’s 25 bp ease overnight and forward guidance suggesting the official cash rate may be held at the new 0.5% record low until the extent of the nCoV (and bushfire) damage is known rather than reduced again to the lower bound that in theory would only leave QE in reserve for any further economic downturn.
  • JPY/SEK/NOK - The other strong G10 units as the Yen holds above 108.00 vs the Buck following a second test of support circa 108.50 that is now forming a double chart formation, while the Scandi Crowns are rebounding firmly from yesterday’s lows against the Euro on the back of renewed risk appetite that has filtered through to oil and other commodities. Eur/Sek has reversed sharply within 10.6475-5535 parameters and likewise Eur/Nok between 10.3870-3165.
  • NZD/CHF/EUR/CAD - The Kiwi continues to lag its Antipodean counterpart, with Nzd/Usd straddling 0.6250 ahead of the latest GDT auction and awaiting the RBNZ’s response to the coronavirus, while the Franc has handed back some gains vs the Dollar on the 0.9500 handle in contrast to Eur/Chf pivoting 1.0650 in wake of firmer than forecast Swiss GDP. Moreover, the Euro has lost momentum more broadly as Eur/Usd fades around 1.1155 and some distance from Monday’s best levels nearer 1.1185 irrespective of more reports about targeted ECB liquidity and push-backs against near term of knee-jerk rate cuts and QE, via Holzmann this time. Similarly, the Loonie has waned on the approach to 1.3300 and Wednesday’s BoC policy convene that could see a less confident assessment and statement if not action to counter the effects of China’s epidemic.
  • EM - It’s back to broad depreciation against the Usd, but with the Zar also hit extremely hard by the SA plunging into a deep recession via a 1.2% q/q Q4 GDP contraction, while the Try continues to lament heightened military conflict in Syria’s Idlb.

In commodities, WTI and Brent front month futures are bolstered this morning in-line with the generally firmer risk-sentiment, as markets anticipate some form of stimulus package from central banks and with the G7 meeting today at mid-day London time to discuss the situation. In terms of where we currently stand, WTI and Brent are posting gains of around USD 1.50/bbl at present and remain in proximity to their session highs in the mid USD 48/bbl and USD 53/bbl realm. Crude specific, has seen remarks from the Kremlin that we should wait for the OPEC+ meeting for details on whether Russian is ready for additional output cuts. Additionally, Lukoil’s VP expects OPEC to cut production in excess of 1mln BPD; believes that a cut of 600k-1mln would be sufficient to bring prices above the USD 60/bbl mark. Recall the JTC recommended a cut of 600k and Russian Energy Minister Novak has remarked that they have received no communication from Saudi on a 1mln BPD move; are reviewing the 600k recommendation ahead of this week’s Thursday/Friday meeting. Turning to metals, spot gold has remained within a comparatively tight range of around USD 15/oz for much of the session, the yellow metals upside has, thus far, been effectively capped by the USD 1600/oz handle. Focus for the safe haven does remain affixed to the coronavirus, and the potential for a policy response to tackle this, as well as other geopolitical concerns such as the ongoing Syrian conflict; in which the Turkish Military confirm that a Syrian Government warplane was shot down as well as reports of ballistic missiles being fired in the region.

US Event Calendar

  • Wards Total Vehicle Sales, est. 16.8m, prior 16.8m
  • 2:50pm: Fed’s Mester to Address UK Society of Professional Economists
  • 4:30pm: New York Fed’s Logan Discusses Ample Reserves Regime
  • 6:30pm: Fed’s Evans Takes Part in Moderated Q&A

DB's Jim Reid concludes the overnight wrap

Due to being brainwashed (probably correctly) I’ve washed my hands so much over the last few days that I think I need to buy some hand moisturiser as they are rapidly drying out. I’ve also got the taste of hand sanitising gel in my mouth. I’ve no idea why but it may speak to my bad habits and exactly why the advice is given to wash your hands a lot. Given that it contains alcohol I hope that doesn’t count in my weekly units. Anyway last night we published the results of our flash 9 hour covid-19 survey with the results in graph form published here. We had over 600 responses and on a scale of 0 (not at all) and 10 (extremely) on how concerned you were that you or your family would catch the virus the average response was 4.76 with 42% at 6 or higher on this scale. 37% have made no changes to lifestyle with 63% making some changes (most slight). 26% have had a social event cancelled and 40% a work event. A net 7% thought markets overreacted last week but the tails were quite big with 17% strongly agreeing and 14% strongly disagreeing with this. In terms of when the Western World will be mostly back to normal, June (26%) pipped May (23%) as the most popular response. 23% felt later than August and 11% beyond October. In terms of policy approval various travel bans were much less popular than other containment measures. Cancellation of public events such as sporting ones saw 68% approval which, with Liverpool close to winning the league for the first time in 30 years, worries me. Anyway see the link for full graphs.

Onto markets now and last week we discussed how we needed the authorities to be more aggressive to get some more two-way pricing in markets. It seems we have that now but it remains to be seen how powerful and co-ordinated they want or will be able to be. Markets had another roller coaster day but the big boost came with Bloomberg reporting that the G7 finance ministers would be holding a teleconference today to discuss their response to the coronavirus, and that the G7 central bankers would also be joining the call. So cue maximum excitement (S&P 500 +4.61%) but the 2008 template suggests that the biggest response is unlikely to come at the first meeting. They will probably need a fair bit more time to be truly co-ordinated. We will see later today. The call is planned for 1200 GMT/0700 EST. After the NY close, ECB’s Lagarde said ‘We stand ready’ to take appropriate and targeted measures. The word targeted might suggest a response more towards lending (eg LTROs) than straight to rates cuts.

Overnight in Asia, Reuters has reported that G7 countries won’t at this stage include any specific language on fresh fiscal stimulus or coordinated cuts by central banks in a statement they are drafting. The report added that it is likely to include a pledge that the countries will work together to mitigate the damage to economies from the virus. If true there is likely to be some disappointment that nothing concrete has been decided yet.

Asian markets are largely up this morning though but more off the back of the strong US session with the Hang Seng (+0.43%), Shanghai Comp (+1.33%) and Kospi (+1.31%) all advancing. However, the Nikkei (-0.67%) is trading lower after erasing earlier gains as the Japanese yen moved up +0.46% on the prospect of upcoming Fed cuts. The Australian dollar is also up +0.25% despite a 25bps rate cut by the RBA. Elsewhere, futures on the S&P 500 are down -0.11% and yields on 10yr USTs are back down -4.7bps to 1.118%. The Reuters story mentioned above is creating a bit of softness. In commodities, brent crude oil prices are up +2% to $52.97 and are on track to cover almost half of last week’s declines ahead of the OPEC+ meeting in Vienna on Thursday and Friday.

This is all after the S&P 500 finishing at the day’s highs of +4.61% yesterday (largest gain since Boxing Day 2018), taking a further leg higher in the last half hour possibly on news that pharmaceutical companies Gilead and Pfizer had antiviral treatments/compounds that could be effective against the coronavirus. Throughout the session, the best performing sectors were the defensive, bond-proxies like utilities, staples, and real estate companies – supporting the idea that investors are still wary about the economic impact on cyclicals. The NASDAQ also closed +4.49% higher, but semiconductors lagged the larger technology sector and were “only” up +3.51% as concerns over supply-chain exposed stocks remain. The VIX index fell -8.4 points to 31.7. This all followed the STOXX 600 finishing just slightly higher at +0.09%. The FTSE MIB underperformed though to close down -1.50%, as the number of cases in Italy continues to grow and concerns mounts over the economic impacts.

Amid the numerous fixed income record lows of late, inflation expectations in both the US and the Euro Area fell to all-time lows yesterday. In the US, five-year forward five-year inflation swaps fell by -10bps to around 1.78% at midday before climbing in the afternoon to finish down -1.3bps at 1.873, while those for the Euro Area fell to 1.108%. It was another crazy day in fixed income as well, with 10yr Treasury yields initially falling by -11.8bps to another record low of 1.028% before closing up at 1.16%, breaking a 7 session run. 2yr Treasury yields fell by -16bps at one stage before ending -1.0bps lower - still their lowest level since November 2016. The last turn higher in risk markets in the US session also saw yields rise on the US 30yr by +8.6bps at the end of the day (+4.6bps overall), to break a 7 session run of increasingly lower yields. President Trump was also calling for action again yesterday after tweeting that, “As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive. The U.S. should have, for all of the right reasons, the lowest Rate.” Just like with the Italian stocks underperforming Europe, BTPs are also continuing to diverge with bunds – with spread widening 5.2bps yesterday (10yr Bunds -1.7bps) as the spread is now at levels last seen in August.

Moving on, 10 days ago we would have thought today would be all about Super Tuesday but events have overshadowed it. However it still has huge importance for the medium to longer term direction of markets. Karthik on my team has published a 2020 US Election Primer (link here) with all you might want to know about the primaries, Presidential and House/Senate races.

As for today, 14 states will be holding Democratic primaries along with American Samoa. They amount to 34% of delegates for the overall race. The latest from last night is that Klobuchar has dropped out and has lent her support to Biden. This combined with Mayor Pete dropping out over the weekend indicates that the moderate wing of the party is trying to coalesce around Biden. In terms of the different contests to keep an eye out for, California is the biggest prize as it has the largest delegate haul of any state, and Sanders has a commanding lead there with the potential to rack up a sizeable delegate advantage. Texas, which is the third-largest state in terms of delegates, will also be vital to watch – Sanders polls well in the state with young, minority voters, while Biden does better with more moderates. If Biden loses California and cannot win or at least stay very close in Texas it will be hard for him to catch Sanders even over the course of the spring. Early voting started in California on the 3rd of Feb and on the 18th of Feb in Texas – that could potentially effect Biden’s numbers if those are Pete/Klobuchar/Bloomberg voters who might have voted differently following South Carolina. Biden will be hoping for a number of wins of his own, particularly in those southern states with larger African-American populations, where he has stronger support. So watch out for him in states such as North Carolina, Alabama and Tennessee. Another of interest will be Massachusetts, which is Elizabeth Warren’s home state, but where Sanders currently has a narrow poll lead over her. Warren hasn’t come 1st or 2nd in any of the first four states to vote, so a failure to win her home state would not be a great sign for her campaign. Michael Bloomberg will be on ballots for the first time today and is the wildcard. His support has fallen off following his lackluster debate performances over the past two weeks though with his PredictIt betting odds having fallen from 33c on 12-Feb to 7c last night. He still may affect races if he pulls support from Biden, and allows Sanders to pull ahead in otherwise more moderate states. The non-California results should come out at around 0400GMT/2300 EST, while California could take a while to be official - in 2018 60% of the voters submitted absentee ballots as opposed to going to the polls on Election Day, thereby elongating the process.

Now to DB’s updated forecasts. Our economists’ new base case forecasts see the EA and Japan recording two quarters of moderately negative growth with the US hovering near zero with a contraction in Q2. China will experience one negative quarter in Q1 with Australia in recession for the first time since 1991. As discussed at the top the Fed will now cut 100bp (50bp this month) with the ECB cutting the deposit rate 10bps and doing a targeted LTRO to SMEs in areas affected. However the ECB policy may come with a lag as council disagreements delay it. See their full report here.

Elsewhere yesterday, George Saravelos, our global head of FX research, released a note called “Time to sell the dollar” (link here). He sees a number of drivers pushing EUR/USD higher, seeing it head towards 1.20 by the end of the year, and thinks USD/JPY will drop to 100. Among others, the Fed are going to cut rates, and they have more room than other G10 central banks, which will lower the world-US interest rate differential. Meanwhile, the US election could further damage the dollar and there’s the rising probability of a European fiscal response given the ECB are heavily constrained. Funnily enough yesterday, EURUSD was actually up by +0.98%, after a similar +1.1% move higher last week, two of the biggest up days since January 2018. The Euro strengthened by more than 1% against the Japanese Yen and the British pound as well yesterday.

The main data highlight yesterday came from the manufacturing PMIs, though the extent of the coronavirus’ impact was limited as the survey data was only collected up to 21st February, so before global equity markets experienced their worst week since the financial crisis. In terms of the numbers, the Eurozone manufacturing PMI was revised up to 49.2 (vs. flash 49.1), while Germany’s was revised up to 48.0 (vs. flash 47.8), which is a 13-month high even if it remains in contractionary territory. In spite of the data being collected before the last week, there was some initial evidence of the coronavirus’ impact, with the comments in the Eurozone PMI saying that “Supply-side constraints were in notable evidence during February as average lead times for the delivery of inputs lengthened appreciably and for the first time in a year. Manufacturers primarily linked the deterioration in vendor performance to the coronavirus-related factory shutdowns in China.” Meanwhile in the US, the ISM manufacturing for February fell to 50.1 (vs. 50.5 expected), only just above the 50 line that separates expansion and contraction. The anecdotes from respondents were also full of comments on the virus and China, and new orders fell to 49.8 (vs. 51.8 expected).

To the day ahead now, and as mentioned Super Tuesday will be the main event to watch out for today. Otherwise, the data highlights will be the Euro Area CPI estimate for February, along with January’s unemployment rate. In addition, we’ll also get the preliminary Italian unemployment rate for January and the UK’s construction PMI for February. From central banks, we’ll hear from the ECB’s Holzmann, along with the Fed’s Mester and Evans. Finally, Target will be releasing earnings.

Tyler Durden Tue, 03/03/2020 - 07:10
Published:3/3/2020 6:12:06 AM
[Markets] U.S. stock futures slip after report G7 coronavirus effort may disappoint U.S. stock futures slipped early Tuesday amid questions over how far Group of Seven (G7) nations may be willing to go fight the coronavirus. G7 finance ministers and central bankers, led by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, are expected to lead a call on Tuesday to discuss risks from the virus and potential responses. A communique statement is expected to follow, but an unnamed official told Reuters that the draft copy doesn't include specifics on coordinated interest rate cuts or fiscal stimulus. Dow Jones Industrial Average futures slipped 65 points, or 0.3%, to 26,403, while S&P 500 futures dipped 0.3% to 3,057.25. That follows a nearly, 1,300 climb for the Dow industrials on Monday following the worst week for stocks since 2008. Australia on Tuesday cut its benchmark cash rate by 25 basis points to a new record low, citing risks from the coronavirus. Published:3/3/2020 1:34:32 AM
[Markets] Why The Coming Economic Collapse Will Not Be Caused By Covid-19 Why The Coming Economic Collapse Will Not Be Caused By Covid-19

Authored by Matthew Ehret via Off-Guardian.org,

With last week's collapse in the stock market, the internet has been set ablaze with discussion of a new crash looming on the horizon (even with today's record-breaking point-gain in the Dow). The fact that such a chain reaction collapse was only kept at bay due to massive liquidity injections by the Federal Reserve’s overnight repo loans should not be ignored.

These injections which began in September 2019, have grown to over $100 billion per night… all that to support the largest financial bubble in human history with global derivatives estimated at $1.2 quadrillion (20 times the global GDP!).

Sadly economic illiteracy is so pervasive among today’s modern economists that the real reasons for this crisis have been entirely misdiagnosed with financial experts from CNN, to Forbes blaming the volatility on the spread of the Corona virus!

NOT THE CORONA VIRUS: THE REAL CAUSE OF THE ONCOMING FINANCIAL COLLAPSE.

As refreshing as it is to hear candid criticisms of the system’s failure and even support for the restoration of Glass-Steagall bank separation from presidential candidates like Bernie Sanders, Tulsi Gabbard or even the lame Elisabeth Warren… we find that in each case, those candidates are on record supporting policies cooked up by the very same oligarchs they appear to despise in the form of the Green New Deal.

In spite of what many of its progressive proponents would wish, such a global green reform would not only impose Malthusian depopulation upon nation states globally were it accepted, but would establish a the supranational authority of a technocratic managerial elite as enforcers of a “de-carbonization agenda”.

Due to the rampant lack of comprehension of how this crisis was created such that such idiotic proposals as “green new deals” are now seriously being suggested as remedies to our current ills, a bit of history is in order.

SOME NECESSARY BACKGROUND

“The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”

- Franklin Delano Roosevelt, first Inaugural Address 1933

Knowing that the “money changers” had only been able to create the great bubbles of the 1920s via their access to the deposits of the commercial banks, Franklin Roosevelt made the core of his battle against the abuses of Wall Street centre around a 1933 legislation entitled “Glass-Steagall”, named after the two federally elected officials who led the reform with FDR.

This was a bill which forced the absolute separation of productive from speculative banking, guaranteeing via the Federal Deposit Insurance Corporation (FDIC) only those commercial banking assets associated with the productive economy, but forcing any speculative losses arising from investment banking to be suffered by the gambler. The striking success of this law inspired other countries around the world to establish similar bank separation.

Alongside principles of capital budgeting, public credit, parity pricing and a commitment to scientific and technological development, a dynamic had been created that would express the greatest hope for the world, and the greatest fear for the financial empire occupying the City of London and Wall Street.

The death of John F. Kennedy ushered in a new age of pessimism and cultural irrationalism from which our society has never recovered. The destruction of a long term vision as exemplified by the space program, the St. Lawrence Seaway and the New Deal projects had resulted in a tendency within the population to increasingly look upon present pleasures as the only reality, and future goods as the mystical expression of the sum of present pleasures.

In this new philosophical setting, so alien in previous epochs, money was permitted to act as a power unto itself for short term gains instead of serving the investments into the real productive wealth of society. With this new paradigm shift into the “now”, a new economic model was adopted to replace the industrial economic model which had proven itself in the years preceding and following World War II.

The name for this system was “post-industrial monetarism”. This would be a system ushered in by Richard Nixon’s announcement of the destruction of the fixed-exchange rate Bretton Woods system and its replacement by the “floating rate” system of post 1971 fame.

During that same fateful year of 1971, another ominous event took place: the formation of the Rothschild Inter-Alpha Group of banks under the umbrella of the Royal Bank of Scotland, which today controls upwards of 70% of the global financial system.

The stated intention of this Group would be found in the 1983 speech by Lord Jacob Rothschild:

“two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may converge to form the ultimate, all-powerful, many-headed financial conglomerate.”

This policy demanded the destruction of the sovereign nation-state system and the imposition of a new feudal structure of world governance through the age-old scheme of controlling the money system on the one side, and playing on the vices of credulous fools who, by allowing their nations to be ruled by the belief that hedonistic market forces govern the world, would seal their own children’s doom.

All the while, geopolitical structures foreign to the United States constitutional traditions were imposed by nests of Oxford-trained Rhodes Scholars and Fabians who converted America into a global “dumb giant” enforcing a neo colonial program under a “Anglo-US Special Relationship”. The Dulles brothers, McGeorge Bundy, Kissinger, and Bush all represent names that advanced this British directed plan throughout the 20th century.

LONDON’S ‘BIG BANG’

The great “liberalization” of world commerce began with a series of waves through the 1970s, and moved into high gear with the interest rate hikes of Federal Reserve Chairman Paul Volcker in 1980-82, the effects of which both annihilated much of the small and medium sized entrepreneurs, opened the speculative gates into the “Savings and Loan” debacle and also helped cartelize mineral, food, and financial institutions into ever greater behemoths.

Volcker himself described this process as the “controlled disintegration of the US economy” upon becoming Fed Chairman in 1978. The raising of interest rates to 20-21% not only shut down the life blood of much of the US economic base, but also threw the third world into greater debt slavery, as nations now had to pay usurious interest on US loans.

In 1986, the City of London announced the beginning of a new era of economic irrationalism with Margaret Thatcher’s “Big Bang” deregulation. This wave of liberalization took the world by storm as it swept aside the separation of commercial, deposit and investment banking which had been the post-world war cornerstone in ensuring that the will of private finance would never again hold more sway than the power of sovereign nation-states.

After decades of chipping away at the structure of regulation that FDR’s bold intervention into history had built, the “Big Bang” set a precedent for similar financial de-regulation into the “Universal Banking” model in other parts of the western world.

THE DERIVATIVE TIME BOMB IS SET

In September 1987, the 20-year foray into speculation resulted in a 23% collapse of the Dow Jones on October 19, 1987. Within hours of this crash, international emergency meetings had been convened with former JP Morgan tool Alan Greenspan introducing a “solution” which would have the future echoes of hyperinflation and fascism written all over it.

“Creative financial instruments” was the Orwellian name given to the new financial asset popularized by Greenspan, but otherwise known as “derivatives”.

New supercomputing technologies were increasingly used in this new venture, not as the support for higher nation building practices, and space exploration programs as their NASA origins intended, but would rather become perverted to accommodate the creation of new complex formulas which could associate values to price differentials on securities and insured debts that could then be “hedged” on those very spot and futures markets made possible via the destruction of the Bretton Woods system in 1971.

So while an exponentially self-generating monster was created that could end nowhere but in a meltdown, “market confidence” rallied back in force with the new flux of easy money. The physical potential to sustain human life continued to plummet.

NAFTA, THE EURO AND THE END OF HISTORY

It is no coincidence that within this period, another deadly treaty was passed called the North American Free Trade Agreement (NAFTA). With this Agreement made law, protective programs that had kept North American factories in the U.S and Canada were struck down, allowing for the export of the lifeblood of highly skilled industrial workforce to Mexico where skills were low, technologies lower, and salaries lower still.

With a stripping of its productive assets, North America became increasingly reliant on exporting cheap resources and services for its means of existence.

Again, the physically productive powers of society would collapse, yet monetary profits in the ephemeral “now” would skyrocket. This was replicated in Europe with the creation of the Maastricht Treaty in 1992 establishing the Euro by 1994 while the “liberalization” process of Perestroika replicated this agenda in the former Soviet Union. While some personalities gave this agenda the name “End of History” and others “the New World Order”, the effect was the same.

Universal Banking, NAFTA, Euro integration and the creation of the derivative economy in a space of just several years would induce a cartelization of finance through newly legalized mergers and acquisitions at a rate never before seen. The multitude of financial institutions that had existed in the early 1980s were absorbed into each other at great speed through the 1990s in true “survival of the fittest” fashion. No matter what level of regulation were attempted under this new structure, the degree of conflict of interest, and private political power was uncontrollable, as evidenced in the United States, by the shutdown of any attempt by Securities and Exchange Commission head Brooksley Born to fight the derivative cancer at its early stages.

By 1999 a politically castrated Bill Clinton found himself signing into law a treaty authored by then Treasury Secretary Larry Summers known as the Gramm-Leach-Bliley Act, which would be the final nail in the coffin for the Glass-Steagall separation of commercial and investment banking in the United States.

The new age of unregulated trading and creation of over-the-counter derivatives caused these strange financial instruments to grow from $60 trillion in 2000 to $600 trillion by 2008.

THE 2000-2008 FRENZY

With Glass-Steagall now removed, legitimate capital such as pension funds could be used to start a hedge to end all hedges. Billions were now poured into mortgage-backed securities (MBS), a market which had been artificially plunged to record-breaking interest rate lows of 1-2% for over a year by the US Federal Reserve making borrowing easy, and the returns on the investments into the MBSs obscene.

The obscenity swelled as the values of the houses skyrocketed far beyond the real values to the tune of one hundred thousand dollar homes selling for 5-6 times that price within the span of several years.

As long as no one assumed this growth was ab-normal, and the unpayable nature of the capital underlying the leveraged assets locked up in the now infamous “sub-primes” and other illegitimate debt obligations was ignored, then profits were supposed to just continue infinitely. Anyone who questioned this logic was considered a heretic by the latter-day priesthood.

The stunning “success” of securitizing housing debts immediately induced a wave of sovereign wealth funds to come into prominence applying the same model that had been used in the case of mortgage-backed securities (MBS) and collateralized debt obligations (CDO) to the debts of entire nations.

The securitizing of bundled packages of sovereign debts that could then be infinitely leveraged on the de-regulated world markets would no longer be considered an act of national treason, but the key to easy money.

CONCLUSION

This is the system which died in 2008. Contrary to popular belief, nothing was actually resolved. For all the talk of an “FDR revival” under Obama, speculation wasn’t actually regulated under the Dodd-Frank Act or the Volker Rule of 2010. No productive credit was created to grow the real economy under a national mission as was the case in 1933-1938.

Banks were not broken up while derivatives GREW by 40% with the new bubble concentrated in the corporate/household debt sector now collapsing. During this time, nation states continued to be stripped, as austerity was rammed down the throats of nations.

It should be no surprise that in the midst of this despair, a creative alliance was consolidated in defense of the interests of sovereign nation states and humanity at large led by the leadership of Russia and China.

This leadership took the form of the China-led Belt and Road Initiative which has grown to embrace over 130 countries today and looking more and more like an Asian-led version of the New Deal of the 1930s.

Indeed, China’s capacity to unleash long term credit for thousands of international long term infrastructure projects was made possible by the fact that it was the only country on the globe which had not given up the principles of bank separation which were destroyed in every other nation.

Very few western figures stood up to this self-induced destruction over the decades, but one notable exception here worth mentioning is the figure of the late American economist Lyndon LaRouche (1922-2019) who not only resisted this process for over four decades, but fought alongside the Schiller Institute to promote New Silk Road as early as 1996.

With the 2016 Brexit and election of President Trump, a new wave of nationalist spirit has become a fire which the technocrats have lost their capacity to snuff out.

Increasingly, the idea that nation-states have a power over the private banking system has become revived and discussion for reforming the now dead Trans-Atlantic system is increasingly shaped not by the calls for a “New World Order” as Sir Kissinger would have liked, but rather for a New Silk Road and a true New Deal.

The Eurasian nations are already firmly committed to this new system, and if the west is to qualify morally to take part in this new epoch, then the first step will be a return to a Glass-Steagall.

Tyler Durden Tue, 03/03/2020 - 00:00
Published:3/2/2020 11:05:34 PM
[Finance] Robinhood suffers prolonged outage on the day the Dow enjoyed its single biggest point gain Robinhood, the startup with a stock trading app valued upwards of at least $7.6 billion, suffered one of its worst outages on one of the busiest trading days of the year. As the Dow Jones Industrial Average enjoyed the single biggest point-gain in the history of the index, Robinhood’s application fell prey to an error […] Published:3/2/2020 7:01:58 PM
[Markets] Apple Stock Just Had Its Best Day in More Than 11 Years (AAPL) played a significant role in Monday’s historic rally. The $24.45 per share gain contributed 172 points to the Dow Jones Industrial Average’s 1,296 point gain. Apple (ticker: AAPL) closed the day at $298.91, after trading as high as $301.44 during the day’s session. Published:3/2/2020 5:01:57 PM
[Issues] Dow Has Biggest Daily Jump Since 2009

The Dow Jones Industrial Average surged over 5% on Monday while the S&P 500 and Nasdaq each jumped more than 4% in a major rebound following last week’s steep sell-off sparked by fears about the coronavirus.

The post Dow Has Biggest Daily Jump Since 2009 appeared first on Washington Free Beacon.

Published:3/2/2020 4:31:07 PM
[Markets] Stock Pops Like Today’s 5% Have Mixed History of Going Anywhere (Bloomberg) -- The last time stocks did this, two Christmases ago, nobody thought it would last.It was Dec. 26, 2018, when the Dow Jones Industrial Average surged 5% from the bottom of the bull market’s worst sell-off. Wall Street veterans were nearly unanimous in their skepticism. They were also wrong. The bounce turned out to be the first step of a rally that would lift the gauge 35% in a little over a year.But their reaction wasn’t baseless. In the last three months of 2008, the Dow staged rallies that dwarfed even today’s four separate times, including two that topped 10%. Those did nothing to stem the worst bear market since the Depression.It’s a fact of life. Unhinged markets regularly generate head-fakes, while most lasting rallies have powerful starts. Bottoms are only visible in retrospect. Monday’s 5% surge in stocks, fueled by optimism over central bank stimulus, followed the worst week in 12 years -- something was due. Whether it can stand up to weeks or months more of coronavirus headlines is the question investors must ask.“Today was nice to see,” said John Carey, portfolio manager at Pioneer Investment Management. “I would not be surprised now to see some further weakness in the market as the reality of the spreading coronavirus continues to settle in.”Five-percent jumps are rare, but so are weeks like the last one. The majority of one-week drops of 10% or more occurred during the Great Depression, according to Evercore ISI. Usually, declines that big are followed by positive one-week forward returns, a trend that can continue for three months. But even when forward returns have been positive, the market rarely recovers all of its losses over the next quarter.So while expressing relief over the prospect of a coordinated response by central bankers, investors were also realistic about the outbreak’s lingering threat.“After a 5% rebound, it’s now up to central bankers to deliver on this expectations,” Adam Phillips, director of portfolio strategy for EP Wealth Advisors. “As strong as today’s rebound was, it is hard to ignore the fact that long bond yields hardly budged.”Traders, while excited to see the market can still rise, expressed concern about the contour of the move. Utility stocks led the market higher, a fact that doesn’t usually inspire confidence. Gold gained, and defensive consumer staples and retail firms outperformed their cyclical peers. Bleach-maker Clorox Co. jumped 7.9% to an all-time high.“A lot of people will walk away and say, ‘Oh no, I missed the bottom.’ I don’t think that’s probably true yet,” said Jennifer Ellison, principal at San Francisco-based BOS, a wealth-advisory firm. “The economic data is lagging so we haven’t begun to see really what the impact on the economic data is. We’re still just at the beginning.”The data wasn’t great on Monday. The JPMorgan Global Manufacturing PMI fell 3.2 points to 47.2, snapping a three-month streak of expansionary readings. Production plunged the most in almost two decades while the measure of new export orders also fell to the lowest since 2009.“It’s still pretty tough. I’m not saying this is the bounce that ends it all. I’m concerned how the market reacts” to future headlines, said Yousef Abbasi, global market strategist at INTL FCStone. “Someone asked me, was there a massive Fed injection around 2 p.m.?” he said. “Everyone does look for, did I miss a headline, did I miss something? Frankly it does feel like we continue to get whipped around. This is a difficult situation to think about.”\--With assistance from Elena Popina and Sarah Ponczek.To contact the reporters on this story: Claire Ballentine in New York at cballentine@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.netTo contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Chris NagiFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P. Published:3/2/2020 4:31:07 PM
[Markets] Dow Jones Rallies 1,300 Points After Worst Week Since Financial Crisis The Dow Jones rose 1,300 points, leading the major indexes in a recovery rally on Monday. Apple stock, Walmart stock and UnitedHealth were among top gainers. Published:3/2/2020 4:02:18 PM
[Markets] Dow ends up nearly 1,300 points; S&P 500, Nasdaq close up over 4% Dow ends up nearly 1,300 points; S&P 500, Nasdaq close up over 4% Published:3/2/2020 3:37:43 PM
[Markets] Dow surges 1,300 points and logs best percentage gain in 11 years to halt 7-session skid as investors hope central banks can dull coronavirus pain U.S. stocks surged into the close Monday, as the Dow and S&P 500 ended a brutal seven-day selloff amid growing hope that global central banks and major developed economies will act, if not jointly, to help counteract the potential harm from COVID-19, the infectious disease that reportedly originated in Wuhan, China, late last year and has sickened nearly 90,000 people. The market experienced wild trading in futures and also powerful moves in the regular session as the stock market attempted to recover losses that helped to produce the three major benchmarks' worst weekly declines since the 2008 financial crisis, pushing the benchmarks into correction, widely defined as a decline of at least 10%, but less than 20%, from a recent peak. The Dow Jones Industrial Average gained 1,293 points, or 5.1%, to close at 26,703, marking its best point gain in history and its best percentage gain since March 23, 2009, according to FactSet data. The S&P 500 index finished 4.6% higher at 3,089, while the Nasdaq Composite Index closed up 4.5% at 8,952. After last week, strategists have described the market as oversold and had wondered if conditions were ripe to reenter the market. To be sure, investors are still wary about the economic impact of the viral outbreak that has spread to nearly 60 countries and could disrupt supply chains and economies. For the S&P 500, it was the best percentage gain since Dec. 26, 2018 and for the Nasdaq the day's advance also represented the sharpest one-day rise since 2018. Shares of Costco Wholesale Corp. were one of the big winners of Monday's trade, with the retailer gaining 10% amid reports that buyers were using the store to stock up on goods and supplies amid the coronavirus worries. Published:3/2/2020 3:37:43 PM
[Markets] Dow soars over 1,000 points in final minutes of trading Dow soars over 1,000 points in final minutes of trading Published:3/2/2020 3:01:07 PM
[Markets] Dow Jones Pares Big Gains As Stock Rally Fades; U.S. Coronavirus Death Toll Rises The Dow Jones Industrial Average pared its gain to 600 points in afternoon trading Monday, after reports of three more U.S. coronavirus deaths. Published:3/2/2020 2:02:29 PM
[Markets] The Dow is up more than 800 points Monday afternoon as stock rebound expands The Dow is up more than 800 points Monday afternoon as stock rebound expands Published:3/2/2020 1:37:43 PM
[Markets] Dow's 650-point surge highlighted by gains in Apple Inc., Walmart shares DOW UPDATE Powered by strong returns for shares of Apple Inc. and Walmart, the Dow Jones Industrial Average is soaring Monday afternoon. Shares of Apple Inc. (AAPL) and Walmart (WMT) are contributing to the index's intraday rally, as the Dow (DJIA) was most recently trading 657 points (2. Published:3/2/2020 1:02:21 PM
[Markets] Walmart, Apple Inc. share gains contribute to Dow's 750-point surge DOW UPDATE Behind strong returns for shares of Walmart and Apple Inc., the Dow Jones Industrial Average is soaring Monday afternoon. The Dow (DJIA) is trading 752 points higher (3.0%), as shares of Walmart (WMT) and Apple Inc. Published:3/2/2020 12:01:41 PM
[Markets] Dow industrials up 740 points at midday Monday Dow industrials up 740 points at midday Monday Published:3/2/2020 11:32:23 AM
[Markets] Walmart, Apple Inc. share gains contribute to Dow's 250-point rally DOW UPDATE Buoyed by strong returns for shares of Walmart and Apple Inc., the Dow Jones Industrial Average is rallying Monday morning. The Dow (DJIA) is trading 258 points higher (1.0%), as shares of Walmart (WMT) and Apple Inc. Published:3/2/2020 9:01:34 AM
[Markets] GE's stock gains after J.P. Morgan's Stephen Tusa backs away from bearish view, boosts price target Share of General Electric Co. rose 1.0% in premarket trading Monday, after well-known bear analyst Stephen Tusa at J.P. Morgan upgraded the industrial conglomerate, saying the floor on free cash flow is now believed to be higher than originally expected. Tusa raised his rating to neutral from underweight and raised his stock price target to $8, which is still 26.5% below Friday's closing price of $10.88, from $5. The stock had gained 4.7% on Friday, to snap a 10-session losing streak in which it had tumbled 21%. "We are upgrading GE as the spread between our FCF estimate and consensus is narrower after a better than expected 2019, helped by less de-risking at GECS than we had thought around which it would take a recession to influence, not our base case," Tusa wrote in a note to clients. He acknowledged that he was wrong to keep his bearish view, as the stock has outperform its peers by a wide margin since April 2019, when he last downgraded GE to underweight. The stock has gained 5.9% over the past 12 months, while the SPDR Industrials Selecdt Sector ETF has lost 4.4% and the Dow Jones Industrial Average has eased 2.4%. Published:3/2/2020 7:59:33 AM
[Markets] Market Mutates Into A Harrowing Rollercoaster As Futures Soar Then Tumble Market Mutates Into A Harrowing Rollercoaster As Futures Soar Then Tumble

A lot has happened since Friday's cash close, which itself was a furious 600-Dow point squeeze on expectations of a coordinated central bank intervention... that never came.

On Sunday night, US equity futures initially tumbled after Powell failed to satisfy rumors that he would make an emergency rate cut announcement ahead of the 6pm trading open; however, subsequent jawboning attempts by the BOJ and BOE that they are ready to stabilize markets helped futures surge above 3,000.

“The market is coming back because there is perception that there will be a coordinated G7 policy response,” said BlueBay Asset Management’s head of credit strategy David Riley. “We have Fed and ECB meetings coming up in the next couple of weeks. The Fed is the key one and it will be very hard for them to hold off (from rate cuts) if we are in a situation where the economic downsides are becoming more prevalent.”

Alas, it wasn't meant to last because once Europe opened, futures tumbled as much as 100 points in just over under three hours as traders felt compelled to make their case for 2 rate cuts to the Fed's front door.

The failed attempt at a bounce followed a rare statement on Friday from the Federal Reserve that opened the door to a rate cut based on the “evolving risks” posed by the outbreak. Central banks in Japan and the U.K. followed suit with supportive messages. Investors weighed the comments against increasing pessimism from economists on global growth, with fears mounting that the virus will trigger more losses after the S&P 500 Index’s worst week since 2008. World growth will sink to levels not seen in over a decade as the outbreak hammers demand and supply, the OECD warned.

All this is happening as the global death toll from the virus has surpassed 3,000. U.S. cases climbed over the weekend, with the first infections appearing in New York City, Brussels and Berlin, while cases jumped in hot spots of Italy, South Korea and Iran as the US reported a second death and a case count which suggests several community outbreaks. Positive tests in Italy jumped by more than 500 to 1,694 on Sunday with 41 deaths. Lombardy, the region that includes the financial capital of Milan, accounted for almost 1,000 cases.

A weekend data release from China indicated contractionary activity levels - China’s official PMI plunged to a record low 35.7 – Asia trade was set for an ugly open. China’s worse than expected PMI decline will keep pressure on authorities to maintain liquidity and policy rate cuts this month, and more accommodation will be needed, particularly for exporters as the global disruptions from the COVID-19 outbreak escalate and China is now hit with the double-whammy of collapsing export demand from its trading partners.

Back to stocks where after last week’s worst plunge for equities markets since the depths of the 2008 financial crisis, it was always going to be a wild ride. Asia had initially dived again after China reported a record slump in factory activity but the region rallied to finish higher as bond yields sunk and talk of OPEC supply cuts sent oil prices roaring up 3.5%. As a result, Asian stocks halted a seven-day losing streak, led by energy and tech companies, as global central banks advocated policy support to coronavirus-hit economies.

Markets in the Asian region were mixed, with the Shanghai Composite Index and India’s S&P BSE Sensex Index rising, while the Jakarta Composite and Taiwan’s Taiex fell. Trading volume for MSCI Asia Pacific Index members was 20% above the monthly average for this time of the day. Central banks sent the markets some supportive signals when the Bank of Japan said it will provide ample liquidity and ensure stability in the financial market, despite not actually doing anything, while the Federal Reserve said it is ready to reduce interest rates this month. Bank Indonesia cut banks’ reserve ratios and signaled it’s ready to add more measures to defend the nation’s battered currency and bonds. The Topix gained 1%, with CareerIndex and Land rising the most. The Shanghai Composite Index rose 3.1%, with Henan Huanghe Whirlwind and Longjian Road & Bridge posting the biggest advances.

After Asia's torrid surge, Europe then made a blistering start. The Stoxx 600 initially jumped 1.5% putting it on course for its best day in well over a year and Wall Street S&P 500 and Dow futures were pointing to similar gains too. However, the overnight rally in European stocks evaporated with Italian stocks under the most pressure as the epicenter of the region’s virus cases.

In rates, Treasuries surged, sending the 10-year rate closer to 1%, tumbling as low as 1.0283%.

Yields tumbled by up to 20bp across front-end of the curve, steepening 2s10s by 10.2bp; 10-year yields lower by an additional 10bp vs. Friday’s close around 1.05%. Sentiment soured as even more cases were reported around the world and the OECD cut its forecast for global growth. Most core European bonds gained, tracking Treasuries as they rallied for an eighth day.

Overnight index swaps now price in 50bp of rate cuts by April FOMC meeting, with the latest phase of the rally fueled by potential for a global economic slowdown was sparked by OECD cutting this year’s growth forecast as coronavirus spreads in the U.S.  As treasuries continue to lead global flight-to-safety bid, bunds and gilts are relatively cheaper by 5.5bp and 5bp. Treasury 2-year yield dropped to 0.706%, breaching November 2016 low. 3-month dollar Libor -20.9bp at 1.25375%, biggest drop since 2008.

The dollar slipped against the euro and most major currencies on expectations of a Fed rate cut.

Commodity markets were part of Monday’s global rebound. Oil prices bounced $1.5 a barrel on hopes of a deeper cut in output by OPEC after earlier hitting multi-year lows. Brent crude last traded at $51.3 per barrel and WTI at $46.2 per barrel, while industrial metals copper and nickel were 2% and 3% higher respectively and gold jumped 1.4% too after a mild drop last week.

Looking at today's events, expected data include PMIs and construction spending.

Market Snapshot

  • S&P 500 futures up 0.4% to 2,962.50
  • STOXX Europe 600 up 1.1% to 379.88
  • MXAP up 0.9% to 156.95
  • MXAPJ up 0.9% to 513.55
  • Nikkei up 1% to 21,344.08
  • Topix up 1% to 1,525.87
  • Hang Seng Index up 0.6% to 26,291.68
  • Shanghai Composite up 3.2% to 2,970.93
  • Sensex down 0.2% to 38,208.00
  • Australia S&P/ASX 200 down 0.8% to 6,391.52
  • Kospi up 0.8% to 2,002.51
  • Brent futures up 0.3% to $50.68/bbl
  • Gold spot up 1.5% to $1,609.16
  • U.S. Dollar Index down 0.4% to 97.78
  • German 10Y yield fell 2.6 bps to -0.633%
  • Euro up 0.5% to $1.1080
  • Italian 10Y yield rose 2.6 bps to 0.934%
  • Spanish 10Y yield fell 2.6 bps to 0.256%

Top Overnight News

  • New York state and California reported new coronavirus cases as Americans grappled with the prospect of a widening epidemic at home. The global death toll from the coronavirus outbreak surged past 3,000 as trading got underway Monday, after a weekend that saw cases in Italy surge 50% and France add 30 new infections
  • Bank of Japan Governor Haruhiko Kuroda issued an emergency statement after market jitters over over the economic implications of the coronavirus outbreak forced sharp drops in stocks and a strengthening of the yen
  • The Federal Reserve is now prepared to reduce interest rates this month even though it recognizes monetary policy cannot completely shelter a U.S. economy increasingly threatened by the coronavirus. Fed Chairman Jerome Powell opened the door to a rate-cut at the Fed’s March 17-18 meeting by issuing a rare statement Friday pledging to “act as appropriate” to support the economy.
  • Pete Buttigieg is ending his presidential campaign, people close to his campaign said Sunday. The decision to drop out just before Super Tuesday, when voters in 14 states to to the polls, is a potential boon for former Vice President Joe Biden, who’s looking for moderate and establishment Democrats to unite behind his campaign in an effort to blunt Sanders’ momentum from the party’s left wing. Michael Bloomberg says Super Tuesday won’t be end
  • The U.K. outlined its negotiating objectives for trade talks with the U.S., seeking a deal it hopes will deliver a 3.4 billion-pound ($4.4 billion) boost to the British economy.
  • After getting caught up in last week’s punishing virus-driven sell-off that hit everything from equities to commodities, gold rebounded on Monday to refresh its credentials as a haven in troubled times.
  • Expectations the OPEC+ alliance will deepen output cuts put a floor under last week’s 16% plunge in oil prices, with futures in New York rallying even as the coronavirus continued to spread rapidly.

Asian bourses and US equity futures began the week volatile with hefty losses seen at the reopen as markets reacted to the abysmal Chinese Manufacturing PMI data over the weekend which slumped to below GFC levels and its weakest on record. This saw US equity futures drop by as much as 3% although later recouped all their losses as markets found reprieve from the declining pace of China’s coronavirus cases and amid widespread anticipation of Central Bank measures including calls for the Fed to deliver a 50bps cut at this month’s meeting. ASX 200 (-0.8%) and Nikkei 225 (+1.0%) were mixed in which Australia suffered from its heavy exposure to China and with financials also weighed by expectations of a rate cut by the RBA tomorrow, while the Japanese benchmark staged a comeback helped by the BoJ which is to ensure liquidity through operations and offered to buy JPY 500bln of JGBs. Hang Seng (+0.6%) and Shanghai Comp. (+3.2%) were also positive despite the alarming Chinese PMI data in which both China’s Official and Caixin Manufacturing PMIs fell to record lows, as sentiment was underpinned by measures including China permitting SMEs to delay debt repayments and with construction stocks surging on anticipation of China rushing into infrastructure projects to offset the fallout to the economy from the outbreak. Finally, 10yr JGBs traded positive but were off their intraday highs as the turnaround in stocks eventually dampened safe-haven appetite, although JGBs still remained afloat after the BoJ declared it will ensure ample liquidity and received JPY 571bln of total bids for the aforementioned JPY 500bln offer.

Top Asian News

 

  • Indonesia Cuts Reserve Ratios After Virus Fears Spark Selloff
  • Member of Iran Advisory Body to Supreme Leader Dies From Virus

 

European stocks have given up their earlier gains [Eurostoxx 50 -1.3%] which initially emanated from Central Bank stimulus hopes given the concoction of dismal PMIs from China coupled with rising worldwide COVID19 cases. The European bellwether rose as much as 2.3% at the open before the optimistic sentiment faded during mid-trade with a lack of any fresh headlines to shadow the ongoing virus narrative. DAX 30 cash and futures briefly reclaimed 12k whilst the FTSE MIB (-3.1%) underperforms the region following another sharp rise in virus cases in the country alongside disappointing manufacturing PMI figures. Sector-wise, dropping yields see financials underperforming whilst defensives remain in firm positive territory amid the turnaround in sentiment. That said, energy and material names continue to benefit from the price action in the respective complexes. In terms of individual movers, Tesco (+2.0%) holds onto a bulk of its gains following a WSJ report that a Thai billionaire has secured USD 10bln in a bid to acquire Co’s Asian assets. SES (-17%) shares slumped to foot of the Stoxx 600 post-earnings despite noting that it sees no meaningful impact from coronavirus. Finally, Nokia (+1.6%) shares opened higher after Lundmark has been appointed as President and CEO of the Co.

Top European News

  • U.K. Mortgage Approvals Reach Highest Since Brexit Referendum
  • Deutsche Bank’s Controls Put Under Heightened Scrutiny in U.K.
  • Euro-Zone Factories Suffer Supply Disruptions From Coronavirus
  • Barclays Activist Pressures Board to Remove CEO Staley

In FX, the DXY has retreated even further amidst broad Greenback losses and growing speculation that the Fed will follow/front run other global Central Banks with decisive action to counter the nCoV epidemic. Indeed, expectations were stoked further by unexpected and unscheduled comments from Powell on Friday pledging to use ‘tools’ as required to support the US economy given risks posed by the aforementioned coronavirus outbreak. Rate cut pricing duly ramped up to 50 bp for the upcoming March FOMC and the index has now slipped below the 200 DMA (97.840) to a 97.693 low compared to 98.087 at best with little in the way left in terms of chart support ahead of 97.500.

  • AUD/EUR/CAD/CHF/NZD/JPY - Although the RBA is widely tipped to shave its OCR by ¼ point overnight, the Aussie is benefiting from US and NZ underperformance, while gleaning extra traction from relative Yuan strength on the premise that Chinese PMIs were so bad that more stimulus is almost certain to be forthcoming. Indeed, Aud/Usd has rebounded strongly from even deeper sub-0.6500 lows to 0.6550+ at one stage, while Usd/Cnh is back down around 9.9600 and Nzd/Usd is hovering just under 0.6275 as Aud/Nzd pivots 1.0450. Elsewhere, the Loonie has pared losses from circa 1.3445 to around 1.3340 ahead of Canada’s manufacturing PMI, the Franc is eyeing 0.9600, but waning against the Euro ahead of 1.0625 as the single currency forges more pronounced gains across the board, Eur/Usd towards 1.1100 and Eur/Gbp approaching 0.8700. Last, but by no means least the Yen is holding within a wide 107.00-108.57 range after the BoJ’s own considerable efforts to combat the adverse economic impact of COVID-19.
  • GBP/NOK/SEK - Sterling is bucking the overall trend, with Cable losing grip of another big figure handle at 1.2800 on the cusp of UK-EU trade talks that are not expected to go smoothly given well documented differences of opinion on key post-Brexit terms and conditions. However, a downgrade to the manufacturing PMI has also dented sentiment, in contrast to Norwegian and Swedish prints that both picked up pace from previous levels. Nevertheless, Eur/Nok and Eur/Sek are trading on a mixed footing circa 10.3800 and 10.5800 respectively.
  • EM - In keeping with the divergence noted above, regional currencies are somewhat betwixt and between as euphoria over the prospect of concerted and/or coordinated action to spur global growth fades, while the Lira is still anxiously eyeing events in Syria where Turkish President Erdogan renews calls for Government forces to withdraw or face more military attacks.

In commodities, WTI and Brent font-month futures have rebounded with a vengeance on the first trading session of the week as sentiment was bolstered amid hopes of monetary and fiscal intervention to deal with the fallout of the virus. Furthermore, OPEC will publish its latest output policy decision on March 6th as planned as per sources – with Russia seemingly on board for a unison response following comments from Russian President Putin. That being said, Putin caveated that the current oil prices are acceptable for Russia’s budget, whilst Kremlin stated the meeting with Russian oil companies were not aimed at taking any specific decision. Russia's Energy Minister Novak stated that Russia did not get a proposal from OPEC to jointly cut production by 1mln BPD and are evaluating the earlier JTC proposal of 600k BPD cut. Futures opened lower to the tune of over 2.5% amid dismal Chinese PMI figures coupled by surging nCoV cases, in which WTI found a base at ~USD 44/bbl before recoiling to a high of USD 46.70/bbl, whilst the Brent contract bounces from an intraday low of around USD 49.50/bbl and tested USD 52/bbl to the upside, although the contracts encountered some selling pressure in recent trade but remain in solid positive territory thus far. Ahead of the OPEC confab, ING believes that “anything that falls short of the OPEC+ Joint Technical Committee recommendation of 600Mbbls/d of additional cuts over 2Q20, and extending the current deal through to year-end, will be taken as bearish.” Meanwhile, BofA Global Research lowered their 2020 WTI and Brent price forecasts by USD 8/bbl each to USD 49/bbl and USD 54/bbl respectively. Elsewhere spot gold drifts higher as the original optimism seen around the market-place fades, with the yellow metal back on a 1600/oz handle from an intraday low of ~1575/oz. Elsewhere copper initially spiked higher on further hopes of China stimulus, with prices briefly topping 2.60/lb before waning back below the figure.

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, est. 50.8, prior 50.8
  • 10am: Construction Spending MoM, est. 0.6%, prior -0.2%
  • 10am: ISM Manufacturing, est. 50.5, prior 50.9; New Orders, est. 51.8, prior 52; Prices Paid, est. 50.5, prior 53.3

DB's Jim Reid concludes the overnight wrap

After a stunning rebound in the last 15 minutes of trading in the US session on Friday (up 2.5% in that time to close ‘only’ -0.82%) markets are holding on to these gains in Asia even after a bad weekend for newsflow. Asia risk kicked off slightly weaker but has rallied on hopes of co-ordinated action by global central banks. BoJ Governor Kuroda became the latest to signal potential action. He said overnight that the BOJ “will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases” and soon after the BoJ offered to buy JPY 500bn ($4.6 bn) of government bonds with repos. The Nikkei (+0.94%), Hang Seng (+0.77%), Shanghai Comp (+2.88%), CSI (+3.06%) and Kospi (+0.87%) are all up alongside most bourses in the region. As for fx the Japanese yen is down -0.25% and the US dollar index is down -0.15% overnight. Elsewhere, futures on the S&P 500 are also up +0.48% while 10yr USTs yields are down -5.8bps to 1.092 this morning. In, commodities brent crude oil prices are up +3.06% while gold is up +1.20%.

As discussed above the rally is in spite of negative news flow on the virus. In the US, New York City, California and the Seattle area all reported new coronavirus cases over the weekend. The US now has 88 cases with 2 deaths. In a sharp uptick of cases over the weekend, South Korea now has 4,212 cases (vs. 2,022 on Friday morning) with 22 deaths. Cases in Italy also more than doubled to 1694 (vs. 655 on Friday) with fatalities at 34. Similarly, Iran now has 978 confirmed cases up from 270 on Friday morning with 54 deaths up from 26 with most media reports suggesting this still understates the number. Elsewhere cases in Europe outside of Italy are starting to multiply.

The big thing for this week though is probably watching for the spread of cases in the US. There was a Bloomberg story on Friday suggesting there hadn’t been any tests for the virus in New York yet. Other anecdotal stories of late also suggest that testing elsewhere in the country is behind other countries. Indeed fewer than 2,000 had been tested in the US as of Thursday. Other large countries with much smaller populations have tested many more. The U.K. had tested 10,000 as of Saturday morning and South Korea are doing this number on a daily basis. So the US numbers could soar over the next couple of weeks as tests are in the process of moving to the jurisdiction of state and local health authorities from a centralised federal level. Bloomberg reported that 75,000 tests will be available in the US this week. There has even been talk of a severe flu season this year in the US, with cases at elevated levels. You can’t rule out the possibility that covid-19 has been spreading around the US for many weeks already now. Markets will likely take fright if these reported cases now soar.

Data is taking a back seat at the moment but one can’t ignore a truly shocking set of official Chinese PMI February numbers on Saturday with the manufacturing number falling from 50 to 35.7 (consensus 45). The non-manufacturing fell to an even more incredible 29.6 from 54.1. Both were their record ever lows and for perspective the lows for both in the GFC was 38.8 and 50.8 respectively. So the latter has never seen a reading below 50 before and now it’s below 30. Can you imagine the shock at being told at the start of the year that there would be a Chinese PMI with a 2-handle in your lifetime let alone 2 months later. Other global PMIs come out today but they’ll be very backward looking so will be of limited value. Markets will fear the Chinese print is the shape of things to come in Europe if we see anything like the kind of containment that China saw.

Some relief has come from China’s Caixin manufacturing PMI which came in better than the official number this morning at 40.3 (vs. 46.0 expected) but still its lowest reading since the series began in 2004. This reading is seen to be more export orientated than the more domestic based official one. Elsewhere South Korea’s PMI, a critical bellwether of global demand, dropped to a four-month low of 48.7 from 49.8 in January and Japan’s PMI declined to 47.8 (vs. 47.6 from the flash reading), the lowest reading since May 2016. Other PMI, in the region also slid to multi year lows.

Another story to watch is the potential migrant crisis in Turkey and hence the EU. The former has effectively now allowed passage through its country of tens of thousands of asylum seekers from Syria and elsewhere. EU leaders are already starting to condemn the action (fearing a populist backlash) and this is a headache they don’t need as they try to tackle the virus spread.

Recapping last week in markets, the S&P 500 fell -11.49% (-0.82% Friday) for the worst week since the GFC with the NASDAQ -10.54% (+0.01% Friday). Late in the trading session on Friday, Fed Chair Powell signalled that rate cuts may be needed if the market’s reaction to the virus tightens financial conditions, and risk markets did look to bounce on that announcement even if it faded out soon after. The huge rally in the last 15 minutes of trading was an hour or so after Powell’s statement and could have been more month-end index rebalancing between debt and equities given the abruptness of the move in the last minutes of the month. Before Powell’s statement our economists changed their Fed forecast and now expect two 25bps cuts. One this month and one next with the risks tilted to there being more needed. See their report here .

Staying on US equities you may remember we highlighted the work of our US equity analysts last month showing positioning in the 97th percentile and valuations not far behind. Well last week the former dropped from 95th to the 12th percentile in a week. So it’s probably fair that stretched positioning contributed to the scale of the sell-off last week. See their latest report here for more.

The STOXX 600 also saw its worst week since 2008, dropping -12.25% (-3.54% Friday) on the week. Asian markets actually declined less but did see large pullbacks late in the week, with the Nikkei down -9.59% (-3.67% Friday), the Kospi down -8.13% (-3.30% Friday), and the CSI 300 down -5.05% (-3.55% Friday). The VIX finished the week at 40.11 (highest since the China deval in August 2015), up from 17.08 a week ago but peaking at 49.48 intra-day Friday. Credit had an equally challenging week with Euro and US HY spreads +91bps (+31.5bps Friday) and +109bps (+28bps Friday) wider. The thing to watch going forward in credit is outflows and trader illiquidity. Companies are in decent shape but the illiquid market won’t be if you see consistent outflows.

With the large risk off move, sovereign debt continued to rally. The 30yr US Treasury yield has never been this low, finishing the week at 1.68%, down -24bps (-8.3bps Friday). 10yr US Treasury yields closed at 1.149% down 32.3bps (-11.2bp Friday) for the week, to also finish at record lows. Fed futures are now pricing in two cuts by the April Fed meeting and more than 1.5 cuts by March, indicating the belief among traders that there may be an emergency cut outside the regularly scheduled meetings. 10 year bund yields traded back to October levels, finishing the week at -0.607%, with yields falling -17.6bps (-6.4bps Friday). Not all haven assets performed well however, with Gold having a particularly bad close to the week, finishing down -3.51% (-3.61% Friday).

Its clear that not much else matters this week apart from the virus but there are other things to keep an eye on. The full day by day week ahead is at the end but we’ll expand on some of the main highlights below.

The main event will be from the Democratic primaries, with Super Tuesday tomorrow seeing primaries taking place across the US with 34% of total delegates being awarded on this single day. We’ll be publishing a primer on the whole primaries and US 2020 election later today so we’ll save our best material for that. Note that Joe Biden scored a substantial victory in South Carolina on Saturday with 48.4% of the vote vs Sanders 19.9%. He was expected to win but the margin was impressive and brings him back momentum into tomorrow. In other news Pete Buttigieg has pulled out of the race which might help the centrists gather some more momentum against Sanders.

In addition there are a number of usually important data releases out, particularly the PMIs (today and Wednesday) and Friday’s US jobs report. However they’ll be backward looking. Post-Brexit negotiations between the UK and the EU on their future relationship will begin, while central banks in Australia and Canada will be deciding on interest rates. There really isn’t much point in previewing much other data this week as it won’t be taken that seriously. You’ll see it all listed in the day by day week ahead below. If you really want to read about last Friday’s economic data we have a couple of paragraphs after this week ahead calendar. I’ll be impressed if anyone cares.

Tyler Durden Mon, 03/02/2020 - 07:55
Published:3/2/2020 7:00:12 AM
[Markets] Whipsaw markets leave Dow futures around 200 points lower as Europe stocks fall Whipsaw markets leave Dow futures around 200 points lower as Europe stocks fall Published:3/2/2020 6:35:49 AM
[Markets] Dow futures soar 500 points on hopes Federal Reserve will act over coronavirus Dow futures soar 500 points on hopes Federal Reserve will act over coronavirus Published:3/2/2020 2:28:37 AM
[Markets] While Everyone Waits For Powell, Here's What Wall Street Thinks Will Happen Next While Everyone Waits For Powell, Here's What Wall Street Thinks Will Happen Next

On Friday morning, with stocks resuming their historic plunge, we said that across Wall Street, there was just one question: "Will The Fed Activate A Coordinated Central Bank Bailout On Sunday." And indeed, just a few hours later, the Fed Chair did in fact publish an unscheduled statement in an attempy to calm crashing markets:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.

Unfortunately for the bulls who got steamrolled by last week's record drop from a record high, this statement wasn't sufficient to assure them that the Fed would indeed do "whatever it takes" to stem the bleeding. Commenting on Powell's attempt to ease nerves, JPMorgan's chief economist Michael Feroli said that the "statement took a page of out Greenspan’s playbook in responding to Black Monday, reminding markets that the Fed is on the job and ready to respond. This may have been particularly necessary since Fed rhetoric this week sounded somewhat unresponsive to the changing situation. Unlike Black Monday, however, the economic fundamentals may truly be changing" according to Feroli, which is ironic because just last week JPM's head quant, Marko Kolanovic, tripled down on his bullish view of the market. Perhaps he was too concerned as being seen as wrong, than accounting for the "changing economic fundamentals"?

For this reason, Feroli said that "the tool most likely to be considered is the overnight interest rate target, not the discount window or some other liquidity tool", which makes sense - the market is now pricing in more than 1.5 rate cuts on or before March 18...

... and one could come as soon as this evening. Incidentally the market is also pricing in almost 4 - or 3.6 to be exact - rate cuts by year end, which would send the fed funds rate just above 0.0%, and a second Trump administration may start off with the first ever negative interest rates in US history.

But here JPM had some bad news: the bank said it suspects "the Fed is minded to avoid going inter-meeting, if they can get away with it." Instead, Friday's statement by Powell implicitly acknowledges that current policy may no longer be appropriate and that a cut may be the central scenario (Tealbook alternative B) at the March meeting.

As such, Feroli concludes by comically noting that his long-standing call for a cut at the June meeting, which had looked quite dovish just a few weeks ago, "is now looking sadistically hawkish relative to market pricing."

Of course, with events moving fast and furious now, the pandemic situation as of Sunday is far worse than where it was just on Friday morning, as the drumbeat of viral, so to speak, bad has only gotten more feverish: the US had its first coronavirus related death and admitted it may have a potential cluster of new cases in Washington State, Italy reported a 50% surge in new coronavirus cases...

... South Korea also had a surge in new cases...

... and the U.S. and Japan issued “do-not-travel” warnings for affected regions of Italy and South Korea after the U.S., Australia and Thailand reported their first fatalities.

Even before the latest news, the market was already in freefall - despite a furious last minute short squeeze on Friday ahead of a possible Powell statement - with global stock plunging the most since the 2008 financial crisis last week, while commodities tumbled on concern the spread of the coronavirus will tip the global economy into a recession, crippling both commodity supply and demand. In the Treasury market, both 10- and 30-year yields fell last week to record lows.

Adding insult to injury, China’s February manufacturing purchasing managers’ index plunged to 35.7 in February from 50 the previous month, much lower than the consensus estimates. The non-manufacturing gauge also fell to 29.6, its lowest ever. Both were far below 50, which denotes not just contraction but potentially recession.

Therefore it is hardly a surprise that virtually every trader is refreshing the federalreserve.gov website every few seconds ahead of what is seen as an inevitable intervention by the Fed, which has always stepped in when there was a sharp market drop in the past 11 years - why would it not do so now?

Sure, one can argue that nothing the Fed can do will actually have a positive impact on what is essentially a rapidly spreading diseases. After all just what will the Fed's rate cuts do - it's not like the central bank will print viral antibodies. And yet, the Fed has to do something.

This is the argument made by BMO's rate strategist Ian Lyngen who over the weekend writes that "The Fed has been boxed into a corner and now effectively must act to prevent financial conditions from tightening even further – this much is obvious even to us. The second-order uncertainty is whether Powell’s put is a quarter-point or a half-point; and, of course, the timing thereof. It goes without saying that the Fed would rather not be pressed into monetary policy service by the market, and if it must, it would be better to do it on the Committee’s terms. This would imply a quarter-point ‘post-preemptive’ ease on the 18th. At this stage however, with the S&P down 15.8% from the peaks and the Dow off 16.5%, such a restrained effort would risk being considered insufficient."

This, as Lyngen correctly notes, "quickly becomes a self-fulfilling paradox – the easier monetary conditions are, the more investors will require from Powell to remain in risk assets." Critically, the viral pandemic has now become a test of the Fed’s commitment to using financial conditions as the transparency-inspired decision making policy tool. One thing is certain: there is little chance the Committee reverts to the traditional metrics of domestic growth and inflation expectations; after all, as Bmo concludes, "using those inputs not only would a rate-cut not be on the table for March, but we also wouldn’t have seen the 2019 ‘fine-tuning’ effort which resulted in 75 bp of net easing. Alas, we digress."

So with the Fed unable to do nothing, consensus is that it will do something. The only questions are what and when?

"There is a sense the Fed will be there for markets, but a lot of that was already priced-in on Friday,” said Steven Englander, Standard Chartered Bank’s head of North America Macro Strategy. Ironically, any sharp easing by the Fed would only result in even lower rates, which could lead to even more selling especially among bank stocks, as yields now indicate a recession is virtually inevitable.

"I can see rates continuing to fall in the near term as there is no sign of a cure or vaccine," said TD Securities chief rates strategist Priya Misra. "Even though the mortality is lower than SARS, the magnitude and geographical spread of affected people is massive. Add to that travel restrictions and fear."

And so, with everyone hitting F5 on the Fed's website, here is a summary of what some of the more notable Wall Street strategists are saying as we countdown the minutes to tonight's futures reopening which - if the Fed has failed to chime in by then - could be absolutely devastating.

Jason Daw, head of emerging markets strategy at Societe Generale SA in Singapore, wrote in a note:

  • “Markets might be partially soothed by Powell’s statement that the Fed will act, but unlike other growth or liquidity induced market sell-offs, monetary policy could be ill-equipped to deal with Covid-19”
  • “Whether the market rout last week develops into a full-blown crisis is an open question (Covid-19 news flow will be critical). But the tail risk event everyone was worried about is possibly here in the form of large negative growth shock and it’s time to be prepared and dust off the crisis playbook”
  • “If risk assets come under continued pressure, CNY might outperform others, but ultimately there is no safe-haven EM currency in a negative growth shock”

Mansoor Mohi-uddin, a Singapore-based senior strategist at NatWest Markets:

  • “Risk assets will weaken Monday morning in Asia because China’s PMI data was worse than the consensus expected. If the U.S. ISM survey later in the day also falls back below 50, signaling the coronavirus was already affecting U.S. corporate sentiment in February, then financial market expectations for Fed easing before March’s FOMC meeting will increase further”
  • “Central banks will wait to see what the Fed does first before using their own limited ammunition”
  • “The market will focus more on the rapid spread of the coronavirus while Super Tuesday will be seen as a secondary U.S. risk”

Stephen Innes, the Bangkok-based chief market strategist at Axicorp:

  • “The fallout from the China PMI means we are starting the recovery process from a weaker level than thought. The shift from a more Asia-centric to global perspective means a more protracted economic downturn is also negative”
  • “Risk-free assets are getting scarce and people will view the best option to stay in cash.”
  • “The PBOC response should help, given the dreadful PMI. I expect much more policy front-running, with RRR cut and guidance for a 15-basis-point cut in the OMO rate.”
  • “Powell was unusually dovish on Friday and I expect a stream of Fed speak to confirm this pivot before Friday’s blackout period”
  • The week will start horrible, but may improve on central-bank pivots, with a coordinated G-20 fiscal pump not out of the question”

Patricia Ribeiro, a New York-based senior portfolio manager at American Century Investments:

  • “It’s a short-term impact or challenge for the portfolio. The second half of 2020 should get better” as countries respond quickly to contain the outbreak
  • “The earnings-per-share numbers are still pretty high. You’re going to see a very significant slowdown in the first half of the year and then that will bounce in the second half”
  • “Rates are already low and that’s positive for emerging markets. It’s beneficial for consumption in all of these countries. For me, it’s less about rates coming down more in the U.S.; it’s more about not going up any time soon. If rates were to stay or be around where they are now, it’s definitely a positive”

Richard Segal, a senior analyst at Manulife Investment Management in London:

  • “Markets will open down a lot, but more likely because of the virus spreading in the U.S. The Chinese PMI was bad but I don’t think worse than expected. Super Tuesday in the U.S. is also a preoccupation”
  • “Until last week, investors were apprehensive about the virus and mainly worried about the impact on the Chinese economy given its status as the locomotive of global growth. However, the mood darkened a lot on Monday when it began to spread more widely in Italy and Korea. This led many to sell at any price and ask questions later”
  • “The mood shifted from hoping it could be controlled and contained to expecting the worst. Mainly though, markets are searching for a new base”

Divye Arora, a portfolio manager at Daman Investments in Dubai:

  • “Given the increasing spread of virus in the West, we expect global equity markets to remain under pressure. However, the pace of decline would be much lower versus last week as markets seem to have priced in a significant amount of uncertainty in the form of lower consumer demand, travel and supply chain disruptions”
  • “We also expect some institutional investors to start buying the dip on expectation of fiscal and monetary stimulus, virus spread being more contained in the West versus China due to the timely response from the respective health authorities and declining supply-chain disruptions in China. Overall people will continue to diversify into safe-haven assets such as U.S. treasuries, gold and the U.S. dollar”

Edward Bell, a commodity analyst at Emirates NBD in Dubai:

  • “The virus has just begun to become rooted in other markets such as Italy and, while the economic hit may not be as sharp as in China’s case, it will nevertheless be significantly negative”
  • “The fixation for oil markets this week will be the OPEC meeting taking place on March 5, followed by a meeting with partners outside the bloc the next day”
  • Despite the collapse in prices, speculative net longs in both Brent and WTI rose last week as investors may have expected crude prices to have hit a bottom
  • “As many of these new long inflows will have burned by the price decline last week we may see another round of selling pressure in the coming days if doubts grow about how committed OPEC+ is to limiting production”

Han Tan, a Kuala Lumpur-based market analyst at FXTM:

  • “Equities are set to continue hogging the limelight over the immediate term. Although a lot of the coronavirus-related pessimism has been discounted over recent sessions, investors will be wondering if the correction may eventually give way to a bear market, though perhaps not at the same ferocious pace that we saw last week”
  • “With China reporting its lowest ever manufacturing PMI, the hard economic data from around the world is not expected to provide enough resistance against the rising tide of risk aversion in the markets”
  • “The risk-off theme is expected to remain dominant, until the coronavirus outbreak can show material signs of stabilizing”(Updates with currency market open)

Finally, courtesy of Macrohive's George Concalves, here is a twitter thread describing where the Fed finds itself and what its options are:

Many investors are expecting Fed (coordinated or not) to do something soon (perhaps before futures open). There has been a lot of debate that CB easing can't resolve health issues, but they can help sentiment. Here's what may happen next.

Backdrop1: Long gone is the façade the Fed will ignore sliding financial conditions (regardless of driver). Its not much, but the Fed has some flexibility on rate policy side but more importantly can come up w/some creative solutions in its use of the powers granted under 13 (3)

Backdrop2: One of the reasons why the Fed needs to be preemptive is because some of its crisis fighting abilities have been damped post GFC due to Federal Reserve Act section 13(3) revisions per DFA. That said, from what I understand they could still launch ABC facilities.

Backdrop3: In the early days of GFC the Fed resorted to tweaks versus all out easing measures or launching new facilities. In August 2007 it cut the discount rate and not the FF rate and in Jan-2008 did a 75 bp intra-meeting ease (followed by another 50bp at the meeting).

Old School Fed: I found this Min-Fed posting (see tinyurl.com/rgyeklr) as a good historical review of potential Fed crisis fighting usage of section 13(3), also see link at the end “Lender of more than last resort” for how the discount window evolved, more later… 

Old Fed playbook1: In the '02 Bernanke report on deflation (see tinyurl.com/qmyto8g) he provides a laundry list of what they can do to stimulate the economy/markets. We have pretty much done all of them except for buying foreign bonds. Meanwhile Fed can buy munis too.

Old Fed playbook2: Since September 2019 the Fed has been providing liquidity with TOMO repo operations and TRM bill purchases (ie notQE). At a minimum the Fed will be inclined to keep these programs for a while longer (and abort tapering repo) while introducing new tools.

New Fed playbook1: In my view there is a risk of an intra-mtg ease (as early as today vs allowing mkts to freefall). First off this is a public health concern, but COVID disruptions run the risk of hitting biz CF/working capital. The Fed can encourage discount window use.

New Fed playbook2: Given JPM & Quarles want to break the DW stigma (see tinyurl.com/qqpbkzx) Fed could announce it reduces the DW rate to 25bp or even 0 over FF (vs 50) for large banks, maybe further for smaller banks if funds are used to help industries hit by COVID

New Fed playbook3: 17 days is a long time to wait for levered investors, so expect FF rate to come down 50bps too (would make DW rate cut be 75-100bp). The Fed could gauge how these measure work as well as monitor COVID into 3/18 where it could always do more if needed. 

DEFCON1: Its too early to forecast COVID's eco-impact and if there is multiple waves. But Fed is on track to move to DEFCON1 in table (see tinyurl.com/sq65skd) if so they will end up with new ABCs, ZIRP (with tiering) eventual YCC, & credit easing (MBS, CP, & munis).

Tyler Durden Sun, 03/01/2020 - 15:43
Published:3/1/2020 2:56:02 PM
[Markets] Are We Cheap Yet? Are We Cheap Yet?

Via Global Macro Monitor,

One helluva weak week for the stock market.  Three of the five largest Dow point flops in history.  Yes, we have already been lectured like a little schoolboy by the Twitterati geniuses “it is the percentage drops that count.”  No shit.

Cheap?  You gotta be fricking kidding me.  Not even close.  Look at our favorite valuation metric - market cap-to-GDP.     But, interest rates are going to zero, yada, yada, yada!   That is not exactly a positive, in our opinion.

Note the above chart is a ratio of the total stock market capitalization to nominal gross domestic product (GDP) and cannot continue to move higher forever.  It gyrates from an upper limit of extreme overvaluation to the lower limit of extreme undervaluation.

Oversold?  Yes, and the S&P finally carved out a daily green candlestick,  to close higher than its opening trade... but weekend trading suggests that is all gone already...

You decide where we are at.

We're staying on the beach.

Tyler Durden Sun, 03/01/2020 - 13:05
Published:3/1/2020 12:24:07 PM
[Markets] Market Crash Continues Ahead Of Futures Open - Navigating What Happens Next Market Crash Continues Ahead Of Futures Open - Navigating What Happens Next

Update (1100ET): It would appear that last minute panic-buying in stocks on Friday has been erased as spread betting markets are signaling a 500 point Dow futures drop at this evening's open...

*  *  *

Authored by Lance Roberts via RealInvestmentAdvice.com,

Just last week, we discussed with our RIAPRO subscribers (Try for 30-days RISK FREE) the risk of the market not paying attention to the virus. To wit:

“With the market now trading 12% above its 200-dma, and well into 3-standard deviations of the mean, a correction is coming.’ But the belief is currently ‘more stimulus’ will offset the ‘virus.’

This is probably a wrong guess.

Extensions to this degree rarely last long without a correction. Maintain exposures, but tighten up stop-losses.”

Unfortunately, it escalated more rapidly than even we anticipated.

It only took the S&P 500 six days to fall from an all-time high into correction levels, marking the broad index’s fastest drop of that magnitude outside of a one-day crash. Friday’s losses built on this week’s massive losses. The Dow and S&P 500 have fallen 14% and 13%, respectively, week to date. The two indexes were on pace for their biggest one-week loss since the 2008 financial crisis. The Nasdaq has lost 12.3% this week.” – CNBC

If that headline doesn’t startle you, you are also probably lacking a pulse.

However, it was two Monday’s ago, CNBC was cheering the market’s record highs and dismissing the impact of the virus as “it was just people getting sick in China.” We disagreed, which is why over the last several weeks, we have been detailing our warnings.

The correction this past week has been in the making for a while. It is why we have discussed carrying extra cash, adjusting our bond positioning, and rebalancing portfolio risks weekly for the past couple of months. Just as a reminder, this is what we wrote last week:

  • We have been concerned about the potential for a correction for the last three weeks.

  • We previously took profits near the market peak in January.

  • However, we did extend the duration of our bond portfolio a bit, and changed some of the underlying mixes of bonds, to prepare for a correction.

  • We are using this correction to rebalance some of our equity risks as well.

  • The bull market is still intact, so it is not time to be bearish in terms of positioning, just yet.

  • We are maintaining our hedges for now until we get a better understanding of where the markets are headed next.

While those actions did not entirely shield our portfolios for such a steep and swift correction, it did limit the damage to a great degree. 

This now gives us an opportunity to use the correction as an opportunity to “buy assets” which are now oversold and have a much improved “risk vs reward” profile. 

This is the advantage of “risk management” versus a “buy and hold” strategy. You can’t “buy cheap” if you don’t have any cash to “buy” with. 

I want to use the rest the article this week to quickly review the market after the brutal selloff this past week. Here are the questions we want to answer:

  1. Is the correction over?

  2. Is this a buying opportunity?

  3. Has the decade long bull market ended?

Let’s review some charts, and I will answer these questions at the end.

Daily

On a daily basis, the market is back to a level of oversold (top panel) rarely seen from a historical perspective. Furthermore, the rapid decline this week took the markets 5-standard deviations below the 50-dma. 

To put this into some perspective, prices tend to exist within a 2-standard deviation range above and below the 50-dma. The top or bottom of that range constitutes 95.45% of ALL POSSIBLE price movements within a given period. 

A 5-standard deviation event equates to 99.9999% of all potential price movement in a given direction. 

This is the equivalent of taking a rubber band and stretching it to its absolute maximum. 

Importantly, like a rubber band, this suggests the market “snap back” could be fairly substantial, and should be used to reduce equity risk, raise cash, and add hedges.

If we rework the analysis a bit, we can see in both the top and bottom panels the more extreme oversold condition. Assuming a short-term bottom was put in on Friday, a reflexive “counter-trend” rally will likely see the markets retrace back 38.2% to 50% of the previous decline.

Given the beating that many investors took over the past week, it is highly likely any short-term rallies will be met with more selling as investors try and “get out” of the market.

Weekly

On a weekly basis, the rising “bull trend support” from the 2016 lows is clear. That trend also coincides with our longer-term moving average which drives our allocation models.

Importantly, the market decline this past week DID NOT violate that trend currently, which suggests maintaining our allocation to equity risk in portfolios currently. However, the two longer-term sell signals, bottom panels, are close to registering a “risk reduction” change to our portfolios. (This will reduce our model from 100% to 75%) 

With the market currently very oversold, individuals are quick to assume this is 2018 all over again. However, the technical backdrop from where the signals are being triggered is more akin to 2015-2016 (yellow highlights). Such suggests that a rally will likely give way to another decline before the final bottom is in place.

Monthly

This chart has ONE purpose, to tell us when a “bear market” has officially started. 

On a monthly basis, the bulls remain in control. The decline in the market this past week wiped out all the “Fed Repo” gains from last October. 

However, there are some VERY important points of concern that we will likely see play out over the rest of 2020.

The most important WARNING is the negative divergence in relative strength (top panel).  This negative divergence was seen at every important market correction event over the last 25-years. 

As we have noted previously: 

“The market had triggered a ‘buy’ signal in October of last year as the Fed ‘repo’ operations went into overdrive. These monthly signals are ‘important,’ but it won’t take a tremendous decline to reverse those signals.

It’s okay to remain optimistic short-term, just don’t be complacent.”

As shown in the bottom two panels, both of the monthly “buy” signals are very close to reversing. It will take a breakout to “all-time highs” at this point to keep those signals from triggering. This lends support to our thesis of how the rest of 2020 will play out.

Let’s Answer Those Important Questions

Is the correction over?

Given the extreme 5-standard deviation below the 50-dma, combined with the massive short-term oversold condition discussed above, it is very likely we have seen the bulk of the correction on a short-term basis. 

This is NOT an absolute statement, promise, or guarantee. It is the best guess. If there is a major outbreak of the virus in the U.S., or the Fed fails to act, or a myriad of other factors, another wave of selling could easily be sparked. 

Is this a buying opportunity?

For longer-term investors, people close to, or in, retirement, or for individuals who don’t pay close attention to the markets or their investments, this is NOT a buying opportunity. 

While we have, and will, likely add some “trading rentals” to our portfolio for a reflexive bounce, they will be sold appropriately, risk reduced, and hedges added accordingly. 

Let me be clear.

There is currently EVERY indication given the speed and magnitude of the decline, that any short-term reflexive bounce will likely fail. Such a failure will lead to a retest of the recent lows, or worse, the beginning of a bear market brought on by a recession.

Please read that last sentence again. 

Has the decade long bull market ended?

As noted in the last chart above, the bull market that began in 2009 has NOT ended as of yet. This keeps our portfolios primarily long-biased at the current time. 

With that said, our primary concern is that the impact on the global supply chain in China, South Korea, and Japan will have much more severe economic impacts than currently anticipated which will likely push the U.S. economy towards a recession later this year. (This is something the collapsing yield curve is already suggesting.)

Importantly, the global supply chain is an exogenous risk that monetary interventions can NOT alleviate. (Supplying liquidity to financial markets does not fix plants being closed, people slowing consumption, transportation being halted, etc.)

As noted in the monthly chart above, it is entirely possible that by mid-summer we could well be dealing with a recessionary economic environment, slower earnings growth, and rising unemployment. Such will cause markets to reprice current valuations leading to the onset of a bear market.

The purpose of the analysis above is to provide you with the information to make educated guesses about the “probabilities” versus the “possibilities” of what could occur in the markets over the months ahead.

It is absolutely “possible” the markets could find a reason to rally back to all-time highs and continue the bullish trend. (For us, such would be the easiest and best outcome.)

However, the analysis currently suggests the risks currently outweigh potential reward and a deeper correction is the most “probable” at this juncture.

Don’t take that statement lightly.

I am suggesting reducing risk opportunistically, and being pragmatic about your portfolio, and your money. 

Here are our rules that we will be following on the next rally.

  1. Move slowly. There is no rush in making dramatic changes. Doing anything in a moment of “panic” tends to be the wrong thing.

  2. If you are over-weight equities, DO NOT try and fully adjust your portfolio to your target allocation in one move. Again, after big declines, individuals feel like they “must” do something. Think logically above where you want to be and use the rally to adjust to that level.

  3. Begin by selling laggards and losers. These positions were dragging on performance as the market rose and they led on the way down.

  4. Add to sectors, or positions, that are performing with, or outperforming the broader market if you need risk exposure.

  5. Move “stop-loss” levels up to recent lows for each position. Managing a portfolio without “stop-loss” levels is like driving with your eyes closed.

  6. Be prepared to sell into the rally and reduce overall portfolio risk. There are a lot of positions you are going to sell at a loss simply because you overpaid for them to begin with. Selling at a loss DOES NOT make you a loser. It just means you made a mistake. Sell it, and move on with managing your portfolio. Not every trade will always be a winner. But keeping a loser will make you a loser of both capital and opportunity. 

  7. If none of this makes any sense to you – please consider hiring someone to manage your portfolio for you. It will be worth the additional expense over the long term.

While we remain optimistic about the markets currently, we are also taking precautionary steps of tightening up stops, adding non-correlated assets, raising some cash, and looking to hedge risk opportunistically on any rally.

Everyone approaches money management differently. This is just our approach to the process of controlling risk.

We hope you find something useful in it.

Tyler Durden Sun, 03/01/2020 - 11:25
Published:3/1/2020 10:57:36 AM
[Markets] Trump And The Politics Of Coronavirus Trump And The Politics Of Coronavirus

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

Normally I agree with Moon of Alabama’s analysis on foreign affairs and certainly geopolitics. But the latest post discussing the political fallout from spread and potential mismanagement of nCOVID-19 is nothing short of fantasy.

I don’t disagree that China, assuming that the numbers they’ve published are any more real than a lot of their economic numbers, has shown remarkable power to stop the spread of the disease.

And they have done so so as to disrupt supply chains all across the world. This week the equity markets finally came to terms with the real world effects of such a disruption, even if the disease itself is, in the end, controllable and the response to it to this point, overblown.

I’m not saying it is one way or the other. I’ve heard every conspiracy theory about this virus you can imagine. It speaks directly to the power of rumor and the ability for people absent good information to make up stories that fit their personal bias.

And in this post B. betrays his in a way that, frankly, highlights just how little he understands America, its culture and the electorate.

Under the U.S. medical system testing will be expensive for the patients. Insurances may not pay for it. Many people will be unable or unwilling to spend money on it. Care for serious cases will also be limited by high prices. This guarantees that the virus will spread further. China was smart enough to guarantee 100% state coverage for testing and all necessary care. The U.S. should follow that principle but is  unlikely to do so.

Trump announced that Vice-President Pence, a man who does not believe in science, will lead the response. The libertarian and neo-liberal approach to the problem will further the epidemic’s growth. Only after it becomes really severe will the necessary measures be taken. 

His assumptions are ridiculous. People in the U.S. get the annual flu shot, which is demonstrably ineffective, by the millions. The flu shot is subsidized through insurance and government redistribution of wealth via taxes.

If the threat becomes truly real to people in the U.S. they will get tested. The Trump administration will allocate billions to it and the people here, already inculcated over the generations in public health will respond accordingly.

If China was able to test 320,000 people that quickly, and the test is so effective, why is the CDC going it alone developing its own test and not just using China’s?

This is what we pay governments to do, coordinate disaster response, work with other governments, provide basic infrastructure for society.

The dysfunctional medical system in the U.S. isn’t a function of the “libertarian or neo-liberal approach,” which itself is a criticism that doesn’t understand the very real difference between those two schools of thought.

It’s a function of the ever-growing push to socialize medical care (and everything else) in the first place.

The great myth of central planning is that capital can be rationally allocated through the elimination of profit and incentive. And that will just magically produce the right outcomes for society.

Because in the end, the U.S. doesn’t have a libertarian medical system. It has a socialized system so arcane and expensive that is designed to make the argument for more control over public health not less.

But this isn’t B.’s biggest error. His biggest error is in thinking that Donald Trump is some kind of bastion of the free market and in favor of the rational allocation of scarce resources through it.

He’s not. He never has been and he won’t ever be. Trump likes markets he can control and doesn’t believe in open competition. If he did he wouldn’t erect trade barriers and engage in economic strangulation.

So to say that Trump is in trouble because of this virus to this point is nonsensical.

Trump’s reelection chances are sinking as Covid-19 cases rise. The incompetence of his administration will come under new light. The stock markets will continue to tumble and erase the economic gains Trump had claimed. Bernie Sanders’ chances of winning, if he survives the pandemic, will increase as his prime campaign promise -Medicare for all- will become even more acceptable when the problems with the current U.S. healthcare system come under new public scrutiny.

Trump’s re-election chances will rise with this coronavirus. Those who hate him will hate him more, like B. (who is German and doesn’t vote here). Those who love him will rally around him if he leads.

And on this point I agree with Pat Buchanan who also feels like this is an opportunity for Trump to rise above the petty politics of Congress and show leadership and strength, allocating resources at his disposal the same way he did for domestic natural disasters like the recent Hurricanes that pounded the Gulf Coast and Florida.

… the president occupies what Theodore Roosevelt called the “bully pulpit,” the White House. He can use that pulpit daily to command the airwaves and inform, lead, unite and direct the nation during what could be a months-long crisis. And Trump alone has the power to declare a national emergency, should that be needed.

If Trump acts as a leader, urging unity in the struggle to contain the virus and discover a vaccine, the hectoring from the Democratic left, already begun, can come to be seen as unpatriotic.

And this is something he can and will do. I wasn’t crazy about Trump’s presser the other day, blasting the CDC for creating a panic which Trump feels helped drop the stock markets this week.

That’s not leadership. That’s whining. And the biggest threat to Trump’s re-election at this point is Trump, not Bernie Sanders or whomever the Democrats nominate after stealing it from him.

The biggest fear the leftists in the U.S. and Europe have at this point is that Trump and his band of ‘know-nothings’ like Pence actually steer the U.S. through the upcoming crises well.

The CDC is facing a large budget cut so it’s no shock that they would try to blindside Trump to make him look reckless now. But Trump shouldn’t take that bait and move past it.

What if the U.S. healthcare system survives this? What if the doom porn purveyors are all wrong? What if COVID-19 really isn’t that much worse, in the end, than the annual flu?

Trump can and will make easy political work of his opponents trying to hector him for spending cuts by reminding them all that they have done nothing but block his ability to control the border to the country.

If anything this will strengthen Trump’s hand across a number of real issues.

During times of crisis and/or war how often is there a radical change in leadership? Not often. It will take a lot more than a few thousand points off the Dow and some fear-mongering to shift the electoral map of the U.S. far enough for Bernie Sanders to beat him.

Public health crises are not the time to grind political axes. The fact that even the best critics of the U.S. succumb to that tells you the depth to which the failures of Marxism scare them.

Because make no mistake, any failure to contain this virus will come from our having too much faith in the myth of central planning, not in not having enough of it.

*  *  *

Join My Patreon if you remain skeptical of everything the gov’t tells you.  Install the Brave Browser if you want the option of still talking about it.

Tyler Durden Sat, 02/29/2020 - 22:20
Published:2/29/2020 9:23:05 PM
[Markets] After The Market's Week From Hell, Here's A List Of Who Was Puking After The Market's Week From Hell, Here's A List Of Who Was Puking

Over the past 7 days, which came just after the stock market hit an all time high, and which turned out to be the worst week for the S&P since the vomit-inducing days of the 2008 financial crisis, and also saw the fastest 10% correction from a market peak on record...

... we tried to put together the pieces of the "liquidation puzzle" to find out i) just who is selling, whether machines or people or some combination of both, and ii) is there more selling to go?

Of course, as we now know, the answer to ii) was "oh yes" as an entire generation of traders who had never seen a violent market crash recoiled in terror at the relentless selling, which sent the Dow more than 3% lower on 3 distinct occasions.

"A lot of us hadn’t seen this type of crash in our careers," admitted Justin Wilder, a 31-year-old research analyst at DRW Holdings LLC in Montreal who has never experienced an actual bear market in his career. "There’s definitely some nervousness on the floor, both for the trading and our health" added Justin who was still in high school when Lehman filed for bankruptcy and the S&P lost more than half of its value before the Fed stepped in with QE... and the rest is history.

Other Millennials were just as incredulous: "With coronavirus, the market has found a reason to correct in a way that I’d never seen before," Julian Carvajal, a 30-year-old FX trader at TCX Investment Management told Bloomberg.

"It’s been mental, and that’s probably an understatement," said Rishi Mishra, a 29-year-old research analyst at Futures First, who was definitely in high school when Lehman filed for bankruptcy. "Many of us who weren’t trading during the 2008 crisis see this as one of those days you could tell your grandchildren about." Well, Rishi, you may want to hold off on the grandchildren stories, especially if the Fed does not step in some 24 hours from now to prevent what may be a historic puke on Monday now that "community-spread" cases have emerged in the US, as well as the first coronavirus death.

But while we now know the answer to ii) what about i)? Courtesy of the latest weekly report from Deutsche Bank's flow expert Parag Thatte, we now know the answer to that too.

The answer to "who was selling" is, in short, everybody.

But before we get into the details, a quick reminder: we have been warning for the past two months that positioning and pricing in equities was extremely elevated, with most investors "all-in" in many cases with record leverage, and increasingly disconnected from growth indicators. And just in case any of the abovementioned millennial "traders" claim there were no signs a crash was imminent, well... there were, like the market being the most overbought and complacent ever, with every investor all-in as recently as last month:

... only to become even more overbought and even more complacent, with investors even more all-in...

... with record leverage and unprecedented "smart money" concentration in the same handful of stocks:

... and since nothing could dent the relentless Nasdaq ascent, even as Apple cut guidance due to the coronavirus...

... retail investors unleashed a never-before seen buying spree, and not just momentum stocks, but calls of momentum stocks...

... to the point where retail investors' record levered beta helped them outperform the entire hedge fund class!

... and ushered in the "Profane, Greedy Traders of Reddit" who "Are Shaking Up the Stock Market" even as US consumers just reported the highest median current value of their market investments.

In short, everyone felt invincible, and all thanks to the Fed's QE4 which injected $600BN in the market and made even a modest drop appear impossible.

Only... it was not meant to last, and in a market that took the express elevator up and the Wile-E Coyote anvil down, especially with short interest at all time lows providing almost no natural buffer to a selloff (as there were almost no shorts covering into the plunge)...

... less than a week after markets hit an all time high, stocks crashed, suffering three 3%+ drops in the past week as algos suddenly realized that not even the Fed can print viral antibodies, resulting in the biggest one-day Dow Jones point drop on record (down 1,191 on "Viral Thursday"), but more importantly, the fastest 10% correction from an all-time Dow Jones high since just a few months before the start of the Great Depression.

* * *

Which brings us back to the original question: who was selling?

We already know that retail investors were steamrolled, with the Goldman Sachs Retail Favorite basket tumbling after returning more than 16% YTD just last week, and is now down for the year (curiously, it is still outperforming the GS Hedge Fund VIP basket which as of this morning is down more than 3% in 2020.)

What about non-retail investors?

Oh, where to start with a historic selloff that has sent equities catching down to all other asset classes?

Well, how about at the top: as Thatte writes, equities positioning has flipped from being extremely overweight (95th percentile) to very underweight (12th percentile). DB's consolidated positioning metric, which was at the top of its historical range last week (95th percentile) has now fallen very sharply to underweight levels (12th percentile).

Meanwhile, the bank's cross asset breadth indicator has crashed from a near all time high, to what is basically an all time low.

Worse, the true decline in positioning is likely bigger as some data is available only with a lag: as a result positioning is likely to decline further as momentum signals across all asset classes have now flipped to extreme, and in most cases record risk-off.

A more detailed breakdown of selling classes finds that while discretionary investors were indeed taken to the woodshed, it was systematic investors who were absolutely hammered.

Among them:

Vol control funds equity allocation is down sharply and their selling should start to diminish. Vol control funds have cut exposure to equities from historical maximum last week down to near the bottom of their range (5th percentile), selling $65bn of equities over the last one week.

They can still cut equity exposure further if vol rises but with allocations already low, their sensitivity to incremental selloffs should start to diminish.

CTAs have cut equity exposure to being short but are likely to go further. CTAs were extremely long equities until last week and have now flipped to being slightly short (18th percentile) but their positioning remains above levels seen during prior large selloffs in 2011, 2016 and 2018. Volatility as well as trend signals continue to deteriorate and point to them raising their short positions further.

Risk parity funds’ equity exposure is down from a record high but remains elevated. Risk parity funds are likely to cut exposure further as volatility  continues to remain elevated, but they tend to move more gradually compared to other systematic funds.

How about non-retail, non-systematic investors? Here too the selling was widespread, with huge outflows from equity funds this week but more to come. Equity funds have seen outflows of -$28bn since the selloff began last Friday. However, prior inflows since late October had been extremely strong...

... far more than implied by the modest rebound in global growth and we estimate that equity funds would need to see outflows of about -$130bn just to catch down.

Hedge funds, which were perhaps the least euphoric investors into the February meltup thanks to their curiously low beta...

... suffered the least of all investors...

For quants, the pain was widespread, but nowhere more so than the contrarians with value funds cratering to new all time low.

And here is the worst news for Buy-The-Fucking-Dippers: according to Thatte, "in past large selloffs, outflows typically continued for several weeks"... which means that this thing will go on for a long time.

There was some good news: after last week's rout, stocks are finally realizing that there will be no earnings growth for the second consecutive year, and as a result the S&P is now pricing in negative EPS growth...

... and an ISM plunging to 47.

At the same time the put/call volume has reversed dramatically amid a surge in put buying which - at least from a contrarian standpoint - suggests that the market may finally be at a support level.

Putting this together, it means that unless it is now consensus that a global recession is coming - and as we discussed yesterday, one is certainly likely - the record sell-off may finally be poised to take a break.

Tyler Durden Sat, 02/29/2020 - 21:05
Published:2/29/2020 8:23:09 PM
[Markets] Why A Bear Market Will Lead To A Dollar Collapse Why A Bear Market Will Lead To A Dollar Collapse

Authored by Alasdair Macleod via GoldMoney.com,

Falling equity markets this week are likely to signal the onset of a bear market, responding to a combination of the coronavirus spreading beyond China and persistent indications of a developing recession.

This has provoked a flight into US Treasuries, with the ten-year yield falling to an all-time low of 1.1141%. This will prove to be a mistake, given US price inflation which on independent estimates is running close to ten per cent, exposing US Treasuries as badly overpriced.

After this short-term response, much higher US Treasury yields are inevitable. Foreigners, who possess more dollars and dollar investments than the entire US GDP will almost certainly sell, driving bond yields up and the dollar down, leaving the Fed the only real buyer of US Treasuries.

This article goes through the sequence of events likely to destroy value in US financial assets and the dollar as well. And what goes for the US goes for all other fiat-currencies and their financial markets.

Introduction

In my last article I pointed out that the cumulative effect of central bank intervention has led to bond prices that have come badly adrift from reality. Taking a more realistic estimate of the dollar’s purchasing power than that implied in goal-sought CPI numbers, plus an estimated amount for the time preference involved, ten-year US Treasuries should yield closer to 10% to maturity, not the 1.31% implied today. If a ten-year bond has a coupon such that it is currently priced at par, the price should halve.

Those who put our monetary misfortunes down to the coronavirus have missed the point. Yes, it will be fatal, both economically and unfortunately for some of us as individuals as well. It is early days in what is definitely becoming a pandemic, that is to say an epidemic that is not restricted to national boundaries. Not only China, but other nations as well are going into a state of lock-down. Hopes that things will return to normal in the second half of this year are obviously based on a belief that there is nothing else wrong in the global economy.

This is where those who actually understand money and the credit cycle part from the economic establishment, which continuously demonstrates its cluelessness. Note these indisputable facts:

1. Economic destabilisation arises from a cycle of bank credit expansion always followed by a credit crisis. It does not arise from business, but from time to time the willingness of banks to expand credit out of thin air, creating a temporary period of economic optimism which does not last.

2. The expansion of the global money quantity since 2008 has been unprecedented, not only numerically, but in proportion to the size of underlying economies. If nothing else, logic suggests the bust that follows will be proportionately destructive.

3. While their relative magnitudes to each other were different ninety years ago, a combination of trade tariffs and the top of the credit cycle mirrors the conditions that led to the Wall Street crash between 1929 and 1932. That should be warning enough that even without a coronavirus pandemic the world is on the edge of not just a recession, but a vicious slump.

The most important difference between the Wall Street crash and the depression that followed is found in the money. In those days, both the US and UK currencies were on a gold standard, which meant that collapsing commodity prices through the dollar and sterling were effectively being measured against gold. Other factors, such as the rapid mechanisation of farming and the productivity that followed exacerbated the situation for farmers worldwide, until the UK abandoned gold in 1932 and the dollar was devalued the in 1934. In short, the link with gold meant that leading currencies were not undermined by the depression.

Nevertheless, economists in the 1930s blamed the depression on gold, and governments have sought to remove it from the monetary system. Since 1971 there has been no residual link between gold and the dollar and therefore all other state-issued currencies. The quantity of money in circulation has been free to be expanded by central banks, the only limit being the consequential limitation of price inflation. That has now been conquered by statistical method.

From their actions following the Lehman crisis it is clear central banks now feel no constraint on the expansion of the money quantity as a policy tool. The Fed, the ECB and the Bank of Japan are already expanding base money before the crisis stage of the credit cycle has materialised, which should alert us to the catastrophic failure of monetary policy. Keynes’s concept of reviving animal spirits with a kick-start of inflation has morphed into a continual and accelerating monetary inflation over the whole cycle.

Collectively, in the post-war years we all bought into monetary inflation by shifting investment allocation progressively from bonds into equities to protect long term savings. But since the interest rate spike in the early 1980s, bond yields have generally declined to the point where in dollars, euros and yen they yield less than their values of time preference. In the two latter cases investors are now even paying for the privilege of lending money to their governments.

The abolition of meaningful yields has been achieved through a combination of statistical suppression of price inflation and monetary expansion. But this is just the start of it. Imagine for a moment a collapse today akin to the 1929-32 Wall Street crash, followed by an economic slump on a 1930s scale. Freed from apparent restrictions on the expansion of money and having a mandate to do whatever it takes, combined with demands for the financing of soaring government budget deficits the expansion of money will go into hyperdrive – everywhere at the same time.

Not only do we have that problem, but we now have a viral pandemic that has all but shut down the largest manufacturing economy in the world, disrupting the overwhelming majority of supply chains elsewhere. And that assumes the coronavirus is contained to China and that early signs of it turning into a global pandemic turn out to be false. But the signs are that it is becoming a pandemic on the eve of Wall Street crash Mark II, bringing forward and amplifying the economic destruction that always follows a period of credit expansion. The effect of the virus threatens to turn an economic slump, perhaps a once in a century event, into an outright production and consumption collapse.

What lies before us will be radically different from the past. Understanding money and the effects of changes in it as a circulating medium have rarely been more important. This article outlines the effects of what lies ahead, likely to commence in a collapse of financial asset values and the purchasing power of currencies.

The Fed will lose control

The Fed’s monetary policy has been all about exercising control over markets, ostensibly targeting a rate of price inflation at 2% and maximum employment consistent with it. This power is continually abused in the name of neo-Keynesian economics, and monetary debasement has become a permanent feature of US Government financing since 2001. Consequently, US Government debt is now larger than GDP and financing it at heavily suppressed rates absorbs almost 40% of a trillion-dollar deficit.

The policy controllers at the Fed can least afford an out of control financial system to reflect realistic bond prices. With the Bureau of Labour Statistics having successfully tamed the inflation numbers, the Fed has managed to keep the lie alive about monetary inflation not being reflected in a declining purchasing power for the dollar and therefore higher bond yields. The Fed is not alone in this, but in a dollar reserve monetary system other central banks and their currencies are just bit players and a critique of US monetary and economic policies is sufficient for an understanding of what lies ahead.

The crucial question is over the likelihood that having distorted markets to the point where government debt is now substantially overpriced, can the authorities maintain the illusion?

So far, there have been two classes of economic actors which have supported this overvaluation.

The first is foreign investors, in the main building an accumulation of dollars and dollar investments through the US trade deficit. As the US economy grew along with the government’s unfunded spending, foreign owned securities, short term paper (less than one year) and correspondent bank balances amassed to the tune of about $24.8 trillion, which is more than the US’s nominal GDP. Furthermore, since the date of the last annual TIC survey, the value of foreign-owned securities will have increased even more due to higher portfolio valuations.

We can see two reasons for these flows to reverse.

The first is the global economic slowdown, particularly in international trade. A deteriorating trade outlook reduces the required cushion of holding dollar liquidity, encouraging traders to stop accumulating them, or even to see them winding them down to support ailing cash flows in their businesses back home. Foreign governments are also increasingly questioning the dollar’s reserve role in a world that has radically changed over the last forty years, encouraging Asian central banks to reduce the dollar component in their reserves.

The absence of foreign investors, who in the past have absorbed almost all of the increase of new US Treasury debt as a counterpart of the trade deficit, will be a considerable headache for the Fed at a time of rising US Government funding requirements.

The second class of economic actor is hedge funds, which through the fx swap market profit from the yield differential between US Treasury bills, or coupon-bearing bonds, and negative interest rates in euros and yen. Since the dollar’s trade-weighted index began to strengthen shortly after President Trump took office, these positions have increased as hedge fund managers saw this as a slam-dunk trade. But its profitability depends on a stable or rising dollar, and any sign of that being reversed will to lead to a substantial unwinding of positions to the detriment of the dollar.

Demand for liquidity to provide fx swaps for the hedge funds is one of the two reasons the Fed has been forced to aggressively enter the repo market, the other being the increasing amounts of Treasury bills and bonds accumulating as inventory at the prime brokers. While foreign demand for dollars has cooled, which was formally supplied directly or indirectly by bank credit expansion, the liquidity pressures in the New York money markets have increased in the absence of this source of liquidity, threatening the Fed’s control over interest rates, as the spike in the repo rate to 10% last September illustrated.

Clearly, without the Fed injecting tens of billions of dollars into the repo market interest rates would be far higher than the Fed Funds Rate, currently pegged at 1.5-1.75%. But this can only be a temporary fix, lasting so long as the dollar maintains its value in the foreign exchanges. And if the dollar begins to slide, whether foreigners or the hedge funds are responsible is immaterial. It will mark the start of a reassessment of US monetary policies by the markets becoming acutely aware that they have failed, and the Fed is boxed in.

For a time, the Fed can pretend that the economic slump and/or the coronavirus justifies an acceleration of money-printing, most likely through quantitative easing. They will cite the demand-driven outlook for core inflation and unemployment. But when the vote from the foreign exchanges is a no-no, that will only wear for so long. Markets will eventually realise that the only buyer for increasing quantities of Treasury debt at these yields is the Fed itself through the mechanism of QE. It will be foreigners who will likely be first to abandon the Fed’s managed market environment, and a dollar crisis will ensue. And with a dollar crisis there will also be a crisis in the US bond market.

Portfolio effects

So far, markets have just begun to wake up to the likelihood of a slump induced by the coronavirus. A thousand-point decline in the Dow last Monday was probably the break point in the concept of low bond yields being good for equities on a relative return basis. Suddenly, equities are being associated with risk, raising the ghost of October 1929 when markets began the first phase of the Wall Street crash.

Today’s children of inflationism that pass for investment managers have responded in the only way they know by reallocating portfolio exposure in favour of perceived safety by buying US Treasuries, driving the 10-year bond yield down to 1.31%, significantly less than the 13-week T-bill rate of 1.48%. Initially, this appeared to be partly at the expense of investment allocations in favour of foreign investments, strengthening the dollar in recent days.

Given that an economic slump with or without a spreading coronavirus will lead to a rapidly increasing government budget deficit that can only be funded by inflationary means, the collapse in bond yields will likely be short-lived. If the dollar begins to be sold in the foreign exchanges a reassessment will take place. Then the pace of liquidation of dollar-denominated securities by foreign owned portfolios is bound to increase, bearing in mind that they totalled $19.4 trillion, plus $5.3 trillion in liquid short-term securities and correspondent banking deposits at the last count. Hedge funds will also be reducing their fx swaps, adding further pressure on both the dollar and US Treasury bond prices.

Selling pressure on the dollar is likely to be measured in several trillions. Having suppressed the evidence of the fall in the dollar’s purchasing power in the internal economy, domestic investors imagine the Fed can continue to hold the Fed Funds Rate at close to the zero bound while they more or less singlehandedly fund the government’s deficit. What will make this impossible is a fall in the dollar’s exchange rate driven by foreign selling, even measured against fiat currencies with interest rates below zero. Commodity prices will begin to rise reflecting dollar weakness, despite falling real demand. And dollar hedges, such as gold, silver and even bitcoin will rise even more strongly. The risk hedge for US citizens will not be US Treasury stock, but precious metals and imported commodities.

When the Fed loses control there will be substantial losses for those currently seeking the safety of US Treasury bonds. It will be a double hit, not only through rising bond yields, but through a falling dollar making it vital for any foreign entity to liquidate portfolio and dollar positions while it can.

Beware of the bear

It is common practice to regard portfolio investment as entirely separate from day-to-day spending. The distinction is false in the sense that financial investments only exist because the attraction of prospective returns make it worthwhile for consumers to divert some of their income from current consumption. This is important, because rising prices for financial assets requires sustained money inflows. If people on balance stop investing prices fall.

This fact undermines the assumption that in a bear market a portfolio with a valuation of a million can simply rearrange that million into different investments to preserve value. In a bear market, a significant portion of it simply disappears without any transactions taking place. Bond and stock prices fall across the board, leaving an investor wondering what to do with the balance.

Having been occasionally brutal, recent equity bear markets have been little more than indigestion in a continual inflation-fuelled bull market. The bear now due promises to be different. Hanging on in hope of better days has worked favourably for investors in the past eventually, but maybe not this time, because the scale of bond mispricing is without precedent. The Fed and other central banks believe they can handle a mild to moderate recession but have no leeway to handle anything worse. If the dynamics behind the 1929 market crash and the depression that followed are a template for today’s markets, what will evolve in the coming months will break the Fed’s control over financial markets.

In that case, fortunes will be lost. Ordinary investors who have handed investment responsibility to investment managers and financial advisors have thereby proved themselves incapable of taking an investment decision. They will lose their nest-eggs because their appointees are either perpetual bulls or simply brainless when it comes to investing. They all talk of diversifying, which means buying a synthetic index, or investing in funds that cover so many companies as to be similar. None of them have experienced a proper bear market, where nearly every bond and equity investment collapses. The Wall Street crash wiped out 89% of the value of the Dow. That should be our guidance.

Driving it will be a bear market in US Treasuries. As fleeing foreigners sell their holdings and their dollars, the single buyer of them (the Fed) will be forced to raise interest rates. But if the Fed persists in funding the government deficit at suppressed rates, foreigners will merely accelerate their liquidation of dollars and dollar-based securities. Britain faced similar conditions in the 1970s, when the UK Treasury was always behind in its funding until it was forced to jack up gilt coupons, as far as 15¼ per cent. Sterling fell from $2.62 in March 1972 when equities peaked to $1.59 in 1976, and then fell further close to parity in 1985. And that was against a dollar that was also losing purchasing power. In the 1972-75 bear market, UK equities fell by 72% measured by the FT-30 Share Index.

In an economic slump, the ability of investors to hang on to their rapidly falling investments is compromised by rising unemployment. The flows from portfolio liquidation into the underlying economy are required to maintain body and soul. Furthermore, with the dollar’s loss of purchasing power being accelerated due to selling by foreigners, domestic living costs becomes more expensive.

Stage two for the collapsing dollar

With foreigners owning a combination of cash and securities valued at about $24.8 trillion and hedge funds short of euros and yen perhaps to the equivalent of a further four or five trillion dollars equivalent, a change in financial market conditions seems almost certain to trigger an avalanche of dollar selling. US ownership of foreign securities is less that half that at $11.3 trillion (Dec 2018), with foreign currency deposits and CDs the equivalent of $618bn. While Americans are bound to liquidate some of these foreign holdings in a slump, it will not be sufficient to offset foreign selling of the dollar.

By driving the dollar down, pressure will be put on domestic prices to rise. This will make the Fed’s position of funding government debt through QE at rates linked to a suppressed Fed Funds Rate untenable. Markets will be making their own assessment, instead of the Fed’s, when it comes to securities pricing. Given there will be a growing realisation that prices will then be rising at a faster rate than the annual 10% rate currently estimated by independent analysts, government finances and their funding will demonstrably be spiralling out of control.

It will be a systemic collapse centred not on an element of the private sector as was the case with Lehman, but of the entire government apparatus. With it will be a public realisation that the full faith and credit of government is the only thing that stands between the dollar’s value of the day and its value on the morrow. Increasingly, members of the population will be likely to regard the residual values of their financial assets as a source of funding for necessities, the dollar being little more than a collapsing bridge between the two.

Those prescient enough to anticipate these events will be hedging not into US Treasuries, which in truth offer no security with government funding almost certain to spin out of control, but into gold, silver, perhaps bitcoin and related investments. They will realise it is time to give up on the Fed’s put, or any other government guarantees because they have become worthless.

Tyler Durden Sat, 02/29/2020 - 12:05
Published:2/29/2020 11:19:52 AM
[Markets] "Here's Why I Don't Really Trust The Official American Coronavirus Numbers" "Here's Why I Don't Really Trust The Official American Coronavirus Numbers"

Authored by Daisy Luther via the Organic Prepper

A lot of folks have distrusted the numbers coming out of China since the very beginning of the coronavirus outbreak. That uneasy feeling was justified when it was discovered that many patients weren’t being counted because they were never tested.  Once an alternative testing method was temporarily approved, the number of infected people skyrocketed. This was only temporary though because Chinese officials reverted quickly to their previous method of only relying on the nucleic acid test, which is infamous for false negatives. (There are reports that suggest certain infected people tested negative as many as six times before a positive test occurred, according to MedicineNet.)

Looking at China’s official response and looking at the American official response, I see some troubling similarities that make me wonder if our own numbers are accurate at all.

Hardly anyone is actually being tested in the United States.

First of all, very few tests have actually been performed in the United States. As of Feb. 26, 2020, the CDC reported that only 466 tests had been performed in the US and the criteria for being tested is so narrow as to render the statistics useless.

This was proven to be the case with the patient in California who was finally tested after four days and found to have Covid19, even though she has not been to China or knowingly been in contact with anyone from China.  Why wasn’t she tested sooner?

Because she didn’t fit “the criteria” laid out by the CDC for testing.

Hospital administrators said they immediately requested diagnostic testing from the Centers for Disease Control and Prevention, but the procedure was not carried out because the case did not qualify under strict federal criteria: She had not traveled to China and had not been in contact with anyone known to be infected. (source)

So this delay in testing was not the fault of physicians caring for her, but because the CDC decided from afar that only certain patients could be tested. If this sounds familiar, it’s because, in China, only certain patients were given tests while thousands of others were turned away from healthcare facilities without assessment.

Here’s the narrow criteria to get tested. Basically, if you haven’t been to an affected country or been exposed to someone from an affected country, you’re unlikely to be tested.

And it gets even worse.

The first batch of tests sent out to health departments around the country was faulty.

…expanded testing has been delayed because of an unspecified problem with one of the compounds used in the CDC test. About half of state labs got inconclusive results when using the compound, so the CDC said it would make a new version and redistribute it. (source)

So 466 people have been tested with potentially flawed tests. Countless people have been untested simply because they haven’t traveled to certain countries or knowingly been in contact with someone who has traveled to certain countries.

In comparison, New York Magazine reports that more than 7,100 coronavirus tests have been conducted in the UK, South Korea has tested more than 30,000 people in “drive-thru” testing facilities, and the province of Ontario, Canada has tested 629 people. All of these places have far lower populations than the United States but they’ve tested a lot more people.

Given these facts, do you really think that only 60 people in the United States are infected?

We were all upset when we learned China was testing so few people and fudging the cause of death of others. But here we are, also testing very few people.

What about all those people being “monitored?”

You’ve probably seen that thousands of people across the country are being “monitored” by health departments. Unfortunately, that monitoring doesn’t mean that they’re being tested before they’re released from self-quarantine. It simply means the local health department is getting their temperatures and asking if they have symptoms.

So monitoring is mainly self-instituted and no testing is being done. Don’t be lulled into any sense of false security over “monitoring.” Actual monitoring would mean that the quarantined people would have to test negative to the virus before they were released from quarantine.

To be absolutely clear, those being “monitored” are basically staying home for a couple of weeks then going on their merry way, with no testing involved. And considering there have been instances of asymptomatic people spreading the virus, this is hardly comforting.

And now Vice President Pence has issued a gag order.

If the obfuscation above isn’t bad enough, now all statements from health officials must be cleared by Vice President Mike Pence, the unofficial Covid19 Czar, before they can be made public.

The vice president’s first move appeared to be aimed at preventing the kind of contradictory statements from White House officials and top government health officials that have plagued the administration’s response. Even during his news conference Wednesday, Trump rejected the assessment from a top health official that it was inevitable that the coronavirus would spread more broadly inside the United States.

Dr. Anthony Fauci, one of the country’s leading experts on viruses and the director of the National Institute of Allergy and Infections Diseases, told associates that the White House had instructed him not to say anything else without clearance. (source)

So not only is the US government restricted who can be tested, sending out faulty tests, and poorly managing the diagnostic process, they’re also filtering any further information the American people are allowed to get. All those warnings last week about how we could expect “severe disruptions” to our daily lives? The talk about potential quarantines and getting prepared to work and educate from home?

It looks like those may be the only warnings we get.

Remember how just weeks ago we were talking about the horrible dishonesty and subterfuge in China’s handling of the Covid19 outbreak? It kind of seems like deja vu but right here in America.

This goes right along with the Ebola crisis management playbook.

I’ve mentioned before about how the Ebola outbreak completely vanished from the news, and it looks like we’re watching exactly the same thing play out now with VP Pence in charge. Just a few days ago, I wrote:

The government prefers to “manage” the flow of information, as they did during the Ebola outbreak in 2014, when they instituted an outright blackout on information.

That information blackout was a little bit different, as it was aimed toward the media. In Cat Ellis’s book, The Wuhan Coronavirus Survival Manual, she wrote that the editors of mainstream media outlets were told by the President to stop reporting on it.

To counter the rising public tension, President Obama appointed Ron Klaine, a Fannie Mae lobbyist with no health care background at all as his Ebola Response Coordinator. Klaine was known in and around Washington DC as being a man who could circumnavigate government bureaucracy and regulations. The media referred to Klaine as Obama’s “Ebola Czar”.

Within weeks of Klaine’s appointment, the Associated Press released a statement that was sent to editors. There were to be no more stories on Ebola unless it is linked to a massive upset or delay. All stories about suspected cases disappeared from the mainstream television news coverage, although you could still find articles on their websites occasionally.

So, if it is a standard for governments to downplay the severity of an infectious disease in order to control public panic, it is reasonable to examine what we know and understand that the situation is likely worse than it appears to be. (source)

Heaven knows, President Trump isn’t exactly popular with the media, which explains why the tactic this time is different and aimed at people who answer directly to the government. The tactic may be different but the strategy itself is the same.

In his recent press conference about the coronavirus, the President repeatedly compared Covid19 to the flu, when the two viruses are hardly comparable. He downplayed concerns and recommended more handwashing (which, while good advice, is hardly sufficient for an illness that is so highly contagious.)

Why would the government hide the severity of Covid19?

Of course, any government would want to avoid a panic.  When people panic, things can devolve very quickly as Selco has warned. But is that the only reason they’re downplaying the spread of the virus?

As with most things when powerful people are involved, we can probably follow the money.

The market has been in a freefall and as Michael Snyder writes, it’s doing things we’ve never seen before, including yesterday’s plummet that was “the largest single-day point decline in all of U.S. history.”

Without a doubt, stocks could potentially fall a long, long way.  Thanks to a tremendous rally earlier this year, stock prices were pushed to the most overvalued levels that we have ever seen.  It was inevitable that prices would fall, and this coronavirus outbreak looks like it could greatly accelerate that process.

Meanwhile, analysts are increasingly coming to the realization that this virus is going to have very serious implications for the entire global economy.

For example, on Thursday David Kostin of Goldman Sachs warned that American companies “will generate no earnings growth in 2020”

…Up until recently, Wall Street had been acting as if this was a temporary problem that would soon fade.

But now it has become clear that we will be battling this virus for many months to come.

And what happens if this crisis is like the Spanish Flu pandemic which lasted for three years? (source)

So perhaps the biggest reason for all the secrecy and lack of testing is economic.

Chief of Staff Mick Mulvaney had some outrageous suggestions when he spoke with reporters in an attempt to assuage fears about the administration’s handling of the Covid19 outbreak. Here are the key points he made.

  • White House chief of staff Mick Mulvaney on Friday suggested that Americans should ignore media reports about the coronavirus amid fears of the deadly disease spreading into the U.S.
  • Mulvaney claimed that the media has only started paying close attention to the coronavirus because “they think this is going to be what brings down the president.”
  • Mulvaney said he was asked by a reporter, “What are you going to do today to calm the markets?” “I’m like, ‘Really what I might do today [to] calm the markets is tell people turn their televisions off for 24 hours.’” (source)

And of course, the inevitable flu comparison.

  • “This is not Ebola … it’s not SARS, it’s not MERS,” Mulvaney said. “We sit there and watch the markets and there’s this huge panic and it’s like, why isn’t there this huge panic every single year over flu?” Mulvaney asked rhetorically. (source)

So, don’t worry. Just ignore the news. Keep going to work, spending money, and thinking happy thoughts.

Should we be concerned?

So, given that the President, the Vice President, and the White House Chief of Staff say this is no big deal, and that the CDC is hardly allowing the testing of anyone, should we still be concerned about the possibility of widespread illness and quarantines?

Personally, I’m even more concerned. Why would they go to such lengths to silence health officials? Why would testing and reporting be so shady?

I think it’s very wise to get prepared for a possible quarantine. You should make a financial plan for a possible interruption of income and you should learn all you can about the Covid19 virus and quarantine protocols. Don’t be surprised if it seems like things are under control and then suddenly, it all goes to hell in a single day. Because it won’t have been just that single day. It will have been going on all along behind the scenes.

If it gets to the point where information can no longer be hidden and a mandatory quarantine is announced, it’s going to be too late to get the food and supplies you need to hunker down for an indefinite period of time.

With the new gag order on health officials, don’t expect for a moment to get information of value before it’s too late to act on it.

I think we’re watching a desperate coverup to try and save the plummeting economy. I think there are likely to be far more infections in the United States than anybody knows about because so few people meet the criteria for testing. I think that is deliberate.

I do not trust the official numbers in the United States. Do you?

About Daisy

Daisy Luther is a coffee-swigging, globe-trotting blogger who writes about current events, preparedness, frugality, voluntaryism, and the pursuit of liberty on her website, The Organic Prepper. She is widely republished across alternative media and she curates all the most important news links on her aggregate site, PreppersDailyNews.com. Daisy is the best-selling author of 4 books and runs a small digital publishing company. You can find her on FacebookPinterest, and Twitter.

Tyler Durden Fri, 02/28/2020 - 18:25
Published:2/28/2020 5:46:21 PM
[Markets] Dow Jones Ends Worst Week Since 2008 Crisis As Coronavirus Crashes Stock Market The Dow Jones Industrial Average capped an ugly week with more coronavirus-fueled losses, marking its biggest weekly loss since the 2008 financial crisis. Published:2/28/2020 3:47:48 PM
[Markets] Corona-Crash Sparks Fastest 'Correction' In History On Record-Breaking Volume Corona-Crash Sparks Fastest 'Correction' In History On Record-Breaking Volume

It was a historic week...

S&P crashed from peak to correction at the fastest pace in history...

Dow crashed from peak to correction at its fastest pace since 1928 - right before The Great Depression

Source: Bloomberg

Right on time...we're gonna need more liquidity...

Source: Bloomberg

Some more historical context...

The last 7 days has been carnage...

As SunTrust’s chief market strategist  Keith Lerner wrote:

"Investors are selling stocks first and asking questions later."

“We are seeing signs of pure liquidation. ‘Get me out at any cost’ seems to be the prevailing mood. There is little doubt the coronavirus will continue to weigh on the global economy, and the U.S. will not be immune. There is much we do not know. However, it is also premature to suggest the base case for the U.S. economy is recession.”

But, James McCormick, global head of desk strategy at NatWest Markets noted:

Asset prices diverged significantly from growth in the past year, in part because of central bank policy, but also because passive investment’s main signal is price action.

The COVID-19 escalation runs a real risk of virtuous cycle turning to a vicious one. Either way, given where growth estimates are heading for the next few months, I’d expect more downside.”

Some of the week/month/year's high- and low-lights...

  • S&P is down 7 days in a row - longest losing streak since Nov 2016 (worst month since Feb 2009 - equal to Dec 2018's drop, worst week since Lehman - Oct 2008)

  • Dow is down 7 days in a row - longest losing streak since June 2018 (worst month since Feb 2009, worst week since Lehman - Oct 2008)

  • Dow volume today hit an all-time record high.

  • MAGA stocks lost $780 Billion in market cap in the last 7 days.

  • World stocks lost $5 trillion in market cap in the last 7 days

  • VIX exploded 30 points higher in Feb - its biggest monthly spike in vols ever

  • Bank stocks suffered their biggest weekly drop since March 2009 (worst month since Feb 2009)

  • Airline stocks suffered their biggest weekly drop since March 2009 (worst month since Nov 2008)

  • 2Y yields fell 39bps in Feb - the biggest yield drop since Nov 2008

  • 30Y yields fell 33bps in Feb - the biggest yield drop since Aug 2019

  • Treasury Vol highest since Sept 2013

  • HY Credit Spreads widened by the most since the financial crisis in Feb

  • The USDollar rose by the most since July 2019 in Feb (but the worst week since 2019)

  • Silver suffered its worst monthly drop since May 2016

  • Gold's worst day today since June 2013

  • Oil collapsed again in February for its worst start to a year since 1991

At its low today, the Dow wiped out almost all of last year's 22% gain...

Source: Bloomberg

Stocks rebounded a little today on hopes of an emergency cut this weekend... but that failed... and then sheer panic-buying (PPT?) which pushed Nasdaq just into the green!!!

Just look at the closing ramp - End of month flows? Algos gone wild...

Even when Jay Powell issued a statement which definitely didn't suggest that a Sunday night rescue was planned (despite Kevin Warsh's urging)...

0830ET Kaplan: "I'll be prepared to make a judgement as we go into the March meeting, I am trying to keep my attention on what's going on in the underlying economy."

0905ET Bullard: "Further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time... Longer-term U.S. interest rates have been driven lower by a global flight to safety, likely benefiting the U.S. economy." Bullard added that "even with the current stock market price drop, equities have been on a long upswing."

1030ET Bullard spoke again reaffirming that US GDP Forecasts "don't look very severe" and The Fed is "willing to react if virus has major impact but will want to wait and monitor events until the next meeting."

1430ET Powell: "The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy."

Powell's pumping plan failed...

CNBC's Steve Liesman also summed things up well:

"At what level of interest rates would I be willing to go to a rock concert and risk infection?"

Nevertheless, the market is now demanding 36bps of cuts in March (so one cut guaranteed and a 50% or so chance of 50bps), additionally market is pricing in 65bps of cuts by June.

Source: Bloomberg

China, finally, was ugly overnight, starting to catch down to EU and US stocks since Covid-19 struck...

Source: Bloomberg

Despite today's desperate attempt to rebound - perhaps on hopes of an emergency rate-cut by The Fed this weekend and Powell's statement - the S&P and Dow are down 7 days in a row...with 4 intraday 1,000 point drops in a row

Source: Bloomberg

The S&P 500 just suffered its fastest crash from peak to correction ever... and US stocks saw their worst week since Lehman (Oct 2008), leaving everything red year-to-date...

Stock market volume has exploded higher as the crash has accelerated - notably higher volumes than during the Dec 2018 crash...

The Dow saw its biggest volume since April 2006...

Source: Bloomberg

FANG stocks were FUBAR...

Source: Bloomberg

MAGA stocks have lost $780 billion in the last week...

Source: Bloomberg

World Stocks lost over $5.1 trillion in market cap in the last 6 days - that is the biggest loss ever...

Source: Bloomberg

Airline stocks collapsed over 21% this week - their worst since March 2009...

Source: Bloomberg

Bank stocks were a bloodbath this week...

Source: Bloomberg

The biggest 6-day collapse in bank stocks since the peak of the financial crisis...

Source: Bloomberg

VIX surged over 30 points in Feb...

Source: Bloomberg

VIX closed at its highest since Aug 2011...

Source: Bloomberg

Liquidity has collapsed in the VIX complex as bid-offer spreads have exploded...

Credit markets imploded in the last week, with HY Bond OAS blowing out in Feb by the most

Source: Bloomberg

Treasury yields plunged in February, with the long-end crashing 33bps - the biggest drop since Aug 2019...

Source: Bloomberg

But while all yields were lower, the 2Y saw the biggest drop - down 39bps - the biggest monthly decline since Nov 2008

Source: Bloomberg

While equity vol is exploding, Bond vol is also spiking dramatically, to its highest since Sept 2013

Source: Bloomberg

10Y Real Treasury Rates crashed down to -75bps...

Source: Bloomberg

The yield curve (3m10Y) flattened for the second month in a row, closing inverted...

Source: Bloomberg

The entire Treasury curve is now trading below the Fed Funds rate...

Source: Bloomberg

The dollar fell 0.25% on the week, thanks to a last-minute statement from The Fed's Jay Powell. This was the worst week for the dollar since 2019...

Source: Bloomberg

Cryptos had an ugly week (BTC -11%, ETH -15%) erasing the month's gains leaving only Ethereum positive in Feb...

Source: Bloomberg

Thanks to today's carnage in gold, the yellow metal actually ended the month in the red

Source: Bloomberg

The week was also a bloodbath for all commodities... led by oil...

Source: Bloomberg

Silver was clubbed like a baby seal this week to the lowest since Aug 2019...

Gold was also monkey-hammered today on massive volume... its worst day since June 2013

Oil extended its losses from January for the worst start to a year since 1991...

Lots of questions about the crash in gold today - we point to one key chart for the culprit - BoJ!!

Source: Bloomberg

Finally, as @QTRResearch noted:

MON - People on CNBC said buying - WRONG
TUE - People on CNBC said buying - WRONG
WED - People on CNBC said buying - WRONG
THU - People on CNBC said buying - WRONG
FRI - People on CNBC said buying - WRONG

And as Jim Bianco noted, CNBC hit the panic button this week...

Or did the market panic over Bernie?

Source: Bloomberg

From "Extreme Greed" to "Extreme Fear" in 2 months...

Source: CNN

Still, we know who will be buying this dip... or telling you to...

White House Economic Adivser Larry Kudlow suggested investors “buy the dip.”

Tyler Durden Fri, 02/28/2020 - 16:01
Published:2/28/2020 3:15:10 PM
[Markets] Dow closes down over 350 points Friday, suffering weekly loss of 12% Dow closes down over 350 points Friday, suffering weekly loss of 12% Published:2/28/2020 3:15:10 PM
[Markets] Stocks record worst week since financial crisis as coronavirus concerns heat up U.S. stocks capped the week with another session of painful losses on Friday amid worries around the COVID-19 outbreak's potential to upend the global economy. Stocks trimmed Friday's losses by the closing bell with the Nasdaq turning positive. The S&P 500 was down 0.8% to end around 2,955. The Dow Jones Industrial Average retreated 358 points, or 1.4%, to finish near 25,409, based on preliminary numbers. The Nasdaq Composite was up less than 0.1% at 8,567. But for the week, the S&P 500 was down 11.5%, the Nasdaq fell 10.5%, and the Dow tumbled 12.4%. For the month, the S&P fell 8.4%, Dow fell 10%, and the Nasdaq dropped 6.4%. Federal Reserve Chairman Jerome Powell issued a statement saying the U.S. central bank would act as appropriate and monitor the coronavirus impact, an announcement that raised expectations for monetary easing later this year. The 10-year Treasury note yield set a record closing low of 1.127% on Friday. Published:2/28/2020 3:15:10 PM
[Political Cartoons] China In A Bull Shop – Grrr Graphics – Ben Garrison Cartoon

By Ben Garrison -

China In A Bull Shop Friday morning’s DOW futures are heavily in the red, and it does not portend well for the stock market. We’ve seen a 10-year bull market and some were saying the market could never go down, especially with the endless quantitative easing. Some said there was ...

China In A Bull Shop – Grrr Graphics – Ben Garrison Cartoon is original content from Conservative Daily News - Where Americans go for news, current events and commentary they can trust - Conservative News Website for U.S. News, Political Cartoons and more.

Published:2/28/2020 12:14:46 PM
[Markets] Trump Takes Credit as Markets Rise, Points Finger When They Fall (Bloomberg) -- When markets are up, President Donald Trump claims credit. Now that they’re falling, it’s someone else’s fault.This week’s stock market plunge sparked by fears the coronavirus will drag down the economy posed a unique dilemma for a president who has staked his 2020 re-election campaign squarely on U.S. economic growth.Trump has grappled with how to respond. Earlier this week, he appeared to downplay risks from the virus and suggested that investors buy the dip in shares. As the sharp descent continued, he shifted blame to the media and Democrats.“I think the press has been really out of line,” Trump told reporters Thursday evening at the White House when asked about the market dive. The benchmark S&P 500 index plunged as much as 4% on Friday before cutting that decline in half, opening a seventh straight day of losses. It was the longest slump for the index in more than three years and potentially the worst week since the financial crisis.The Dow Jones Industrial Average has shed more than 4,000 points this week. Crude slid toward $45 a barrel and gold lost 2%.While analysts say the sell-off is driven by concern about the spread of coronavirus and U.S. preparations to combat an outbreak, Trump has constructed an alternative narrative. He said that investors are selling in part out of fear he’ll lose re-election in 2020, citing the Tuesday night debate performance of the candidates vying for the Democratic nomination.“They see these characters up on stage, and anything can happen in an election,” Trump said. “And if any of these people ever did happen to assume the presidency, you would have a crash like we’ve never seen before. And I think the market’s also putting that into the equation.”While markets remain smartly higher under Trump, with the S&P 500 up 35% since Election Day in 2016, the declines of the last week have cut the return under his presidency by more than a third.Trump’s top economic adviser, Larry Kudlow, on Friday encouraged long-term investors to get back into the market or increase their positions.“Our threat assessment is low and the economy is fundamentally sound,” he said in an interview on Fox Business Network.Kudlow said he believes “the market has gone too far” and investors “should not over-react.”He added that the government is not currently planning “precipitous policies” such as lifting tariffs on Chinese goods. “We just think the economy is sound,” he said.Kudlow acknowledged that the government has the capability to increase production of critical supplies such as protective masks but said he didn’t want to specify what actions might be taken. Reuters reported on Thursday that officials were considering invoking the Defense Production Act to order manufacturers to make more masks and other gear.Bond traders are increasingly betting that Federal Reserve may be forced into an emergency interest rate cut for the first time since the global financial crisis. The wagers have driven down benchmark yields in U.S. Treasuries to record lows and spurred the biggest one-day drop in the London interbank offered rate for dollars since the 2008.Trump summoned reporters after markets closed on Thursday to an event to commemorate African American History Month. He ended the talk with repeated defenses of his administration’s approach to the global coronavirus outbreak.Democrats and Republicans “should not make this a political issue,” he said, before assailing Democratic Senate Minority Leader Chuck Schumer. Trump praised himself for being “very good” and “calming” during a news conference on the health crisis a day earlier, during which he belittled Schumer and House Speaker Nancy Pelosi.Trump, more than any president in living memory, has bound his political fate to the trajectory of markets. For most of his time in office, markets have rallied, and he has regularly and unabashedly taken credit for the ascent.“We have set 144 records on the stock market in three years. One-hundred-forty-four records. One-hundred-forty-four records, record stock markets. Do you know what that means? That is your 401(k)s are up,” Trump told supporters last week at a rally in Phoenix, Arizona.But this week isn’t the first time Trump has been quick to blame other forces when markets turn.Last fall, when gloomy economic data sent the equities down, Trump singled out two favorite targets: Federal Reserve Chairman Jerome Powell and Democrats who were then pursuing his impeachment in the U.S. House.(Updates with additional Kudlow comments beginning in 11th paragraph.)\--With assistance from Jordan Fabian.To contact the reporter on this story: Josh Wingrove in Washington at jwingrove4@bloomberg.netTo contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Justin BlumFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P. Published:2/28/2020 12:14:46 PM
[Markets] Could The Covid-19 Pandemic Collapse The U.S. Healthcare System? Could The Covid-19 Pandemic Collapse The U.S. Healthcare System?

Authored by Charles Hugh Smith via OfTwoMinds blog,

Disregard these second-order effects at your own peril.

Infographic: Where COVID-19 Has Been Confirmed in the U.S. | Statista

You will find more infographics at Statista

A great many systems that are assumed to be robust are actually fragile. Exhibit #1 is the global financial system, of course, but Exhibit #2 may well be the healthcare system globally and in the U.S.

Observers have noted that the number of available beds in U.S. hospitals is modest compared to the potential demands of a pandemic, and others have wondered who will pay the astronomical bills that will be presented to those who are treated for severe cases of Covid-19, as the U.S. system routinely generates bills of $100,000 and up for a few days in a hospital. Costs of $250,000 or more per patient for weeks of intensive care treating Covid-19 cannot be dismissed as "impossible."

Beyond the possibility that the logistics and costs of care will overwhelm the system, there are numerous and highly consequential second-order effects to consider. As you may recall from recent posts here: first order, every action has a consequence. Second order, every consequence has its own consequence.

Second-Order Effects: The Unexpectedly Slippery Path to Dow 10,000 January 31, 2020

Could the Coronavirus Epidemic Be the Tipping Point in the Supply Chain Leaving China? January 28, 2020

Second-order effects of the pandemic colliding with America's dysfunctional healthcare system include:

1. People avoiding care because they can't afford it. Academic studies have shown that high deductibles make patients reluctant to seek care, even when they need it.

This second-order effect will exacerbate the contagion and endanger those suffering from severe symptoms.

2. Potential shortages of medications due to an over-reliance on supply chains in China. The number of unknowns far exceeds the number of knowns in this situation, so complacent assumptions may be misplaced.

3. U.S. healthcare's obsession with maximizing profits by any means available has transformed healthcare from a calling to just another burnout job in the Corporate America profit-maximizing grinder. A long time general practitioner (physician) recently explained the consequences of this transformation should the pandemic engulf the U.S.:

"The risk of wholesale healthcare system failure from a stress even a fraction of what is experienced in China is deeply, deeply under appreciated. The transition of medicine from calling to career is nearly complete-- as is the removal of any mentors who might teach otherwise.

If Corona hit my community 20 years ago, at a time where all the administrators and most of the staff of our 200 bed hospital lived in town, my partners and would've sucked it up and did our best, even at the risk of our life. I'm not boasting or saying we're heroes, it's just that that was the way we were trained. White coats were only for the broadest shoulders. And you were taught that the risks of taking care of sick people was part of the deal.

Our patients were our neighbors. They counted on us. Such respect as we were given was due to the fact that we were their healthcare resource. The leadership and medical staff of the hospital would have done what we could to make it work. And yet here were a number of independent pharmacies and health supplies we could rely on if things got tough.

Then a combination of secondary effects and political influence purchased by deep pocketed competitors put most of the independent clinicians in an untenable place and all left or were absorbed.

Today, though the same organization owns the hospital, none of the management lives in town. Like most health systems, the owners are more is more interested in data collection and foot traffic than healthcare--and it shows. The inpatient doctors are all hospitalists who live far out of town. All the other docs in town now work for the same organization, but they haven't been welcome in the hospital for years. Few of the nursing staff live nearby.

If a real pandemic hits, that hospital will well and truly fail--there's no other word for it. Docs and nurses won't show up. It's not their friends or family or kid's teacher or pastor at risk. While we wouldn't have liked it, we would've risked our health for our community. These professionals are not going to risk their life for a job. The senior management will try to keep it together for the sake of their careers, but the next tier will quickly bag it. Again, it's just a job. The corporate supply chain is so fragile and there are now so few community resources that the hospital as a care system will quickly break down.

As you have discussed, just because a thing is difficult to measure doesn't mean it's not important. The engagement of my partners and I with our community hospital was a critical loss--and that loss of 'robustness' won't be fully understood until the system is stressed.

In my community at least, it won't take much stress for the rot to be revealed."

Disregard these second-order effects at your own peril. Just as unsustainable speculative bubbles burst, unsustainable systems break down once systemic stresses rise above very low levels.

My COVID-19 Pandemic Posts

*  *  *

My recent books:

Audiobook edition now available:
Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World ($13)
(Kindle $6.95, print $11.95) Read the first section for free (PDF).

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Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

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Tyler Durden Fri, 02/28/2020 - 12:40
Published:2/28/2020 11:42:20 AM
[Markets] A Fed Rate Cut Could Come Any Day; Will It Help Dow Jones Buck Coronavirus? Wall Street expects a Fed rate cut at the March 17-18 meeting — if not sooner. Will it help stem the Dow Jones plunge and coronavirus stock market correction. Published:2/28/2020 11:14:25 AM
[Markets] Dow's plunge not triggering panic-like behavior on NYSE, Nasdaq shows signs of dip buying While the Dow Jones Industrial Average extends its biggest weekly point drop in its history, and biggest percentage selloff since the financial crisis, market internals suggest NYSE investors are acting relatively calmly, with those buying Nasdaq stocks on dips are more aggressive than sellers. The Arms Index tends to rise above 1.000 when the stock market falls, as volume in declining stocks increases at a faster pace than the number of declining stocks, as sellers become more aggressive than buyers. Many chart watchers believes rises in the Arms above 2.000 depicts panic-like behavior. But with the Dow down 909 points on Friday and 4,135 points for the week, the NYSE Arms is to only 1.200, while the Nasdaq Arms is down to 0.582, which is close to the 0.5000 mark usually associated with panic-buying behavior. The Nasdaq Composite dropped 2.5% on Friday and 12.8% for the week. Published:2/28/2020 9:43:24 AM
[Markets] The Only Question That Matters: Will The Fed Launch A Coordinated Central Bank Bailout On Sunday Night? The Only Question That Matters: Will The Fed Launch A Coordinated Central Bank Bailout On Sunday Night?

With global markets in freefall, the S&P opening 3% lower and cementing its worst week since the global financial crisis; the Dow (or is thar Down Joanes) plunging more than 4,000 points this week, traders (especially levered ones) are left with just one option to stave off a career (and personal fortune)-ending margin call: praying, though not to god but rather to the Fed.

To be sure, the Fed itself has given enough reasons for this: on Monday the biggest uber-dove in history, former Minneapolis Fed and the Fed's only negative "dot" ever, Narayana Kocherlakota penned a Bloomberg op-ed saying the Fed should cut not once but twice, and do it on an emergency basis ahead of the March FOMC meeting.

Then, this morning, one day after he penned a similar Op-Ed, former Fed Governor Kevin Warsh - who has finally crushed his "hawkish" facade as he guns to replace Powell as the Fed's Chair - echoed Kocherlakota when he said he expects the Fed and other central banks around the world to act soon in response to the coronavirus outbreak. Warsh, no longer even pretending to give a rat's ass about efficient markets and price discovery that is independent of Fed manipulation, recommended the Fed act as quickly as Sunday to assuage financial markets that have been in an aggressive swoon all week as the virus has spread.

Adding fuel to the speculative fire that a coordinated central bank action is coming is that the Bank of Korea shocked markets when it did not cut rates on Thursday, with some readers suggesting that the only reason it did not "was to preserve ammo to cut with other CBs this weekend."

Needless to say, the market expects all this and more, with Eurodollar options now suggesting some traders are expecting more than 1 rate cut at the March meeting, amid rising bets for a rate cut ahead of the next scheduled meeting.

So with two former Fed officials (and potentially one future Fed chair), opining that the Fed may announce an emergency rate cut as soon as this weekend, sinking traders - desperate to grab hold to any stick - have been scrambling all morning to create a rumor, or at least a rumor, that on Sunday night the Fed will step in.

Picking up on this theme, Nomura's CHarlie McElligott summarizes today's market action, writing that we are now going through "dangerous times, as recently overwhelming Dealer short gamma hedging into the down trade, mechanical systematic deleveraging and dynamic shorting of Futures now are at risk of a “turn,” as Equities downside / VIX upsides hedges are increasingly likely to be monetized, creating violently “squeezy” flows in the Equities market which has recently been purged." And while none of this is news to regular readers, as we have covered all the technical and flow aspect of the ongoing historic crash in great detail, what is notable is that Charlie adds that all this is happening "with the background "upside catalyst" of the growing-likelihood of “imminent” Central Bank coordinated policy response statement as soon as this wknd, ahead of the Sunday Asian reopen.

The problem is that whereas just one week ago, the mere rumor of coordinated central bank action would have been sufficient to send stocks soaring,  any attempts at a bounce for Equities (such as the 70-handle move in Spooz off the earlier overnight lows—similar to yesterday morning) will come down to likely - and imminent - monetization of large options hedges in the market, with McElligott noting that tactical traders looking to sell their Puts in S&P products / take-off VIX Calls (even see retail redeem their “long vol” VIX ETNs) to book the positive PNL against whatever hits they’ve taken in their “long” books—and probably thereafter switch into a more “dynamic hedging” stance, just trading futures thereafter to manage exposures whether “long” or "short."

In other words, the ongoing phase transition from negative dealer gamma to positive (should those who hold hedges monetize them), is now keeping stocks lower, and preventing any bullish rumors from taking hold!

* * *

Which, once again brings us to the key topic: while it may be impossible to front run it, is the Fed about to activate a global coordinated bailout, and if so, how should one trade it? This is where it gets complicated. According to Nomura's cross-asset strategist, the fear of this potentially imminent - and coordinated- central bank “interventionary” response (most likely time is this upcoming Sunday night, before the Asian open) will keep markets in a dangerous space, because strategies and traders which are potentially "pressing" shorts:

  1. either directionally (CTA model now “in play” of outright “short SPX” as noted above) or
  2. pressing-shorts to managed “net exposures” or hedge long books, will be exposed to a surge squeeze higher, while investors who have been “grossed-down” by their risk management VaR models won’t be exposed to an “up-trade” in risk and likely feel obligated to “grab into” a short squeeze

The danger after a coordinated central bank response (assuming one comes), is that investors will be forced into chasing that potential move higher in Equities out of fear that they “missed the lows,” but again into that inevitable “cluster” report of confirmed cases in a global mega-city outside of China (see what’s happening in California now as prime target), "as the pandemic is now certainly “real”—which could drive another shock-down, but this time, without the hedges which, on the way down, can also act as “insulation” when monetized."

In other words, if or rather when the corona pandemic gets even worse after central banks have launched its bazooka, it will be orders of magnitude worse as central banks will have staked their credibility on being able to offset the economic consequences of the pandemic (they can't, unless they can print viral antibodies), while investors will now be looking into the abyss without any hedges left.

And that could be catastrophic.

Which may explain why, in case the Fed does nothing on Sunday night, the NYSE announced that it would conduct "disaster recovery testing in the Cermak Data Center between 8:30 - 11:00 am ET" on March 7 amid Coronavirus fears.

As Charlie Gasparino adds...

... "During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Street trading floor were unavailable." In other words, testing as if a viral pandemic had swept across Wall Street...

Tyler Durden Fri, 02/28/2020 - 10:04
Published:2/28/2020 9:11:40 AM
[Markets] Dow tumbles to kick off Friday trade and is on the verge of losing grip on 25,000 as stocks head for worst week since 2008 U.S. stocks opened lower Friday, a day after the Dow suffered a nearly 1,200-point skid and major benchmarks fell into correction territory, as investor fears heightened over the degree of damage the fast-spreading COVID-19 virus may wreak on the global economy. The Dow Jones Industrial Average fell nearly 800 points, or 3%, at the open to reach 25,018, with the index on the verge of losing its grip on a key psychological level of 25,000. The blue-chip gauge has shed nearly 4,000 points this week alone. The S&P 500 index was down 1.9% at 2,920, while the Nasdaq Composite Index retreated 2.3% to 8,317. All three benchmarks are headed for their worst weekly declines since the 2008 financial crisis, with those benchmarks having falling Thursday into correction, usually defined as a drop of at least 10%, but not more than 20%, from a recent peak. Published:2/28/2020 8:43:53 AM
[Markets] Stocks’ plunge through a key support level could set up a quick market rebound Both the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) , along with other leading U.S. stock market benchmarks, broke below their 200-day moving averages on Thursday. More often than not over the past several decades, in fact, the breaking of this moving average marked the end of the stock market’s decline rather than the beginning. Published:2/28/2020 7:11:38 AM
[Markets] Dow Jones Futures Tumble As Coronavirus Stock Market Correction Intensifies; Tesla, Apple, Beyond Meat Notable Losers Dow futures tumbled as the market correction intensifies. Tesla and Apple extended big Thursday losses overnight. Beyond Meat plunged on a surprise after-hours loss. Published:2/28/2020 6:41:41 AM
[Markets] Dow's Drastic Decline, Coronavirus and Global Pandemic Fears - 5 Things You Must Know Friday Stock futures signal another steep drop for Wall Street after the World Health Organization says the coronavirus outbreak has 'pandemic potential'; the Dow's drop Thursday of 1,190.95 points was its largest one-day point drop in history; the S&P; 500 has fallen 12% from its all-time high set a week ago. Published:2/28/2020 4:41:43 AM
[Markets] Dow futures down nearly 200 points, Stoxx Europe 600 falls 2.7% at the open Dow futures down nearly 200 points, Stoxx Europe 600 falls 2.7% at the open Published:2/28/2020 2:11:18 AM
[Markets] Dow Jones Futures Fall Sharply As Coronavirus Stock Market Correction Intensifies; Tesla, Nvidia, Beyond Meat Down Late Dow futures fell as the market correction intensifies. Tesla and Apple extended big Thursday losses overnight. Beyond Meat tumbled on a surprise after-hours loss. Published:2/27/2020 9:41:05 PM
[Markets] Dow industrials dives below first Fibonacci target, on the verge of 50% retracement The Dow Jones Industrial Average has blown past the first key downside target based on the Fibonacci ratio, and is now on the verge of giving back half of what it gained during the past 14 months. Published:2/27/2020 7:12:15 PM
[Markets] Market Extra: Dow industrials dives below first Fibonacci target, on the verge of 50% retracement The Dow Jones Industrial Average has blown past the first key downside target based on the Fibonacci ratio, and is now on the verge of giving back half of what it gained during the past 14 months.
Published:2/27/2020 7:12:15 PM
[Markets] Dow Jones Futures Fall As Coronavirus Stock Market Correction Intensifies; Tesla, Nvidia, Beyond Meat Down Late Dow futures fell as the market correction intensifies. Tesla and Apple extended big Thursday losses overnight. Beyond Meat tumbled on a surprise after-hours loss. Published:2/27/2020 5:40:06 PM
[Earnings] The Dow Jones drops nearly 1200 points as coronavirus fears batter stock markets The Dow Jones Industrial Average dropped nearly 1200 points today to close at 25,766.64, marking the single worst week for the index since 2011. The Nasdaq stock market fell over 400 points. Behind the collapse was a growing realization that COVID-19, the coronavirus strain sweeping across the globe, has indeed landed on U.S. shores and will […] Published:2/27/2020 4:08:35 PM
[Markets] Dow Plunges 1,200 Points In Stock Market Rout As U.S. Monitors Thousands For Coronavirus The Dow Jones Industrial Average plunged nearly 1,200 points Thursday as selling ramped up into the close amid heightened coronavirus pandemic fears. Published:2/27/2020 3:38:16 PM
[Markets] "Worst Thing In My Career" - US Stocks Suffer Fastest Collapse From Record Highs Since Great Depression "Worst Thing In My Career" - US Stocks Suffer Fastest Collapse From Record Highs Since Great Depression

This didn't age well...

A sea of red...

The Dow has collapsed from a record high into 'correction' in the space of just six days. As we detailed earlier, this is the fastest collapse from an all-time peak since 1928, just ahead of The Great Depression:

Source: Bloomberg

As Guggenheim's Scott Minerd exclaimed on Bloomberg TV:

"...this is possibly the worst thing I have seen in my career... it's hard to imagine a scenario in which you can contain the virus threat," adding that "Europe and China are probably already in recession and US GDP will take a 1.5-2.0% hit."

"The stock market could be down 15-20%... and would likely force The Fed's hand."

Investors are piling into safe-havens (bonds and bullion) as they dump stocks...

Source: Bloomberg

Still, could be worse...

The market is already demanding 3 rate-cuts this year...

Source: Bloomberg

With the odds of an emergency cut in March soaring...

Source: Bloomberg

And, stocks have erased most of the 'NotQE'/Repo liquidty bailout gains...

Source: Bloomberg

From the turn down last Wednesday, all the major stock indices are in correction territory, down over 10%...

The Dow was down over 12% from its highs at the lows of the day today...

Source: Bloomberg

Today was the biggest single-day point drop in Dow history...

Source: Bloomberg

Today's price action was stunning. Weakness overnight extended lower after the open, then a massive ramp higher (pushing Trannies and Small Caps briefly green), before it all fell apart again...

Dow futures show the action best - Futures were down almost 1000 points, extending the overnight losses through the open, that was followed by a quick 800 point ramp - which failed to take out overnight highs - and then faded back towards the lows into the close...Dow 26k seemed the Maginot Line...

S&P closed below 3,000...

Source: Bloomberg

...and broke below its 200DMA (as did the Dow and Russell 2000), Nasdaq closed below its 100DMA...

FANG Stocks have lost $350 billion in market cap in the last 6 days...

Source: Bloomberg

Bank stocks continue to bloodbath...

Source: Bloomberg

Airlines staged an epic comeback today after crashing at the open, but faded lower into the close to end red...

Source: Bloomberg

Why is everyone so surprised at the drop in the Dow, when earnings expectations have already plummeted...

Source: Bloomberg

VIX topped 36 intraday, dipped a little, then ramped back to 34 in the last hour...

VIX is also catching up to the outlook suggested by the collapsing yield curve...

Source: Bloomberg

Credit markets are crashing wider in cash and derivatives...

Source: Bloomberg

And rather stunningly, XOM's dividend yield has exploded to its highest since Feb 1986 (as the stock price crashes)...

Source: Bloomberg

Before we move on to bonds, this is utterly insane!!! China is now dramatically outperforming US and EU stocks since the start of the virus headlines...

Source: Bloomberg

Today's two hour panic-buying stocks, panic-selling bonds effort looked a lot like pension-rebalancing...

Source: Bloomberg

Lots of volatility in bond land today with yields crashing overnight to fresh lows, ramping back to unch after the US cash equity open, then falling back towards the record lows (down 4-5bps across the curve on the day)...

Source: Bloomberg

30Y Yields fell to a 1.74% handle!

Source: Bloomberg

The dollar tumbled today to one-week lows...

Source: Bloomberg

Cryptos bounced back today after an ugly week...

Source: Bloomberg

Gold and copper were flat today as silver and crude tumbled...

Source: Bloomberg

WTI collapsed today to a $45 handle, down a stunning 30% from the early January spike highs on Iran missile strikes...

Source: Bloomberg

And as oil prices crash, Energy credit markets are collapsing - HY Energy OAS at widest since April 2016...

Source: Bloomberg

Finally, gold was flat today as the odds of a Bernie nomination slipped modestly... but that correlation is quite stunning...

Source: Bloomberg

Partying like its the end of 1999...

Source: Bloomberg

We're gonna need more liquidity...

Source: Bloomberg

Somebody's got to get their boot back on the throat of global financial market volatility...

Source: Bloomberg

Seemed like the right time to bring out the deer!!

Tyler Durden Thu, 02/27/2020 - 16:01
Published:2/27/2020 3:12:54 PM
[Markets] Dow plunges nearly 1,200 points and closes in correction territory as coronavirus fears dog Wall Street U.S. stock benchmarks on Thursday finished more than 4% lower and tumbled into correction territory as a sharp retreat for risk assets accelerated into the close on Wall Street. Fears about an outbreak of COVID-19, the infectious disease that reportedly originated in Wuhan, China, late last year, have helped to drive stock benchmarks sharply lower this week. The Dow Jones Industrial Average closed down about 1,200 points, or 4.4%, at 25,763, while the S&P 500 index closed down 4.4% at 2,978, breaking below a psychological level at 3,000, and the Nasdaq Composite Index finished off 4.6% at 8,566. A correction is widely viewed as a 10% drop from a recent peak, but not greater than 20%. Published:2/27/2020 3:12:54 PM
[Markets] Dow plunges nearly 1,200 points as market closes in correction territory Dow plunges nearly 1,200 points as market closes in correction territory Published:2/27/2020 3:12:54 PM
[Markets] How bad is the coronavirus-sparked stock-market selloff? — the Dow industrials weekly skid would rank within its top 20 on record The depth of the slide for stocks this week can perhaps best be illustrated by the severity of the skid for the 124-year-old Dow Jones Industrial Average. Published:2/27/2020 2:37:45 PM
[Markets] Market Extra: How bad is the coronavirus-sparked stock-market selloff? — the Dow industrials weekly skid would rank top 20 on record The depth of the slide for stocks this week can perhaps best be illustrated by the severity of the skid for the 124-year-old Dow Jones Industrial Average.
Published:2/27/2020 2:37:45 PM
[Markets] Here's how the 30 Dow companies are preparing for the impact of the coronavirus Here's how the 30 Dow companies are preparing for the impact of the coronavirus Published:2/27/2020 2:09:51 PM
[Markets] Walmart creating a membership program called Walmart+ Walmart Inc. confirmed Thursday that it's creating a membership program called Walmart+. The company declined any further detail about the program. However, a Recode report says the program, which could start testing soon, will be a competitor to Amazon.com Inc.'s Prime program, which includes one-day delivery, access to Prime Video, and other perks. Walmart has been making major changes recently to its e-commerce capabilities, folding the Jet.com staff into its e-commerce arm and ending the Jetblack personal shopping service. Walmart stock has gained 14.7% over the last year while the Dow Jones Industrial Average has gained 1.2% over the period. Published:2/27/2020 2:09:51 PM
[Markets] Peter Schiff: The Real Safe-Haven Money Is Going Into Gold Peter Schiff: The Real Safe-Haven Money Is Going Into Gold

Via SchiffGold.com,

Stock markets have crashed this week with the Dow Jones Industrial Average down over 3000 points from its highs, entering a formal correction (-10.4%).

As stocks dropped, the bond market was red-hot. Prices soared and yields dipped to record lows. Bonds are considered a safe-haven, but in his latest podcast, Peter said US Treasuries aren’t a safe-space.

When it’s all said and done, the only safe-haven left standing will be gold.

Coronavirus fear was the immediate catalyst for the sell-off as the virus spread outside China, but Peter noted that US stock markets were already vulnerable before the virus outbreak.

Remember, we’re talking about the US stock market that’s at bubble territory, nosebleed valuations, long in the tooth, the longest bull market in US history that has been fueled by the most monetary and reckless fiscal policy in US history. But this is a bubble in search of a pin. So, maybe the coronavirus is going to be the pin. But if we had a healthy market, if we had a healthy economy, it wouldn’t matter about the coronavirus. It’s because the economy is sick. That’s the problem, not the people who are infected with this virus.”

Peter said it looks like the coronavirus is going to have a bigger effect on the global economy than he originally thought. But there is a lot to worry about even if we didn’t have the coronavirus.

So now, when  you have this too – you have another straw on a camel’s back that is ready to just implode at any moment because he’s already barely able to support all the straws that are already up there. I mean, hey, why not sell? Why not lighten up in the stock market?”

While people were selling in the stock market, they were buying in the bond market. The yield on the 10-year Treasury was pushed all the way down to 1.377% — a record low. The 30-year US Treasury yield is also at record lows. Peter talked about the bubble in the bond market in his previous podcast and he reiterated his point in this one.

This is the biggest bubble of them all. And what is fueling this bubble, the reason that so many speculators are piling in the US treasuries is because they assume the Fed is going to cut rates. And they’re right. The Fed is going to cut rates.”

In fact, markets are now pricing in at least two Federal Reserve rate cuts before the end of the year.

But investors are ignoring the specter of inflation. Inflation is the enemy of the bond investor.  These people are piling into 30-year Treasuries and accepting a nominal yield of 1.8% in front of what’s going to be a massive surge of inflation.

The dumb money is piling into Treasuries because they think they’re doing something safe when they’re actually doing something extremely risky and probably extremely foolish if the music stops playing and they still hold those Treasuries.”

The real safe-haven money is going into gold.

Gold closed yesterday just above $1660 mark before some profit-taking overnight. During the day on Monday, the yellow metal surged as high as $1,690. But gold stocks continued to lag and there was some selling early in the day even as physical gold was rallying. Peter said this is another indication that this is an “unloved bull market.”

Nobody is looking for a reason to buy. Everybody wants to sell. People don’t believe this gold rally. We keep on making new high, after new high, after new high, yet nobody wants to come on and recommend gold or recommend these gold stocks.”

Peter said he watched CNBC throughout the day Monday and gold was barely even mentioned. But gold is exactly what you want to hold when inflation is hot and the stock market is crashing. It is a true safe-haven and his historically preserved wealth.

During this podcast, Peter also talked about Warren Buffet and the possibility of a Bernie Sanders presidency...

Coincidence or not?

Tyler Durden Thu, 02/27/2020 - 15:00
Published:2/27/2020 2:09:51 PM
[Markets] ECB's Lagarde Pours Cold Water On Trader Hopes For Imminent Central Bank Bailout ECB's Lagarde Pours Cold Water On Trader Hopes For Imminent Central Bank Bailout

With the Dow Jones entering a correction just 6 trading days after it hit an all time high, the market which has no idea how to trade in a down tape, is freaking out and predictably has spawned a rumor that an emergency rate cut is imminent, a rumor which may have been sparked by Kocherlakota's recent Bloomberg oped as well as Janet Yellen's hints last night at Brookings for coordinated global central bank action, and which has helped stocks recoup half their intraday losses.

Unfortunately for the bailout-starved investors, ECB head Christine Lagarde poured cold water on expectations of an imminent coordinated central bank market rescue, when she downplayed the chances of the ECB providing an imminent response to the spread of the coronavirus, which has prompted economists to slash their eurozone growth forecasts.

The ECB president told the Financial Times the ECB was monitoring the outbreak “very carefully" but said it was not yet at the stage where it would have a lasting impact on inflation and, therefore, require a monetary policy response.

“It is a fast-developing phenomenon, which requires that we monitor very carefully,” said Ms Lagarde. “It is clearly not an area where a central bank has actually an opinion. It is really for the health service and health experts to give us their take . . . on the evolution and particularly importantly on containment.”

Lagarde said all of the bank’s base-case scenarios are “based at the moment on containment in reasonably short order”.

“I was very pleased to see that the numbers in China on deaths relative to contagion seem to have declined for the third or fourth day, which seems to indicate that there is a degree of improvement,” she added.

Lagarde’s amusing faith in Chinese numbers aside (as the former IMF head she knows better than anyone just how fake Beijing's "data" is) her comments indicate that not only is an emergency intervention by the ECB (and likely Fed) unlikely, but that the central bank is hoping to keep interest rates on hold when it meets to discuss monetary policy in two weeks according to the FT, despite calls from economists for it to cut rates and step up its bond purchases.

At the same time, she said the bank would have to determine whether coronavirus was set to cause a “long-lasting shock” that would impact supply and demand as well as inflation. “But we are certainly not at that point yet,” she added.

Needless to say, this stance by the head of the ECB, which has kept its deposit rate unchanged at minus 0.5% since a cut last September, could disappoint investors who are pricing in more rate cuts by the central bank in coming months. Earlier in the day, Europe's Stoxx Europe 600 tumbled 4%, as it entered a 10% correction it hit just over a week ago.

After ignoring the dire consequences of the coronavirus for weeks, economists finally started paying attention after the pandemic spread to other nations, rising fear that the impact of the virus will continue to disrupt global supply chains and compound the woes of European manufacturers, which have suffered two years of falling orders and production. They also worry the health crisis could weigh on weak growth in the eurozone, which last year fell to its lowest level in seven years.

Earlier in the day, Bank of America cut its 2020 global growth forecast to 2.8%.

This would be the lowest reading since 2009 as the world careens into its first recession since the financial crisis.

 

 

Tyler Durden Thu, 02/27/2020 - 11:50
Published:2/27/2020 11:06:31 AM
[Markets] Dow's tumble on track to achieve first key Fibonacci retracement target The Dow Jones Industrial Average tumbled 497 points, or 1.8%, to 26,460 in morning trading Thursday, and is now on track to satisfy the first key Fibonacci retracement target of the latest 14-month rally. The Dow has now retraced 39.8% of the rally off the Dec. 24, 2018 closing low of 21,792.20, which at the time was a 15-month low, to the Feb. 12 record close of 29,551.42. Many Wall Street followers of the Fibonnaci ratio of 0.618, which is also known as the golden, or devine ratio, given its prevalence in the natural world, believe key retracement targets of a move off a significant low to a significant high are 38.2% (1-0.618), 50% and 61.8%. A 38.2% retracement of the Dow's rally would come in at 26,587.40. As long as a retracement stays above the 61.8% mark (24,756.22 for the Dow), the previous uptrend remains intact. The next retracement target of 50% for the Dow is 25,671.81. Meanwhile, the S&P 500 is still above its 38.2% retracement of the rally off the Dec. 24, 2018 low to the Feb. 19 record close, which comes in at 2,990.76, and the Nasdaq Composite is above its 38.2% retracement target of 8,432.71. Published:2/27/2020 10:38:48 AM
[Markets] Retail Investors Just Got Nuked: Here Are The Stocks They Are Puking Retail Investors Just Got Nuked: Here Are The Stocks They Are Puking

Stocks typically take the escalator up and elevator down. However, over the past three months, it seemed the most popular retail stocks were taking the express elevator to the top floor (in part thanks to a record surge in call buying among a certain group of reddit "investors").

As a result, just this weekend we observed that in this "bizarro market", retail investors had managed to outperform hedge funds YTD, a divergence which we said we "doubt divergence will last long".

We didn't have long to wait, and with stocks now skipping the elevator altogether and going the gravitational freefall route and crashing back to earth with the Dow entering the fastest correction from an all time high since just months before the Great Depression...

... the Goldman Sachs Retail Favorite basket, after returning more than 16% YTD just last week, is now down for the year (curiously, it is still outperforming the GS Hedge Fund VIP basket which as of this morning is down more than 3% in 2020.)

And while we pointed out that retail momo darling Tesla has gotten crushed, it's just one of the 50 or so retail favorite stocks that make up the Goldman basket. So for those wondering which stocks they should short if this is indeed the long-awaited retail capitulation, the answer is below: these are all the 50 stocks that make up the Goldman Retail Favorites list.

Meanwhile, a quick look at the r/wallstreetbets forum on reddit, where the world's biggest momentum chasers have now gathered (even making it to Bloomberg in the process), and where a lot of millennials got very rich, very fast, well... they are probably not quite as rich any more.

Tyler Durden Thu, 02/27/2020 - 11:33
Published:2/27/2020 10:38:47 AM
[Markets] Japan, China Close Schools Nationwide As CDC Warns Of Possible "Community Outbreak" In Sonoma County: Live Virus Updates Japan, China Close Schools Nationwide As CDC Warns Of Possible "Community Outbreak" In Sonoma County: Live Virus Updates

Summary:

  • WHO says outbreak in Iran likely worse than official numbers suggest; outbreak could go in "any direction"
  • Iran confirms 22 deaths, vice president for women and family affairs infected
  • HHS says risk to public remains "low"
  • Azar: Sonoma case might be 'community transmission'
  • Salvini meets with Italian president amid national unity government speculation
  • South Korean new cases surpass China's new cases as SK confirms 505 new cases
  • China, Japan close school nationwide
  • CDC fears 'community outbreak' in Sonoma County after discovering first US case of "unknown origin"
  • Saudi Arabia suspends pilgrimages to Holy Sites
  • Hawaiian Airlines suspends service to South Korea
  • Brazil's neighbors take steps to keep virus out

* * *

Update (1100ET): Azar admits that the case in a Sonoma County hospital might signal the start of "community transmission" as the CDC warned.

  • AZAR: CASE IN CALIF. COULD BE POTENTIAL FIRST COMMUNITY SPREAD

* * *

Update (1030ET): With US stocks deep in the red one again, HHS Secretary Alex Azar said at least 40 public health labs in the US should now be able to test for the coronavirus using "modified existing CDC kits".

  • IMMEDIATE U.S. CORONAVIRUS RISK REMAINS LOW, AZAR SAYS
  • HHS SECRETARY AZAR SAYS AT LEAST 40 PUBLIC HEALTH LABS IN U.S. SHOULD NOW BE ABLE TO TEST FOR CORONAVIRUS USING MODIFIED EXISTING CDC KITS

in the US, investors are worried about the first case of unknown origin, which the CDC confirmed last night. This comes as critics slam Azar for refusing to guarantee that the coronavirus vaccine would be "affordable to all".

The IMF said Thursday that it's likely to downgrade its global growth outlook in the next world economic outlook, which is due in the spring.

Switzerland has become the latest country to cancel games and events over the outbreak, with the Engadin Ski Marathon, said to be the tiny Alpine country's largest annual sporting event.

Over on Wall Street, US stocks are on track for their worst week since the financial crisis.

Pakistan, meanwhile, has become the latest country to suspend all flights to Iran.

* * *

Update (0920ET): The World Health Organization's Dr. Tedros said Thursday during the organization's daily press briefing that "we are at a decisive point" in the epidemic, while others warned it could go "in any direction."

Iran has confirmed 22 deaths and more than 140 cases, including a vice president who was the third senior official to catch the virus. But many fear the full extent of the outbreak is much broader. During the press conference, another WHO official singled out Iran, claiming the virus had crept into the country "undetected", before adding that the WHO fears the outbreak inside the country is even worse than the government claims.

Iran "has a very high clinical capacity", said Dr. Mike Ryan, the executive director of the WHO's health emergency program. The 10% death rate probably has more to do with the fact that many cases have gone undiagnosed, he said. The country has gone so far as to cancel Friday prayers in Tehran, after the Saudis told pilgrims they wouldn't be allowed in to the Muslim Holy Sites.

Following European stocks dive into correction territory, in the US, the Dow is on the cusp of falling into correction territory intraday for the first time since December 2018 (remember when?).

As traders digest the implications of the new case in Sonoma County that could be evidence of the first case of "community transmission" in the country, as well as President Trump's rambling press conference on Wednesday, the focus has shifted back to Europe, where in Italy, cases climbed above 500.

According to the FT, Matteo Salvini, the leader of the League, the head of the parliamentary opposition, has met with President Sergio Mattarella as speculation mounts about the prospects for a national unity government to deal with the crisis, following several political missteps by PM Conte.

* * *

Update (0735ET): After yesterday's rally fizzled, Germany is giving the 'fiscal stimulus' tape bomb one more go.

  • GERMAN GOVERNMENT CONSIDERING POSSIBLE STIMULUS PROGRAMME IN CASE CORONAVIRUS EPIDEMIC HITS GERMAN ECONOMY HARD - HANDELSBLATT

Yesterday, a German lawmaker poured cold water on reports that Germany might ditch its constitutional 'debt break' to boost spending in response to the economy-killing outbreak.

* * *

Update (0715ET): with the country's third election in a year just days away, Israel is taking serious pains to avoid acknowledging the coronavirus cases that have been confirmed in the country by blaming them on Italy and South Korea (each case involved a traveler who had recently returned from one of those two countries).

The country said Thursday it would bar non-Israelis who had recently visited Italy after confirming that a man who had recently visited the country had tested positive for the virus, according to Reuters.

* * *

US equity futures are pointing to yet another lower open on Thursday morning after WaPo interrupted President Trump's press conference last night to reports the first COVID-19 case "of unknown origin," which the CDC later confirmed was in Sonoma County, and could be the epicenter of America's first "community outbreak." Shortly after, South Korea reported its largest number of new coronavirus cases in a single day, as the number of new cases reported outside China once again surpassed the number inside China. Brazil confirmed the first case in South America yesterday, bringing the virus to every continent except Antarctica.  

A few hours later, and South Korea has reported another 171 cases, bringing the total cases confirmed on Thursday to 505 - surpassing China's daily total (433) for the first time, as Bloomberg pointed out. So far, South Korea has confirmed 1,766 cases, along with 13 deaths, in the 38 days since the first case was reported on Jan. 20. The US and South Korea have cancelled planned military exercises after a US soldier caught the virus in Korea.

Over in Hawaii, Hawaiian Air has suspended service to South Korea starting March 2 through April 30, while Delta reduces flights as the outbreak in South Korea intensifies (Hawaii has already had one COVID-19 scare involving a Japanese tourist; we suspect the state wants to avoid a similar episode involving South Korea). Congresswoman and presidential candidate Tulsi Gabbard requesting a suspension of flights from South Korea and Japan as the outbreak in the US worsens.

Fearing the sudden breakout in the Middle East might spread inside its borders, Saudi Arabia has halted pilgrimages to Islam's holy sites - known as the Hajj - that are a mandatory practice for Muslims, an unprecedented decision that is likely to spark controversy across the Muslim world. Across the Persian Gulf, Iran has now confirmed 26 deaths 245 cases. But given the virus's rapid spread throughout the Islamic Republic, many suspect that the real number of cases is far higher (earlier in the week, a local lawmaker said 50 people had died in the city of Qom alone).

Iran Health Ministry spokesman Kianoush Jahanpour said the large number of new cases is due to more labs handling virus tests. He warned that the public should expect more cases in the future.

Yesterday, Greece was one of eight countries - Brazil, Pakistan, North Macedonia, of course Greece, Georgia, Algeria, Norway and Romania - to confirm their first cases. On Thursday, Greece confirmed two more cases, one of them in its capital city of Athens. The initial case was found in Thessaloniki, Greece's second city.

At last count, coronavirus has infected more than 80,000 people around the world and caused more than 2,700 deaths since the outbreak began in Wuhan back in December.

Following Brazil's confirmation overnight, its Latin American neighbors are taking steps to stop the virus from spreading across their borders. According to the AP, Peru is keeping a team of specialists working 24/7 at Jorge Chávez International Airport. Argentina has asked citizens to report any flu-like symptom. Puerto Rico has established a task force to prepare for an outbreak in Puerto Rico. And Chile has announced a health emergency and purchased millions of masks and protective outfits for health workers.

But perhaps the biggest story overnight came out of Japan, where the government swore yesterday that the Tokyo Games would take place as scheduled this summer, after an IOC member speculated that if the virus wasn't cleared up by late May, Japan might be forced to cancel the Olympics.

PM Shinzo Abe asked all schools in Japan to remain closed until the spring holidays begin late next month to try and contain the virus. Abe's decision follows a rash of new cases reported in the north of Japan, including the first cases in Hokkaido, with no discernible path of origin,