We’re just waiting for the ECB conference, but it’s guaranteed we’re going to get a rate cut, and we should see an asset-buying rise in the run-rate to E30b.
Those steps have been priced in the market, and it’s going to be about whether Lagarde will channel her inner Draghi and go further out of the dovish range with something we didn’t expect. Let’s see, but in the event, EURUSD is provided.
Today, the world was watching Trump miss the mark by a longshot.
A 30-day travel ban has been imposed for those traveling from Europe to the US with criticism from European Union authorities, airline workers, and the markets are feasting on it.
From a containment perspective, the steps make sense, but they will only add to the economic damage.
The fact that Trump offered us nothing in fiscal terms pulled the rug out of the market at a time when it didn’t have to be questioned twice. We find that S&P500 futures -5 percent had traded down the cap, while European Union equities were again being smashed, with EU Stoxx travel and leisure index dropping by about 9 percent.
We’ve seen the MSCI world index collapse into a bear market, and talk on the street is that CTAs shorten US equity futures in size – then it makes sense that these stocks are going down now – now it adds weight that they’re not just market makers shortening equity futures as their negative gamma.
Either way, the moves were quick, brutal, and vicious, as is the case in the bond market where yields are hard down here (the US 10yr sits at 70bp, -16bp), and we are now pricing in almost 100bp of cuts for the next week FOMC meeting.
The High Yield Credit CDS index is up 46bp, which is important for equity markets, and the credit markets are taking their lead from the fact that crude is -5%.
The JPY is rising against all G10 currencies (NOKJPY is down 4.4 percent), amid reports that next week the BoJ will announce more stimulus.
The market essentially screams they want an answer from the Fed that isn’t just a deep cut – that’s a given – no, they want a direct sign that they’re going to be looking at purchasing corporate credit and even shares.
They can do it, even if changes would be needed through Congress, and if you have an ex-lawyer at the Fed’s helm, who better push for that change.
Of course, liquidity will not cure the virus, but it will reduce volume again, and if markets are in this panic level, it will help.
To be a president, we need Trump. Step up and take the lead, get ahead of the curve, commit capital to the economy, and tackle the virus.
This could come at any point but in my view before we hear that markets will sell risk.
The question of the day is we near an edge, despite the ferocity of selling and the extent of panic? I’ve learned it from all sorts of market participants – the pro and the greenest investors.
This map of the cycle of fear and greed is the debate…. where do we stand? I honestly believe we’re somewhere between ‘panic’ and ‘desperation’.
My own pessimistic model of equity gives priced a strong degree of pessimism. The amber-colored variables are very close to an extreme, and the vol metrics are usually a strong guide to how bearish the market is. The fact that S&P500 1-month puts calls to trade at a 19 volume premium speaks volumes, even though call volatility sits at a huge 49% and is not even cheap to buy upside structures. The market says it won’t be 2 percent when the upside comes, more between 8-10 percent.
The Bloomberg ‘fear and greed’ indicator sits at a more extreme level than the GFC now.
The global risk tolerance measure for Goldman Sachs – a separate approach to the Bloomberg measure.
This takes an average of multiple risk premia and risk-sensitive pair trading markets (equities, vol, credit, bonds, and FX) – Consider having dropped below 2 z-score, the S&P500 is up 91 percent of the time.
The macro risk index for long (yellow) and short (white) Citigroup’s. It has advanced to the multi-year range of 100 percentile. 100 Is an aversion to max risk. It did exactly that once in 2007.
This time could be different, and using extreme pessimism as a timing tool may not be as effective, especially since it feels that there is still a lot of news that needs to feed through markets that will affect our daily lives.
The markets have never really seen these movements, and why are these factors flickering uncertainty, apprehension, and pessimism… but is this the time to buy…?
I guess that depends on your timeline, but it feels like we’re getting close to that point. Price is what we are business with.