Asia Market: The Future Looks Bright, but the Moment is Hell


  • Despite the S&P’s biggest down day since October, the future looks bright
  • Risk-off panic becomes increasingly self-fulfilling
  • Fed meets market’s expectations i.e. no taper
  • In the face of risk-off Armageddon, oil prices remain well supported
  • Gold is down and remains stuck in a tight range


The S&P was down 2½% heading into the close – the biggest down day since October. Nerves about vaccine rollouts weighed on sentiment and significant volatility among some stocks targeted by retail investors.

Yes, the future looks bright, but the moment is hell.

It’s been a gruelling 24 hours as turmoil reigned over equity markets with reopening narratives getting pushed back well into Q2 due to messed up vaccination and rollout strategies. And, adding to investor pain, there are worries around a subtle hawkish shift in policy from the PBoC. And to rub even more salt in the wounds, macro markets went into complete flux mode on reports that ECB officials believe markets are underestimating the chances of a rate cut spurring desynchronized global growth fears.

Investors had been optimistically shooting for a Spring Break reopening, hoping Governments would start lifting restrictions on economic life once the most vulnerable 20-25% of the population are vaccinated. For now, at this stage of the rollout game that’s little more than a pipe dream. Delays in the rollout of Covid-19 vaccines, coupled with lingering lockdown measures, marked a malocchio of the market’s worst held fears.

Vaccine distribution is the most crucial deliverable to get out of this mess.

And while the US stimulus debate is taking the second chair to the vaccine rollouts, a break in the bi-partisan impasse, or even by the reconciliation process could come at a most welcome time.

VAR meltdowns are the worst of all panic events

In a most unvirtuous circle, the risk-off panic became increasingly self-fulfilling as risk control mechanisms kicked in when early covering in consensus shorts, at massive losses mind you, then gave way to selling high flying technology longs from the Hedge Fund community, in the main to cover margin calls triggering a cascading house of pain effect across broader markets.

We remain in a market dominated by risk-on risk-off proclivities, and even more so as we reach peak vaccine impulse melding with incredibly uncertain economic outlook – not to mention being near the end of the fiscal runway. Still, we’re 100 % landlocked in a liquidity-driven environment where all boats rise with YTD performance of US equities and US dollar lower, all suggesting significant co-movement between risk-on asset classes.

It would be easy to codify the rise in risky asset classes since the post-election risk premiums evaporated simply as risk-on. But, of course, the more significant characteristic has been the rotation within asset classes towards the YTD laggards and ‘reopening’ sectors across the board.

So, a negative view on any one of these risk-on asset classes will almost inevitably also lead to negative opinions across the entire risk-on spectrum, including cyclical commodity prices like oil. Any further headline disappointment, be it vaccine rollout or even US stimulus, could prompt further de-risking over the coming days, despite the still-intact longer-term bull narrative.

I’ve been cautious on markets over the last week and remain so. It always feels horrible to be part of a broader camp looking for a more significant selloff, and it seems with everyone looking for an equity market pullback, their wishes did come true. But it won’t be easy to get back in the saddle with any conviction until the vaccine distribution mess gets sorted as it delays everyone’s plans for a brighter day.

While recent Covid-19 news and snail-paced vaccine rollouts have been horrifyingly discouraging, the big picture does not change in terms of markets outlook. Namely, an unprecedented amount of monetary and fiscal stimulus, a structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades. Once the systematic correction gives way, things could brighten up again.

As we move back into the “look through” trade environment, supported by monetary and fiscal puts, investors are quickly rediscovering that not all growth assets are created equal in a Covid downtrodden economic climate, and the forever fickle FX market is testament to the thesis that nothing goes up in a straight line.


As the markets had widely expected, the Fed made very few changes to the statement. But for investors’ concerns, relevant messaging can be summed up as a single-issue event: no taper. Fed Chair Powell looks to have come with the express intention of conveying just that one message.

However, on the drop of time around coronavirus risk in the Fed statement (they dropped “medium-term”), Powell said they did that because in their view there are vaccinations now. So if there’s one hawkish feature to this press conference, this is it.

The sole reason for the massive balance sheet expansion – Covid-19– will be mostly gone in 6-9 months. And since monetary policy works with long and varying lags, it is, or rather will soon be, time for central bankers to consider policy normalization.


In the face of risk-off Armageddon, oil prices – thankfully for broader markets – remain well supported due to OPEC’s dogged determination to stay in damage control mode, adjusting supply constraints to alleviate the projected oil demand level attrition in Q1.

And mercifully for risk markets, not just oil bulls, crude stocks were down 9.9Mb, bullish vs consensus for a +0.4Mb build in crude, the five-year average of +4.5Mb and more significant than the -5.3Mb draw reported by the API yesterday.

Because stocks are in the midst of a VAR type meltdown, oil prices aren’t necessarily as exposed to the market’s risk-on risk-off proclivity around Game Stop and High Tech de-grossing. But oil prices do remain precariously perched and extremely sensitive to any news about snail-paced vaccine rollout.

Perhaps one factor that has been slightly unnoticed is the substantial rise in energy prices and cyclical commodity prices triggered by expectations of a hyper reflationary environment over the next twelve months and has resulted in a significant increase in market-based inflation expectations, where this unmistakable reflationary exuberance was getting expressed in FX.

The broad recovery in risk assets via oil prices since November has not only affected market-based inflation expectations but boosted every asset class on the street.

I think “risk markets” can thank their lucky stars that Saudi Arabia’s crystal ball outlook was clear as a whistle, and their proactive production cut measure buttressed investors from a more significant meltdown.


The global FX market went into a defensive posture, expressing and hedging the risk-off views through high beta to risk currencies. Given the Canadian dollar’s tight correlation to the S&P 500, the Lonnie quickly became a favoured short form both hedgers and speculators.

The stars aligned for EURO bears as the single currency was simultaneous getting hit with the risk-off ugly stick, overtly dovish ECB member chatter and extended EU lockdowns. But this all-over-the-place communication from the European Central Bank suggests some manoeuvring is going on behind the scenes and doesn’t put ECB President Christine Lagarde in a favourable light.

EURUSD is bounced off 1.2050 support for now as the shift to negative rates remains unlikely given what would happen to the banking system. That being said, the ECB’s verbal currency threats haven’t explicitly included their method for pushing back before, so the odds of a rate cut have gone up ever so slightly.

EM stocks and currencies struggle under the weight of snail-paced vaccination rollouts, both domestically and in the developed market, driving US dollar safe-haven demand.

In USDAsia, some USD buying has gone through the market since New York opened after a relatively quiet, tight-ranged session in Asia. Flow-wise, there has been some buying of USDIDR, USDPHP, USDKRW and USDCNH in social size and small two-way interest in USDINR.

The ringgit and the rest of Asia FX remain ensnared in relatively tight ranges as the big picture does not change its outlook. Namely, an unprecedented amount of monetary and fiscal stimulus. A structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades


With the FOMC only holding the interest course, it wasn’t enough to boost gold, especially in the face of a more robust “safe-haven demand” for the US dollar. Compounding matters, gold is getting sold again, albeit lightly to cover margin calls weighing on sentiment.

Although gold is down, we remain stuck in a tight range. Still, the trend is looking less and less constructive, as the yellow metal struggles to recover from the selloff that took place at the start of the year, and with the historically bullish January seasonality soon to be taken out of the equation.

For a look at all of today’s economic events, check out our economic calendar.

Asia Market: Cross-Asset Markets find their Footing


  • A very spooky start to the week, but cross-asset markets find their footing again
  • Oil receives a timely fillip after API reports
  • USD could struggle for direction; EUR higher after European equities put on a good show
  • Gold markets remain mired in very tight ranges


US equities were little changed Tuesday, the S&P flat heading into the close after waxing and waning all day on stimulus background noise. US10yr yields lifted 1bp to 1.03% following Monday’s bond rally, which saw yields fall around 6bps to their lowest close since the Georgia Blue Sweep.

On stimulus, US Senate majority leader Chuck Schumer suggested Democrats might be prepared to move forward with a stimulus vote as early as next week, with Democrats able to use budget reconciliation measures to sidestep more pushbacks (at least partly) from Republicans about the $1.9tn plan.

After a very spooky start to the week – due in part to Angela Merkel’s comment that “the pandemic has slipped out of control” coalescing with fears that the vaccines may not be as effective as expected – cross-asset markets are finding their footings again thanks to the supportive policy backdrops and clarification from vaccine makers on some vaccine efficacy headline confusion. But markets may continue to struggle for near term direction as Covid-19 concerns continue to cast a pall over the proceedings, creating an unpleasant situation for both risk and healthcare concerns.

With the virus spreading like wildfire in many parts to the world it’s now possible that Q1 will be a lost quarter, and part of 2Q also – some are even concerned that vaccines may not prove useful enough to eradicate the virus. Such concerns will continue to linger over markets like a dark cloud until vaccine distributions get ironed out and a definitive drop in contagion levels can thoroughly support the vaccine efficacy results.

The mood music has become quite gloomy on vaccinations, which may not be surprising given we’re in clutches of the pandemic’s darkest days. Still, I think it’s important not to lose sight of what matters from a medical perspective: the vaccines work and are adjustable to the new strains.

While recent Covid-19 news has been horribly discouraging, the big picture doesn’t change in terms of markets outlook. Namely, there’s an unprecedented amount of monetary and fiscal stimulus, a structural shift towards much more spending, a potentially unmatched economic rebound – whether starting in Q2 or Q3 – and a reasonable chance of inflation for the first time in several decades.

As we move back into the “look through” trade environment, supported by monetary and fiscal puts, investors are quickly rediscovering that not all growth assets are created equal in a Covid downtrodden economic climate, and the forever fickle FX market is testament to the thesis that nothing goes up in a straight line.

On the data front, things are relatively light ahead of the FOMC where the risk could be that the market is overly complacent for a dovish tone from the Fed’s Chair, Jerome Powell.


Oil received a timely fillip after the API reported that US crude supplies declined 5.3 million barrels bullishly against consensuses. Still, problems may continue to linger under the hood as the data also reportedly indicated gasoline stock rose by near 3.1 million barrels. At the same time, the draws at Cushing make sense in backwardation markets.

Even when mired in the pandemic’s darkest days oil prices remain incredibly resilient, in no small part due to OPEC’s dogged determination to stay in damage control mode, adjusting supply constraints to alleviate the currently projected level of attrition to global demand.

However, not to be misinterpreted as a rallying cry, OPEC policy actions are critical price planks and much-needed policy “puts” to prevent oil prices from moving significantly lower as renewed concerns about the pandemic’s lingering impact in China and elsewhere have hit both sentiment and oil fundamental expectations.

Both benchmarks traded surprisingly bid at times overnight as WTI sat above USD53.00 and Brent above USD56.00 a barrel for most European mornings, only to relinquish gains after the US open as vaccination efficacy concerns and the general pandemic dark days of winter narrative dampened the mood.

One thing to note is that Mar21 Brent will expire this Friday; it’s not unusual for the front-month to move quite dramatically heading into expiry.

While the general upward direction of travel in the market makes sense, it’s difficult for oil traders to make a definitive near-term shift to the next price level higher, given the very uncertain near-term demand outlook.


The USD could struggle for direction today alongside uncertain risk appetite, with few significant developments to provoke any reappraisal. Even on the day before an FOMC meeting, the FX market’s policy focus remains on fiscal rather than monetary policy.

The EUR is trading higher after a strong performance of European equities overnight.

Commodity currencies are trading firmer, finding traction from resilient equity markets and stabilizing commodity prices – particularly oil – which might be the reason for some relative outperformance in the Canadian dollar.

The ringgit remains ensnared in relatively tight ranges as struggling domestic economic concerns offset the benefits from stabilizing commodity prices, particularly oil.

The long, long march toward central bank policy normalization has begun. Central bankers have the same information we do and the sole reason for the massive balance sheet expansion – namely Covid-19 – will be mostly gone in 6-9 months. If the policy works with long and variable lags, it will soon be time to dive and start normalization. The central banks are slowly climbing up the ladder to the top of the 100-foot diving tower, and those that are already there are waiting for someone else to take the plunge to go first.

The emerging theme across central banks (ECB, BOC, Norges) has been a re-centering of focus towards potential upside policy scenarios around upcoming vaccinations and economic reopening. With the RBNZ still priced for cuts, the Kiwi will undoubtedly attract some attention under this scenario as pushback on negative rates could be the central theme leading up to the next RBNZ meeting in about a month’s time.

The Bank of Canada usually moves to the Federal Reserve’s impulse, but this year it’s likely to become by degrees more hawkish. Indeed, the Bank of Canada is already sounding more hawkish than many of its peers. After all, it has much less work to do to monetize government borrowing, hence the BoC can focus on economic recovery.

So, in the race to policy normalization, Bank of Canada is wearing the yellow jersey and at the head of the peloton, while the Reserve Bank of New Zealand is the quickest of the chase group riders.


Gold markets remain mired in very tight ranges as investors look to the FOMC policy inputs for gold near term direction.

For a look at all of today’s economic events, check out our economic calendar.

Asia Market: Georgia on our minds


  • Georgia Senate election runoffs create tenuous start to 2021
  • US stocks rebound after sharp sell-off on the first trading day of the year
  • Oil prices surge after Saudi Arabia pledges to do heavy lifting on production cuts
  • FX market knotted like a tightly coiled spring just waiting to pop
  • Gold in a holding pattern

US stocks rebounded on Tuesday following a sharp sell-off on the first trading day of the new year, with investors training their ears and eyes on the Senate elections in Georgia that could determine the direction of fiscal stimulus and US tax policy. But it was the energy markets that provided the soothing balm after Saudi Arabia’s ground-breaking intervention on the oil markets overnight.

The Georgia Senate election runoffs make for an even more tenuous start to the year with investors nudging ever closer to the Covid abyss, even if the US has passed peak vaccine euphoria as dreams of the efficient rollout are now replaced with the unfortunate logistical reality markets remain focused on the end of the tunnel, regardless of its length.


The logical thinking is if the Democrats were to win both seats, the knee-jerk reaction would be for the Treasury curve to steepen on higher stimulus expectations. The 10-year yield will be able to gain, but without major adverse consequence on risk assets. It should support equity rotation, but not necessarily endorse at the index trade level, given tech’s high weight and the fear of industry-wide regulation and tax hikes. The dollar should come under further downward pressure, however.

But uncertainty is still the general worry out here over what direction a “blue wave” directional index bias veers. Would the markets focus on the possible boost to government spending, or don tin hats against the potential increase in tax and regulation? Or would the status quo trigger a relief rally by avoiding those tax increases or will disappointment on constrained fiscal stimulus reign supreme?

The bottom line is the market hates uncertainty, highlighted by the Cboe’s Vix index – which measures the expected volatility of the S&P 500 over the next 30 days – gapping above 28 in early trading before easing back to 25 as energy proved the volatility suppressant.


Oil prices surged overnight after Saudi Arabia pledged to do a massive chunk of the production cuts’ heavy lifting by shouldering a voluntary production output cut by an extra million barrels a day, in what’s being described as a “new year gift” to the market by the Russian deputy prime minister.

Oil prices surged more than 5% today on the positive outcome of the OPEC meeting. In a spearheading statement which is bound to win over many friends in high places at OPEC+ and stamp their leadership over the producer’s group, Saudi Arabia unilaterally decided to cut production by one million barrels a day for both February and March in an agreement allowing Russia and Kazakhstan to lift output by 75,000 bpd in February from January levels and another 75,000 bpd in March.

The Kingdom’s willingness to face the music and hit the supply brakes is a colossal signal that the behemoth oil producer will go that extra mile to defend oil prices while simultaneously recognizing the short-term demand risk as the new virus variant threatens s to clog up the path to oil demand normalcy. Indeed, this policy pivot fortifies the policy bridge that will span the economic demand-side gap until the vaccines are more widely distributed.

WTI topped USD50 a barrel and Brent traded shy of $54 a barrel before profit-taking set in after media reports that Asian refiners will not be getting into long-term contracts this year as demand concerns linger and margins remain soft. So, despite Saudi Arabia’s ground-breaking efforts, we’re not out of the woods just yet.

The Brent curve’s front shifted back into backwardation, and the Dec21/Dec22 spreads gained around USD0.70 in both grades.


The FX market has knotted itself up like a tightly coiled spring just waiting to pop out of the box regarding the Georgia runoff. Indeed, it feels like the street is just waiting for the event to pass before shifting back into dollar shorts vigorously – and it’s not too late to get back on board.

At this nascent stage of the economic recovery, it’s hard to think that current FX levels have priced in the lengthy vaccine recovery – if anything the Georgia senate runoff is a speed bump, not a roadblock.

Petrol currencies are flourishing; USDCAD hit new lows at 1.2657 as the crude surged overnight. The pivot area at 1.2725/30 should provide resistance now and the 1.2550 area support (April 2018 low).

The GBP steadied in London after the UK stimulus relief rally on the FTSE. Still, the broader market is suffering from a case of Covid indigestion as new worldwide lockdown continues to foster a wider “risk-off” mood.

Better than expected German data may have helped stabilize the EUR this morning. The 37K drop in the numbers unemployed during December was much better than the consensus, which looked for a rise of 10K. The gains came despite the imposition of additional Covid-19 containment measures in mid-December.

After struggling under the weight of energy releases profit-taking yesterday, the Malaysian Ringgit should receive a fillip from higher oil prices today, and the momentum arc should shift back bullishly towards the USDMYR 4.0 psychological level.

In FX and gold betas, what stands out is the flip in the gold-oil relationship from positive to negative. Oil has been left behind in the risk rally that gold has benefited from, but due to Saudi interventions and with the global vaccine rollout supports recovery in the travel industry, a more ‘normal’ gold-oil correlation should return


Gold is in a holding pattern ahead of Georgia runoff.

Gold continues to trade on the front foot after a roaring start to 2021 for TIPS, which outperformed about everything on Monday and reached new highs. It feels like there was a wave of last-ditch efforts effort to have the ‘blue wave’ trade on ahead of a Topsy Turvy Tuesday Senate election runoff in Georgia. We will see a pause in action today until the election results are released.

For a look at all of today’s economic events, check out our economic calendar.

Santa has come Early for the Markets

US stocks rose broadly Tuesday, and the S&P 500 pushed toward another record high as investors focused on a bullish assortment of reflation libations. Markets also cheered when they heard Janet Yellen’s voice in an official capacity again when the former well -respected Fed Chair accepted President-elect Biden’s offer to join his economic team in the official capacity as new US Treasury Secretary.

Markets are trading off their intersession highs but remain on stimulus watch. However, caution should be exercised after all; we have had this stimulus carrot dangled in front of us before.

Still, it was one of those healthy risk-on days that may have set the market’s wheels in motion for a December to remember. The better sentiment came amid robust global manufacturing PMIs for November, notably in China, and optimism that coronavirus vaccines could soon help usher in a faster global economic recovery with the Moderna candidate applying for FDA emergency approval. Still, the cheery on top is the possibility of stimulus before year-end, helping rocket-fueled the reflationary tone to markets.

The next leg of the rotation into the Reopen trade is underway as rates move higher, a December to remember kicks off, and stimulus hopes grow. Price action overnight is yet another confirmation that folks are willing to look yonder and beyond the bounds of lockdowns (forced or self-imposed) and instead are eager to focus on a vivid post-vaccine world.

Santa has come early for the markets, and even if it is a very unusual version of consumer Christmas- lite this year, “happy days are here again ” as the world is now hoping the festive mood music never ends. Still,

I would be surprised if the move today at the Index level turns into a straight line higher for the Value/Cyclical trade. Instead, it would expect more single-stock dispersion again as investors become more selective.

The cross-currents of positive vaccine news and an improving outlook vs. slowing data and weaker sentiment kept the VIX in a 21-25 range for three weeks even as the S&P 500 tested the upper end of its recent range and the Russell 2000 surged 20% in November. The VIX fell below 21 during the Thanksgiving holiday week, but the belly (approximate 3-6-month VIX futures) has remained stable at about 25 as growth/virus risks persist.

Oil markets

With various moving parts to manage and some justifiable fatigue setting in among OPEC+ policymakers attempting to find common ground to extend historically high production curtailments, OPEC/OPEC+ process is proving to be an exceptionally delicate affair. And even if we compromise to defuse a bitter dispute over the current quota cuts, it does not bode well for the OPEC compliance cooperative in 2021.

The timing could not have been worse for OPEC+ to drop the ball given the moon shoot reflationary unfolding in what could very we be the start of a December to remember. While cross-assets are reveling to the beat of vaccine and stimulus news, oil markets are still languishing in OPEC + meeting deferment sulk.

And rubbing salt in the OPEC+ fissures, oil sold off further as US inventories balloon. Analysts penciled their Thanksgiving oil demand guesses on the wrong side of the ledger. The American Petroleum Institute reported on Tuesday a build in crude oil inventories of 4.146 million barrels for the week ending November 27 against analysts’ expectations for a draw.

Oil prices were trading down on Tuesday afternoon before the API’s data release despite daily news of Covid-19 vaccine progress, after OPEC on Monday ended its meeting without a resolution. OPEC finds itself in a slippery situation again—and make no mistake, it is compulsory for the present a united front for whatever plan it hatches. The small slip in oil price on Tuesday is only a curtain warmer of what will happen to prices should the deal fail. Indeed, it is worth keeping an eye on oil markets while the wrangling over OPEC+ production cuts continues.


The Euro

The Euro surged higher overnight on an assortment of reflation libations that rocket-fuelled the global growth upswing narrative, specifically early vaccine approvals, and US stimulus optimism. And Fed hopes came off the ropes after a weaker than expected ISM overnight.

Also, Brexit negotiations went into the ‘tunnel’? Times reporter Tom Newton-Dunn says they have, although there has not been any confirmation from other sources yet. For now, it should be treated with caution, particularly as this still does not mean the political hurdles will be overcome. What is clear is that the most decisive few days now lie ahead. On both sides, general assumptions are that a deal needs to be done by next week’s EU Summit on Dec. 11/12, so there is still room for a calamitous tumble, but a more unlikely than not.

The Pound

The Pound also caught a bid with Gilts under renewed pressure after the headlines on Brexit negotiations. Along with discussions around some additional stimulus in the US, it looks like the potential pitfalls that could have tripped up markets into year-end are all suddenly looking less of a worry.

So, after the month-end noise, EURUSD sliced through 2020 highs like a hot knife through butter. The FX insider track has the same views as last week. Namely, the market is under-invested, and the risk is a bigger move higher.
The Australian Dollar

Today, the Australian dollar is in a bit of catch-up mode after RBA Governor Lowe reiterated that “Australia has turned the corner on the economy,” speaking to the economic committee.

The AUD had failed to keep pace with other parts of G10, failing to make much progress despite a risk-on mood in stock. I suspect the escalating Australia -China trade spat is creating a touch of buyer fatigue. Yesterday, EUR-USD failed to hold above 1.20, USD-CAD was unable to break below support at 1.1920, and AUD-USD could not sustain the shift above 0.74. All three currencies weakened against the USD as a result, but while the EUR and CAD have recovered the bulk of that reversal, the AUD had languished

Asia FX

Solid manufacturing PMIs in Asia for November fusing with stimulus and vaccine optimism drive broad-based FX gains in Asia. Central banks in the region are increasingly uncomfortable with FX strength, but their caution is not unusual early in a global economic cycle. Relatively attractive yields vs. G10 suggest investment flow into local bond and equity markets will continue.

The Offshore Yuan rose to one week high after the dollar slumped to a two-year low and mainland shares climbed on hopes a vaccine and a fresh round of US stimulus will boost global growth in 2021

However, the ringgit has fallen off the pace as local traders turn a cautious eye to the OPEC quota extension meeting proceedings, which are now presenting a crater on the road instead of a minor speed bump. During the OPEC conference, tension saw the Saudi Energy minister offered to resign as co-chair of the panel at one point. Yesterday it was reported that the scheduled meeting would be pushed back to December 3 to give ministers more time to reach an agreement overproduction.

Gold Markets

Gold price pops back above USD1,800/oz as USD retreats, and while gold can go a bit higher, it still faces uphill challenges from vaccine optimism.

Gold after a series of nasty declines following enthusiasm over COVID-19 vaccines. Gold had been trading well below USD1,800/oz and came close to testing the psychological make or break for ETF concerns USD1,750/oz level. A weaker USD effectively threw a lifeline around bullion, helping it rally back from two weeks of declines.

For a look at all of today’s economic events, check out our economic calendar.

OPEC Meeting Talks Delayed so Cooler Heads Prevail 

US equities were weaker Monday, S&P down ½% heading into the close. The main narrative underpinning sentiment over the past 24 hours appears to confluence month-end portfolio rebalancing and weaker economic data expectations in December as COVID concerns flare up again.

Highlighting the economic data causes for concern The Dallas Fed November Manufacturing activity index came in below expectations, at 12.0 vs. the 14.3 surveys, following the Chicago PMI miss earlier on Monday. The Dallas Fed miss was consistent through most of the sub-indices, with new orders falling to 7.2 from 19.9, though the number of employees increased to 11.7 from 8.7. Prices paid rose to 35.0 from 29.4, while prices received fell to 4.7 from 6.8, indicating potential margin pressure.

The Malls of America, zombified by a lack of footfall, is one thing, piles of debt (unserviceable, even at relatively low yields) another; however, even worse for these firms are the year-on-year comparisons, it seems. It is usually in these last couple of months where many retailers make their annual profit. Still, the weakness of data across outside of Asia highlights lockdowns (forced or self-imposed) have begun to affect. Simultaneously, early reports suggest Black Friday may have been underwhelming, even taking into account online activity, one of the new ‘norms’ of 2020. It is driving speculation that the reinstatement of lockdowns and enforced Christmas-lite has suddenly led the consumer to lose its appetite.

Flashing Green Lights

Flashing Green lights at the end of the tunnel suggest investors should look through the immediate COVID-19 concerns and focus on the future, which seems incredibly bright and bullish.

So, with month-end selling pressure mostly out of the way, it could allow investors to focus on those flashing green sectoral lights at the end of the Covid tunnel.

The US industrials and materials sectors hung well today despite the value trade lagging, but there is a defensive skew under the hood consistent with the broader tape. For the first time in a while, early weakness in the aero complex has not been notably bought, perhaps reflecting how far things have moved and how much length investors have already added.

As a reminder, the most important theme from my trading purview last week was that some of these value names had ‘finally’ gotten to levels where we were running into fresh selling supply. That supply is not necessarily back today, but many words are at more debatable levels now.

Month-end is bringing some volatility across asset classes. EURUSD can still trade higher, but it is pausing failing at the previous year-to-date highs. 1.1930-40 is the short-term pivot. Gold price is bouncing off cycle lows, and after the massive position cleanses of the last few weeks, at some point, it will re-correlate with the dollar and 10y US real yields, and that could offer support.

But even if the tunnel’s end is in sight, one cannot be certain what the landscape will look like on the other side. Many hope it will be wonderfully strikingly familiar, just like the old pre-Covid normal, which, of course, is the key to the value versus growth discussion in stocks. However, yields barely blinked post-vaccine announcements Bonds as a silhouette against the broader market purview – are always the less sentiment-driven, and usually a full out macro tell – Bonds are then signaling us that low growth, low inflation, still muddling through if you like, awaits us the end of that Covid free tunnel.

OPEC meeting talks delayed so cooler heads prevail

According to press reports, the big news overnight is that Saudi Arabia is considering resigning from its role as co-chair of the OPEC+ Joint Ministerial Monitoring Committee, which puts pressure on crude.

Saudi co-chairs the JMMC with Russia. It is not clear what Saudi’s goals are, but it is not easy to imagine an OPEC+ without Saudi playing a direct role at the top.

The talks are delayed letting cooler heads prevail, suggesting that the infighting was reaching unpalatable levels. Given the gravity of the situation, all parties felt it was best to have a cooling-off period.

The deal is still in sight, and oil is in a pretty good spot for 2021 with the vaccine roll out to push WTI to $60 despite the current level of OPEC+ disquiet, But the OPEC meeting is offering up a bigger speed bump than many had thought


The US dollar

The USD’s underperformance since the US election and the announcement of various COVID-19 vaccines has been stark. It is also reflected in an apparent shift towards much broader short positioning being built up against the greenback. But perhaps the market is starting to show more than a few stretch marks.

The Euro 

The 1.20 level in the EURUSD remains a bridge too far for the dollar bears and even despite some of the highest volumes in EURUSD into WMR we have seen since Jackson Hole (27AUG). (using EBS data), The double top at 1.2004/16 massive level down here in USDCHF (0.9000), and the USDCAD holding ground at 1.2950 again, for now, suggests the dollar is not about to roll over into year-end.

One would have thought with the heavy downpour of US dollar selling flows into month-end vs. the Euro, I expected a push to 1.2095 into the WMR fix (as per our buy signal from 1.1885-1.1910 last week). Alas, another disappointment at 1.20. It suggests the markets could veer back to a neutral view on EURUSD now and neutral on the USD overall. The supply/demand story should even out now with month-end over. I do not think the Fed will add accommodation with US stocks roaring above SPX 3600, so it is hard to see why USD continues aggressively lower at this point.

And with the year-end approaching, some bullish Euro traders might wait until the new year to build directional positions. And some justifiable concerns may hold the Euro back as the issue of currency strength may re-emerge as a theme within ECB rhetoric ahead of its December meeting.

The Malaysian Ringgit 

The Ringgit has been trading quietly. Like most currencies directly buttressed by significant oil export quotient, the local currency market remains slightly jittery ahead of the delayed OPEC quota extension announcement, presenting a bigger speed bump than expected.

I think cooler heads will prevail, and Brent moves back above $50, supporting the MYR, but in the meantime, the MYR could take cues from broader US dollar sentiment.

For a look at all of today’s economic events, check out our economic calendar.

Markets Outlook: A Cluttered Environment for Risk

Market highlights:

  • A week where the economic calendar is packed with important data points
  • Caution hits oil markets ahead of key OPEC+ meeting
  • With a torrential downpour of dollar supply for month-end, it’s time to pick your favorite short dollar plays
  • Everything that was pointing us towards caution on the Euro in September has now turned

This week’s economic calendar is packed with important data points, namely Friday’s employment report for November. We’ll also hear from Fed Chair Powell, who’ll testify in tandem with Treasury Secretary Mnuchin before the Senate Banking Committee (Tuesday) and House Financial Services Committee (Wednesday).

Though the timing is propitious given the recent decision by Mnuchin not to extend several of the Fed’s 13.3 facilities, Powell and Mnuchin will be providing their routine updates to Congress as required by the CARES Act. Both will be questioned extensively by Congress on the recent discord between the two institutions.

However, as Congress is also negotiating an omnibus spending bill for the remainder of FY 2021, we’ll also be looking for any hints as to how the political parties are positioning themselves concerning further fiscal stimulus and its importance Chair Powell will no doubt reemphasize to Congress.

US equities ended last week on a small bounce; bonds were mixed and broad USD traded slightly lower in an illiquid post-US Thanksgiving holiday session on Friday. Parsing some of the most recent developments, we’re likely still in a cluttered environment for risk in the coming weeks; Janet Yellen, as Treasury Secretary, would need Republicans to play ball on stimulus so unless the Democrats can win the Georgia run-off races – which at this stage appears unlikely compounded by Senator McConnell showing few signs of budging from the Republican 500 billion stimulus offer – the Biden administration will continue to struggle to implement a large fiscal stimulus package.

Questions around the AstraZeneca efficacy results may mean a new trial for US approval, which pushes the timeline back – though they don’t expect that to hold up permissions in the UK and EU. Anyhow, risk has so far notably struggled to follow through on its momentum since Pfizer and Moderna’s positive news.

Caution hit the oil markets ahead of the key OPEC+ meeting. The consensus seems to be pricing in an extension of the current cuts by at least three months. Still, the recent oil-price rally may have reduced OPEC’s sense of urgency and, with signs of dissent in the ranks, the possibility of the meeting falling short of those expectations is real. The oil price will react negatively if a decision on cuts is delayed, likely falling below $45/b, but is unlikely to move up meaningfully if an extension is announced. An extension still seems the most likely outcome, but risk/reward is skewed to the downside.

As we count down to OPEC’s meeting on November 30th, the Axi Expert Series is pleased to welcome Henning Gloystein, Director of Energy, Climate & Resources at Eurasia Group, to discuss his views and insights in what’s an important week for oil markets.

The pound traded lower into the weekend but is still holding on to the 1.33 handles. UK PM Johnson said the UK can “prosper mightily’ without a trade deal, Bloomberg reports; as of about 30 minutes after that interview, sterling was not liking that headline. The EU representative Michel Barnier is back in London, but a deal will require engagement from political leaders; likely a Boris/von der Leyen/Merkel/Macron call or meeting at some point over the next couple of weeks. Any sign of something like that happening would be very positive, but the longer the stalemate continues, the more ‘no-deal’ might become the path of least resistance for both sides.

The street talks about how the dollar’s medium-term outlook is about as bearish as one could get. It doesn’t feel like the usual analyst’s lip service either; traders are talking about this. The analog to the 2009 post-GFC recovery remains the obvious historical comparison.

For context, the Bloomberg Dollar Spot Index (BBDXY) dropped 16.5% off the highs in 2009 alone, while the dollar is only 12% off the highs this year despite an arguably worse outlook. The surprisingly high efficacy of vaccines brings forward the timing of the full global recovery and, with it, equity inflows to the rest of the world. Also, the twin deficits have historically led to dollar declines, and the combination of a Yellen Treasury/inflation-targeting Powell reinforces the dollar downtrend.

There was huge corporate USD demand before Thanksgiving, causing the dollar to rip higher earlier in the week on what’s normally a nothing data point for FX markets (i.e. the strong US PMI). Now, the USD demand has been fully stopped up, and there’s about to be a torrential downpour of dollar supply for month-end; it’s time to pick your favorite short dollar plays.

With EUR/USD close to the highs, conditions suggest a sustained break of 1.20:

  1. Positioning is no longer extreme longs
  2. The virus wave in Europe is likely peaked; the US is still raging
  3. European equity inflows will pick up on rotation from Tech US to cyclical heavy EUR
  4. The existential risk premium around the Euro break-up is at its lowest in years

Beyond that, the vaccine rollout has increased confidence on the positive cyclical outlook, which should favor a weaker dollar across the board.

Bottom line, everything that was pointing us towards caution on the Euro in September has now turned.

Asia Markets: Inoculated from Iffy Data, Investors Revel in Vaccine News

Market highlights:

  • Inoculated from iffy data this week, investors revel in the vaccine pipeline
  • Oil at its highest level since early March, boosted by vaccine-driven optimism and signs of an orderly transition of power in the US
  • Brexit deadline looms as potentially the biggest wave of profit-taking on sterling the world might ever see
  • Medium-term outlook for the dollar is about as bearish as it gets
  • Silver linings hard to come by for gold

Investors are still inoculated from iffy data this week and are reveling in the vaccine pipeline. However, they might need to be concerned with more days like this as the virus hits the economy faster than the vaccines roll-out.

US equities moved sideways Wednesday, the S&P little changed heading into the close (and likely a much needed hiatus after the record close the day prior). US 10Y yields were also little changed. The most notable price action was a further extension in oil prices that rose 1.8%.

Rotation into the reopen trade has taken a breather with Momentum/Growth/At Home back in the driver’s seat. There’s been a bit more profit-taking and some fresh shorts on the broader matrix’s Cyclical and Value side.

The shift seems to be driven by uncertain data out of the US sending equities into mild profit-taking mode, though it’s not like the data was that bad. Still, the two primary low lights of weakness (initial claims and personal income) feed into market concerns that the pent-up bounce seen earlier in the year will go into reverse as virus cases pick up and fiscal support ebbs.

Investors don’t seem to care too much about this week’s data as they’re still basking in the glow of the positive vaccine news. However, as we start the final monthly lap towards year-end where investors will turn ultra PnL defensive, you might need to be concerned over more data release days like this as the virus hits the economy faster than the vaccine roll-out evolves. Indeed, many event risks can go sideways before the vaccines arrive, at which point all lights will signal green for risk-on.

Still, similar to last week, investor confidence in US equities has been holding up. The relentless and enduring bid from retail, combined with corporate buybacks and institutional short covering, has been enough to offset the expected pension selling so far. It will be interesting to see if the leaderboard holds over the Thanksgiving holiday, or if pension rotation selling finally takes over as we head for year-end.


Oil traded higher on Wednesday in a very tight range until the rally midday NY; WTI attempted a clean push through $46, and Brent printed through $49 before retracing some.

Oil is at its highest level since early March, with vaccine-driven optimism and signs that an orderly transition of power in the US is underway helping the demand outlook. Positive comments on the state of the Chinese economy by Premier Li are also supportive.

The inventory numbers released earlier in the NY session helped push the market higher, with the EIA figures more bullish than the previous days’ API estimates and bullish to consensus.

As we count down to OPEC’s meeting on Nov. 30, the Axi Expert Series is pleased to welcome Henning Gloystein, Director of Energy, Climate & Resources at Eurasia Group, to discuss his views and insights in what’s an important week for oil markets.

Watch now

Forex: All focus on Brexit and Energy

The next week could be decisive for Brexit, though there’s no hard deadline except for the end of the transition period on December 31, which cannot be moved. From my understanding, most of the agreement’s legal text seems ready, and chief negotiators Frost and Barnier will likely present what they have to their political headmasters next week. The question then will be whether the UK and EU leaders will agree on the remaining, most difficult ‘brackets.’ Markets seem to broadly anticipate a deal, suggesting that the knee-jerk market reaction could finally offer up the opportunity for the biggest wave of profit-taking on sterling the world might ever see.

The energy sector is going full out bonkers, the oil market rally is a huge positive tell, and it screams increasing optimism around the global 2021 outlook. Such an outcome would be consistent with the USD downside.

S&P Energy is still 15% lower than it was in June and down 35% on the year. Energy is always a favorite value and means reversion play. And with the month-end corporate dollar buying getting soaked up easily overnight in NY, the USD dollar downside should start to open up a bit more into year-end, provided energy holds an even keel and Brexit talks don’t fall off the table.

The medium-term outlook for the dollar is about as bearish as one could get. The analog to the 2009 post-GFC recovery remains the obvious historical comparisons. China’s credit creation leading to a V-shaped global recovery triggering reallocation of assets abroad from an overweight US position is about as clear a whistle to sell dollar signal as one could get.

For context, the Bloomberg Dollar Spot Index (BBDXY) dropped 16.5% off the highs in 2009 alone, while the dollar is only 12% off the highs this year, despite an arguably worse outlook. The surprisingly high efficacy of vaccines brings forward the timing of the full global recovery and, with it, equity inflows to the rest of the world. Also, the twin deficits have historically led to dollar declines, and the combination of a Yellen Treasury/inflation-targeting Powell reinforces the dollar downtrend.


It’s difficult to find a silver lining amid all the bearish clouds as gold prices continue to defend the key $1,800 level. It’s much of the same overnight, with transfer of ownership continuing into stronger hands. But with the inability to even reclaim $1,825, it’s hard to argue the downtrend does not remain in the play.

The positive correlation between gold and the SPX since March flipped after Pfizer’s vaccine announcement on November 9, while negative real yields are not having a positive effect on the precious metal. A transition from disinflationary to inflationary support for gold could take time and ultimately leaves prices vulnerable to more profit-taking and the establishment of more shorts in the near-term.

For a look at all of today’s economic events, check out our economic calendar.

Milestones Galore

Market highlights:

  • S&P heads for record high as Dow Jones hits its own symbolic milestone
  • Investors elated by vaccine news and revelling in the drop in political existential risk premium
  • Changing oil narrative triggers all-encompassing risk rally and energy EFT investors go on a buying binge
  • USD falls on the downside surprise of November consumer confidence data
  • Expectations of 2021 vaccine deployment likely closes the lid on gold upside

U.S. equities were stronger on Tuesday, the S&P up one and a half percent and on track for a record high heading into the close. A symbolic milestone for the Dow Jones index as well, breaking through 30,000. Sentiment remains underpinned by the trio of successful vaccine trials announced in recent weeks, boosted by the US President Trump’s decision after the close on Tuesday to co-operate with a transition of power to President-elect Biden. US10Y yields were up 3bps to 0.88% and oil was up 4.2%, with both Brent and WTI contracts breaking through their post-March range.

Thanks to the multiple vaccines in the pipeline, “Joy to the World” is ringing in earlier than expected as global investors are elated by the vaccine news while simultaneously reveling in the drop in political existential risk premium, knowing the finishing touches on the US election process will not devolve into mobocracy as risk remains on the forefoot following the US General Services Administration’s acknowledgment that Joe Biden can start his formal transition to the White House.

Oil things considered

There’s heavy focus on the energy sector these days, providing a keen signpost that the world might return to normal faster than expected. Apart from providing much-needed protection for the most vulnerable, the vaccine also gives governments political wiggle room to pull back from continued lockdowns. And this narrative continues to work its way through the oil markets.

The Biden transition, positive vaccine news and Janet Yellen reportedly being Biden’s pick for Treasury Secretary triggered an all-encompassing risk rally and lit a fire under energy EFT investors who have gone on a buying binge with WTI prices marching their way to post-lockdown Nirvana heights (+WTI45). This week XLE (energy sector SPDR Fund) has seen some of its largest buys since early March as inflows into the ETF rang in a positive chime for the eleventh consecutive day.

Oil investors are rightly jumping for joy as the AstraZeneca delivery is the real deal and a game-changing panacea and means most of the developed world will be able to immunize its most at-risk population by the spring, and likely the entire community by mid-year. 

Oil hit its highest level since March, with WTI touching $45.20 and Brent $48.03. The front three expiries of the Brent curve settled in backwardation on Monday. The Jan21 has continued to trade over Feb21 on Tuesday. Demand from Asia has been the catalyst for the increased demand, but gasoline demand in the rest of the world remains depressed.

Expectations for U.S. gasoline demand for this week have improved. Petroleum analyst GasBuddy sees an increase of 10% week-on-week due to the Thanksgiving holiday. RBOB is up over 4.5% today.


And while the immunized future looks bright for oil markets, oil traders were provided a present-day reminder why the OPEC quota extension will be the key to bridging the gap between the present-day COVID infused environment, as the vaccine rollouts come after the American Petroleum Institute reported a bearish build to the consensus in crude oil inventories of 3.8 million barrels for the week ending November 20.

While bearish on the surface, the inventory report does bullishly suggest that OPEC will continue to rebalance the oil market and deliver a three-month extension, which is the market’s base case scenario and is largely priced into the oil market.

But it’s the trifecta of galore that saw oil prices scale the post lockdown heights. Indeed, the markets seem to be charging ahead, betting on the bullish trifecta of early vaccine rollouts, OPEC quota extension, and a weaker USD.

Indeed, the energy sector vaccine rally has caught investors off guard, and there are signs of short energy position pain unwind; you just need to look at energy ETFs – XOP (SPDR S&P Oil & Gas E&P EDF) and XLE (energy sector SPDR fund).

The fact that energy rallies this hard every time there’s vaccine news continues to highlight just how underweight investors are, with the last three Mondays seeing the XLE/XOP outperforming the S&P by +12.86%/+12.74%, +5.27%/+4.35% and +6.43%/+8.26%. And, apparently, the long-only oil exposure funds haven’t even gotten into the game yet. I suspect oil prices will need to move a bit higher before the long-only community returns in earnest, but the way Brent is trading these days, we might even hit the mystical $50 level in early December post-OPEC+ meeting, if all goes well.

As we count down to the meeting of OPEC on November 30th, the Axi Expert Series is pleased to welcome Henning Gloystein, Director of Energy, Climate & Resources at Eurasia Group, to discuss his views and insights in what’s an important week for oil markets.

Forex Markets

The USD fell on the downside surprise in US November consumer confidence data at 96.1 vs. 98 surveys (though the prior was revised higher from 100.9 to 101.4) and consistent with the downside surprise in the University of Michigan survey earlier this month and the downside miss in retail sales, though that was for the October observation period. Notably, though, oil is having a good run today and has broken above the August/September highs, which may serve as the more important cue than the consumer confidence release from a reflationary-impulse perspective.

The oil market rally is a huge positive tell, and it screams increasing optimism around the global 2021 outlook. Such an outcome would be consistent with the USD downside.

Risk appetite flourishing post-AstraZeneca’s vaccine news, which offers a game-changing panacea for global mobility while getting a further lift from the initiation of US President-elect Joe Biden’s formal transition.

Equities are firmer while the USD is softer against G10 currencies, including the JPY. This seems to be getting dovetailed by Janet Yellen’s nomination as Treasury secretary also playing a factor, potentially raising expectations for lower for longer US interest rates.

Yellen and Powell are the new normal economic power brokers. They will aim to get the real economy to full employment. Both have learned from past mistakes. Exceptionally easy financial conditions will prevail for much longer than usual. Markets will be encouraged and incentivized to take more and more risk. Eventually, there will be a price to pay – but worry about that another day.

The Malaysian Ringgit 

As an economy dependent on a large oil export quotient, the ringgit has an ace up its sleeve this week as oil prices are soaring ahead of the OPEC+ meeting as the bullish trifecta early vaccine rollouts, OPEC quota extension, and a weaker USD should see the ringgit trade favourably. However, the pair could mark time ahead of the key domestic CPI release today.

Gold Markets

As energy ETF flourishes, gold ETF investors are running for the exits, supporting the notion there are much better trades for the reflationary bounce than gold.

The improved expectation for material vaccine deployment in 2021 has likely closed the door on the gold upside. And given the heft of ETF positions, especially the massive accumulation since the beginning of this year, there’s definite scope for a deluge of ETF unwinds. So, look for a massive clear out again on a break of the psychological $1,800.

Gold fell and hit its lowest level since July. It’s much of the same – transfer of ownership continues into stable allocation – with no huge clips dealing with Asian banks providing they offer during Shanghai Gold Exchange hours; SGE has widened again to a USD20+ discount.

The $1,800 level inevitably provides the gravitational pull with 950k oz in open interest within the $1,800 GCZ Puts yesterday, 650k oz on the calls with $1,797 spot lurking below as 200-day moving average support.

The gold rout continues as investors embrace vaccine news. The break of USD1,800/oz support may take prices near USD1,750/oz as surging investor optimism due to promising Covid-19 vaccines has undermined gold and silver.

For much of the year, increased risk-off sentiment sent capital into US Treasuries, which pumped up the USD and weakened gold. Conversely, increases in risk-on appetite sent money into stocks and less so to Treasuries, which often undermined the USD and tended to boost gold. Thus, gold often moved with equities.

These trade winds could be shifting; equities have charged higher recently while gold and silver have plummeted. A weaker USD has been of no help to gold and it’s quite likely that a more traditional inverse gold/equities relationship is being re-established once again. A risk-on mood cannot be counted on to boost gold, simply because it may weaken the USD – at least not in the context of a vaccine rally.

Gold will continue to be undermined by the commanding macro theme related to a vaccine recovery and the reduced risks associated with central bank debt monetization or the pursuit of quasi-modern monetary theory. This suggests the vaccine narrative has poked more than a few holes in the currency debasement story. And while the US dollar should likely weaken as the global economy comes back to life and will offer gold a modicum of support, nevertheless with the base structures (MMT and C.B. debt monetization) that supported gold on the way up from 1500 becoming less of a factor, gold’s luster could erode with every successful deployment of the vaccine.

OPEC Looms will Vaccine Supports Oil Markets

Oil markets

Spreads are at their narrowest in months, reflecting the shift in the production/demand balance on a combination of factors:

  • Lower production by OPEC+ countries.
  • Numerous weather-related shut-ins in the Gulf of Mexico.
  • Asia’s increased purchases (China binged on cheap oil in the first half of the year).

Calendar spreads are down along the Brent curve, from mid to the end of 2021 are now below $0.10 contango. And really, that is the key to holding the front end in check.

As John Kemp (Reuters) puts it: “such contango would not cover the cost of storing and transporting crude, implying that stocks are expected to be below the five-year average and falling rapidly at that point.”

Rising COVID cases and restrictions tempered the enthusiasm around good vaccine results. Still, we should not expect to see the same playbook for downside oil market risk that we saw with the second COVID wave in Europe – not only were the vaccine results excellent (which should soon lead to Emergency Use Authorizations), but rising cases are elevating expectations around Fed action at the upcoming 16 December meeting, when they may conduct a QE twist that will do much of the oil market heavy lifting due to inactivity on the stimulus front l.

But it is all down to OPEC. No formal decision will be taken before the full OPEC+ ministerial meeting at the end of this month. Still, with the rise in coronavirus infections and new mobility restrictions, it seems al but like a rubber stamp kind of likely that an extension will be undertaken

Vaccine progress or not, the market is riveted to OPEC activities. The broader market is very aware that even the most promising vaccine news will not have a discernable effect on oil demand until at least the second half of 2021. But what will have an immediate impact on the oil market – or rather bring into better equilibrium the balance of supply vs. demand by drawing down inventory more definitively – is an OPEC quota extension.

As we count down to the meeting of OPEC on November 30th, the Axi Expert Series is pleased to welcome Henning Gloystein, Director of Energy, Climate & Resources at Eurasia Group, to discuss his views and insights in what’s an important week for oil markets.

Investors Took an Untimely Ride on the Covid19 Roller Coaster


The Bad

The S&P gave up nearly 100 points on the day as the two -day stock market rally petered out. US equities came off pretty hard in the US afternoon session despite substantial gains in Europe and Asia. US stocks had been higher for most of the course on good volumes with a notable increase in Hedge Fund participation, heavily skewed to the buy-side covering shorts in banks, industrial & airlines. But markets came under pressure in late afternoon trading, coinciding with a sharp slide in oil prices, which ended the US session almost 10% lower.

Sure the oil market slide got the bus rolling downhill. But with investors focused on Covid19 curves, so when New York, the epicenter of the US outbreak, announced 731 deaths overnight, its greatest single-day count and suggesting there could be a “lag” in reporting. The equity market rally bus hit a brick wall—leaving investors to execute their much-practiced version of a position cut and run. All of which left investors scratching their heads again, trying to balance out the positive government’s fiscal response in light of what the economic damage will be to a possible extended lockdown scenario.

The Confusion

Trying to factor in the mix of epidemiology, psychology, and politics is troubling. And while we know, economic data is missing or poor quality, but if the Covid19 data proves to be unreliable, then we will be in a world of hurt afloat in a sea of red in a rudderless ship, especially with investors trading on sentiment rather than the economics for now. So with a question about the reliability getting priced into the equation, this could gnawingly remain front in center on investors’ minds over the short term,  so it’s likely to be a wobbly open in Asia today.

The Good

But assuming the reporting lag was a one-off event, the buy-in yesterday suggests there some big funds looking to put money to work as arguably there a ton of cash on the sidelines. And with thoughts that we’re probably closer to peak Covid19 than not, the bids will probably come back provided the NY states data proves reliable from here on out. The plunge could be limited.

Most Covid19 curve watchers thought the forecast as far back as mid-March was that cases in NY were set to peak in mid to end -April. So investors were taken by surprise this week as the earlier than expected leveling of the case count data is being consumed more readily than a hard-to-evaluate economic forecast.

But there’s still a series of good news stories around the world, suggesting staying at home is the one practice that flattens the curve faster than people understand. In Europe, Austria and Denmark announced timelines for ending their lockdowns. Spain and Italy, which represent well over half the fatalities on the continent, have reported signs of improvement.

Oil markets 

Oil prices plummeted overnight after The US Energy Information Administration lowered its 2020 forecast for West Texas Intermediate and Brent crude prices sending oil traders into a frantic selling tizzy. The stark reality is setting in that the proposed production cut deal is unlikely to be anywhere big enough to offset the unparalleled demand devastation.

The current figures being discussed – OPEC+ at 10Mbd plus 5Mbd from other producers where the US position appears to be that shale production is already falling, and that is how it will contribute with possibly offering up adding storage space – is probably not enough to save 2Q over-supply.

So now the challenge remains to the extent producers are willing to cut or even logistically how fast they can cap the wells, as 2Q looks over-supplied by 30mb/d on an 18mb/d demand decline, suggest filling storage in 2Q remains likely unless producer can pull off a much deeper cut.

This view was echoed by Fatih Birol, head of the IEA “Even if there was 10m b/d of cuts, in our view we could still see a building of stocks of 15m b/d,” Mr. Birol said. “I see that there is a growing consensus that this [the G20] is the forum to address this problem.”

At this stage of the drama, all eyes and ears remain trained on both the US actually response and the outcome of OPEC+ virtually meeting. Fingers remain crossed over a plethora of cross-asset markets that the producers can formulate a response that puts a floor under oil price as the recent prices in the $20s reflect the dual demand and supply shock and is not sustainable for any of the primary producers.

With millions of jobs and the stability of the global economy at risk, someone needs to compromise, or it will leave the industry in tatters.

Gold markets

It’s been another secure day buying of gold, although we are about $25 off the overnight highs. But one has to believe market makers who were asked to reduce their short position trading risks as the volatility on EFP mushroomed again; has some play in a gold surge at yesterday Asia open when EFP peaked at 65.

Swiss refineries reopening this week, the production rate is low compared to actual physical demand due to manpower issues on the ground. Still, while this will gradually decrease this week as more return to work. Supply chains/logistics are always challenging, with commercial airlines grounded suggest that market makers will continue to hide in the pipes only entertaining client demand at a premium and undoubtedly little interest contributing to the ECN market unless it suits.

A bit troubling for price action this morning is that gold has been non-reactive to the slide in US equity markets even more so given the fact the DXY remains below 100.

Currency Markets 

The dollar suffered a sharp correction on Tuesday, starting at the European Open in a seemingly delayed reaction to Monday’s substantial US equity gains. Both DM and EM currencies have risen as risk-on sentiment has squeezed safe-haven dollar positioning. But some of these gains were pared as the US equity market turned tentatively sour.

But what is critical and suggest the USD liquidity strain is greately abating is that Traders will find it reassuring that expected correlations seem to work, i.e., the dollar strengthening during risk-off times but then weakening during recovery phases. This will give them much more confidence to sell the dollar when risk turns on. But in the meantime, we should expect the USD to turtle anytime soon as the greenback r is effectively the ultimate safe haven, and continues to trade as such at the moment.

The Ringgit

The Ringgit remained held hostage and tethered to the oil price yo-yo as all ears and eyes remain trained on this week’s OPEC+ meeting. But the outlook remains slightly positive nudged along by the government’s stimulus efforts and signs that the Covid19 crisis is abating in some hot spots around the world.

But more important in this view is that China is coming back to life, so there should be a decent export market awaiting the Malaysian industry when the people emerging from the MCO.

The Yuan

Rich countries that competed over commodities and shipping lines will now fight for control o that rich countries that competed over commodities, and shipping lines will now battle for control of cloud computing and data processing.

China, South Korea, and Japan are on the cusp of transition, making their capital market high ports of entry. And as the supply chains geographically concentrate, the more populated markets in Asia where the too big to fail trade continue to resonate. Admittedly I’m way too early on this trade, but in my view, proximity becomes the next competitive advantage.

But to take this proximity view a step further and in light of the extreme USD dollar funding pressure of late. With China now the largest trading partner for most Asian economies, RMB becomes the natural choice when thinking about alternatives for businesses that have struggled to source dollars as this crisis unfolded.

China’s policy thrust on RMB internationalization has been in play since the big push on Belt and Road initiatives. But with globalization giving way to internalization, there could be a more significant role for the RMB in settling corporate invoicing in Asia. This would be a  welcome respite leaving corporates free from dealing with the arduous and unpredictable task of hedging USD risk. Even more so as proximity trading partners will be the key input to tide the local economies over as they initially see the virus pass.

Equities Take a Stroll Through Wonderland, Awaiting “Herd Immunity.”


US equities were stronger Thursday, S&P closing 2.3% higher. Smaller gains in Europe, mixed in Asia. US 10Y treasury yields up 2bps to 0.61%. Oil prices lifted 22.1% after the US president indicated that he expected Russia and Saudi Arabia would agree to reduce production by “approximately 10 million barrels, and maybe substantially more”. Price action has been choppy, though, as Russia denied talks had taken place only for Saudi officials to express willingness to reduce production if others did as well. Separately, the number of confirmed cases of coronavirus has surpassed 1 million globally, having doubled in the past week.

US initial claims rise more than 3mn for another week, a spike in continuing claims suggests the labor market has come to a full stop Initial claims jobless claims for the week ended March 28 were 6.6mn, up 3.3mn from the previous week.

Since markets have seemingly become immune to the rise in COVID 19 case counts, I’m not sure where the more important story lies today. Is oil the talk of the town, or is it the thought-provoking ( non) price action across a breadth of US asset classes in the aftermath of the ghastly jobless claims number. The optimistic read here is that the market is already toggled for horrendous economic numbers. In other words, a bleak picture is already in the price.

But the process of risk normalization will continue to be chaotic, and we should expect it to stay on a downward, albeit choppy, trend for the stock markets. After all, the world is expected to extend lockdowns.

Even if the market has seemingly hit a trough, equities rarely bounce back to their previous highs immediately. A medical breakthrough could cause that, but for investors to get back on board the rally bus, they will need to see falling case numbers, alongside an end in sight to mobility restrictions.

We are entering a climate with lower or no dividends, fewer financial options, but most importantly, fewer jobs, lower output, and probably a lot fewer companies around the word. Many small and large-sized businesses will not survive this storm.

I’m not sure what to say about the speed with which the labor market is being hit. Jobless claims of 10M in May would be eye-popping. But 6M was incomprehensible a month ago. It came that quickly one day there the next day gone.

I’m not so much a bear as a realist and not buying into the notion that this is a temporary dip followed by a huge rebound. Voluminous job losses and bankruptcies could lead to permanent wealth deviation. If and when things return to normal, restaurants and hotels (for example) will hire back in a gradual, incremental, and cautious way. And Wave 2 fears will lurk around every previous and cranny until we either achieve “herd immunity” or a health care solution is discovered.

Thanks to the volatility suppressant nature of the unprecedented peacetime fiscal and monetary stimulus. Market makers feel comfortable replenishing inventories of their favorite COVID 19 risk immune stocks on a dip, and now they can gingerly add oil stocks back to their laundry lists despite being hampered by a wet blanket. So for today anyway, all is good in the Wonderland scenario.

In the meantime, our energies should be less focused on the yield curve and currency markets, and more focused on the roll out the proper test, track, and trace technology in the major economies.

Oil markets

Based on my dire macro views from above, I don’t think WTI prices have that much farther to climb, and I’m sticking to my guns that WTI $25 will be the new normal over the short term until a compliance deal gets sorted out. Even then, given the worrisome logistics of shutting in 20- million barrels of oil per day needed to balance the markets and where the cure might be worse than the symptoms itself, adjusting the oil markets to any semblance of balance is next to impossible.

At this stage, probably the best we can count on is graduated, and globally coordinated production curtailment that will provide sufficient wiggle room before its game over when storage capacity overflows, and oil becomes cheaper than the tanks it’s physically stored. And in this scenario, we could see WTI $30 be then new short term benchmarks.

Gold markets

Gold rebounds as data show US jobless surge and as bullion bullishly ignored the equity rally and firm USD.

Gold continued to reverse recent losses, jumping in active trading. After steadying in Asia, gold began to move higher in Europe with the gains then accelerating in US action. Initially, the broader financial markets struggled for direction with no clear indication of risk sentiment. The initial move in gold was likely triggered by rising oil prices, which points to less deflation and improves gold outlook.

But the short term game-changer for gold came with the release of the US jobless claims. In addition to being a new record weekly rise, the data was above the highest expectations.

The fact that gold moved higher despite stronger equities and a firmer US dollar suggests there could b a bit more upside to come. But with near term positioning, a bit stretched, it’s difficult to gauge if there still enough meat on the bone to whet investors appetite for bullion on a Friday after a roller-coaster week.

My view is to reduce into the weekend as I’m not a fan of when correlations break positively or negatively for gold as the misalignment never seems to stick over time. You can tell your self this time is different until you turn blue in the face, but you’re probably wrong.

Currency markets

The Euro

The Euro is unlikely to get much headroom with the dollar still in demand and Europe in lockdown. While there are nascent signs that Chinese activity is returning to normal levels, much of the west remains in lockdown. As a result, markets have come under severe pressure as the virus has spread trigger dollar safe-haven flows.

But there is an opportunity here. With the cost of hedging dollars now significantly reduced and with the virus showing signs of slowing Europe compared to the US. Its the coronavirus divergence and not the yield curve convergence trade that opens up a panacea for short dollar positioning. Currencies of countries that will see the virus pass quicker should be in demand as those nations will see a faster economic recovery.

The Yen 

Not sure how much is left to do from the GPIF US bond purchases from a week ago assuming we are nearing the end. US funding pressure has recanted, and US yields are low enough to send the USDJPY toppling on the next sigs of equity market weakness. There is less exporter selling demand for general hedging purposes. Its likely offset by fewer importer dollar demand with oil prices in the $ ’20s.Although there has been a bounce in the USDJPY with risk sentiment, USDJPY and S&P 500 is not the truth bearer. Instead, its US rates that are the truth stayer so we could see USDJPY fall under pressure on the first sings of equity market weakness what will undoubtedly happen sooner or later. If you are bearish equities, now might be a good time to get short USDJPY.

The Ringgit 

A more positive risk sentiment, USD dollar funding easing, and the prospect of higher oil prices should see the Ringgit trade on a more friendly not today. A rise in oil prices sheds a lot of unwelcome baggage that has been hobbling the KLCI. And while the bounce in oil does not signal an all in green light for the Ringgit, we’re in a much better position today than we were mired in midweek, which is a good thing for local sentiment.

Asia Open: US Stocks Plummet Overnight, Another Day in the Dumps?


US equities were weaker Wednesday, S&P500 down 4.4%, smaller losses seen through Europe and most of Asia. US 10Y treasury yields fell another 6bps to 0.61%. The tipping point came President Trump warned Americans to brace for an unprecedented crisis. At the same time, Boston Fed President Rosengren confirmed the sum of the market fears by suggesting the US would see two consecutive quarters of negative growth and that unemployment will likely “rise dramatically.”

Let’s face is it could have been worse if not for the nearly unprecedented peacetime fiscal and monetary stimulus on a global level with the possibility of another US budgetary package.

With the global economy in freefall, markets have gone back to risk-off mode overnight as investors are struggling to look through President Trump’s ominous forecast suggesting Americans could keep dying into June. Now the markets dispute to come up with some alphabet letters to analogize a potential economic recovery. Still, it’s going to be anything but a “V” shape recovery. That’s for sure.

Sentiment remains exceptionally fragile as investors are a flat-out bundle of nerves fretting over the potential impact the coronavirus will have in the US markets and the economy.

Economists continue to downgrade the macro forecast, while stock pickers are focusing on balance sheets and earning statements in the wake of 5 UK based lenders’ decision to withhold 2019 dividends. And also they are looking at other sectors where shareholder returns look questionable, But for many market observers, all roads lead lower.

Similar to UK lender bowing to pressure from the BoE’s Prudential Regulation Authority, the UK’s top financial supervisor. The RBNZ ordered New Zealand banks on Thursday to stop paying dividends or redeeming capital notes, amid widespread economic uncertainty caused by the coronavirus pandemic.


Before the virus, the bottom-up earnings estimate was $161. In other words, a sliver down from 2019. Now the bottom-up street consensus for EPS is -4% Q1 and -9% Q2. Suggesting that it will take an inconceivable bounce required in H2 to get the EPS aggregate up, especially when most companies have suspended earnings guidance, so there’s nothing for the street to work with.

Yet looking back to previous downturns, P/E has typically overshot downward. And simply put, it’s beyond belief that the only influence the virus and sudden economic stop has had is a 4% EPS loss, and an unwind of last year’s multiple expansion, from 21 times back to an average 16

Simply plugging in a 14 X variable that better reflects the average downtown and a more logical 7% EPS loss, which is the average for a downturn, you get 14x $151 to give 2114. That would represent a lower low than the SPX 2194 on March 19 and is pointing to another 14.5 % down move from here.

Overall, this will continue to be a short-term trader’s market as trying to take a longer-term view in this means you will probably need to run wide stops. But there is still two-way business going on, especially now that systematic selling has ended, and the market is ‘cleaner.’ Even then I’m not sure where the volumes will come from with institutional traders getting position limits cut by risk management to protect the banks against any massive trading losses

Oil markets

Oil prices are higher on news that President Trump will hold a round table discussion with the country’s top oil executives. Presumably, to discuss possible coordinated production curtailment measures in an attempt to buy some time for the struggling US shale industry as the nation’s logistical storage capacity is getting overwhelmed and is nearing total saturation levels.

President Trump’s acknowledging of the problems in the oil patch is critical, and he also revealed he had spoken with the feuding Vladimir Putin and Mohammed bin Salman on the subject. However, there is, as of yet, no obvious move or reconciliation between the producers.

But the threat of intervention or some type of coordinated global compliance agreement put a plank under prices as opposed to what many oil traders had expected this week, which was for oil prices to walk the plank.

Interestingly enough, Russia’s central bank has already need to adjust its policy due to the lack of petrol dollars per barrel. Not only have they stopped buying gold in the open markets, but they had to sell RUB16 bn of FX to settle March 31. While $200 million is small by central bank standards, but it does suggest a shortage of US dollars in their coffers, and the markets expect that reserve replenishing necessity to increase in April, especially oil prices remain low. But is this dire enough to motivate Russia to pull up a chair at the negotiation table with Opec or the US DoE?

At the same time, there’s again more chatter on the street that refiners in the US and Europe are reluctant to buy Saudi Arabia’s crude, despite the steep discounts being offered as part of Saudi efforts to pressure Russia and other global producers. The suggestion here is that this could cause Saudi to rethink + 12 mn barrel per day in April.

Right now, all we have to go in is lip services and hope that something can be salvaged from these talks. But if nothing comes out of these discussions, oil prices most certainly head for the floor. So, despite the bump in prices in New York, oil traders are still bracing for the storage tanks to fill, and the curve to flatten as oil producers will then have to dump what they pump. And to say they might have to give it way might not be that far of a stretch.


Over the medium-term, gold should be a safe bet. The sizable fiscal and monetary stimulus that has been announced should be the main factor supporting gold from here, as reasonably aggressive fiat money printing seems to be here to stay. The only concern is the deflationary effect from deeper dive on oil prices, which is harmful to gold prices, especially if oil prices remain lower for longer.

Currency Markets

Despite quarter-end/month-end behind us, and with USD funding stress is decreasing, the USD’s safe-haven appeal so far continues to overwhelm the potentially negative impact of looser US monetary and fiscal policy.

While the China canary in the coalmine trade based on buying currencies of countries who took swift containment measures and that should see their economies return to normal quicker, fell flat on its face yesterday as the market went into “risk-off” mode as economic data was week across Asia and the rest of the world outside of China

The Malaysian Ringgit is trading off overnight lows as oil prices are stabilizing a few dollars above recent lows. Foreign investors are nervous wrecks watching the US economy freefall inflows to risky assets like the Ringgit will dry up as the reality sets in we could be in global lockdown mode longer than anyone had expected even last week. Indeed, the global outlook is dire. The Ringgit will trade defensively in this hazardous environment.

Saudis Flood Oil Markets & Equities Get Wwapped In a Sea of Red


There so many stories most days on how negative US Q1 GDP is likely to be and how high the jobless rate will be. However, it’s starting to feel like a game of who can come up with the biggest numbers. Undoubtedly this is weighing on sentiment as investors now question themselves whether they have done enough to factor in the freefall in growth likely to be seen in Q2.

Out of the gates, stock markets are reacting to what now seems to be a likely increase in the duration and breadth of coronavirus lockdowns in the US and elsewhere, which is pointing to a potentially deeper and longer-term hit to economic activity than was anticipated even a week ago. It’s merely a case of unprecedented economic devastation that’s hitting the screens this morning where scenes from New York City in full stop are providing the horrific optics.

US President Trump signaled social distancing in the US would remain in place until April 30. The demand shock for oil and for the global economy more broadly will be more significant if mobility and social interaction restrictions stay in place beyond April.

As such, it’s equally challenging to overlook the oil markets this morning as Saudi Arabia is making good on their oil war threats and have already started flooding the market awash with oil as tankers filled to the brim set out from King Abdul Aziz port this morning.

This shock is hugely detrimental for oil prices and perhaps a tipping point for the industry as a whole. The incredible deterioration in oil demand is swamping storage infrastructures to the point that now traders are even questioning whether policy coordination by OPEC+ and also with the US +Canadian oil producers in the mix, can save the day as now anything short of a 20-25 million barrel per day cut my only provide transitory relief as world economies come to a sudden stop.

Suggesting we’re going to be tethered to the risk yo-yo, if not anvil, for some time to come

Economic forecasts 

The problem with making economic forecasts on either side of the spectrum, it depends very much on the spread of the Virus – and even the scientists aren’t sure about that. The real question for investors isn’t how shockingly bad Q1 is going to be, sadly that’s a given; it’s how long the weakness will persist and, as a consequence, how much permanent damage will be done.

As the world comes to crashing stop, not to mention the globe was dealing with stagnancy as it was. The economic devastation as a result of the Virus should be gauged by its prolongation, not the depth of it.

But with so much uncertainly on both sides of the ledger, it is challenging to see how any pension fund is going to make a significant scale asset allocations decisions when there is still so much uncertainty over the outlook. At best, short-termism is likely to continue to dominate the duty list for now. But let us keep fingers crossed that a vaccine is on the way.

Although it doesn’t necessarily feel all that much better, things do seem to be improving. (trying to keep an open mind)

With the introduction of the CPFF, the stress on commercial paper is beginning to decrease. Cross-currency markets are normalizing following the considerable uptake in FX swap lines. As a result, LIBOR has found some stability over the last two days.

VIX back to 50 – we aren’t quite there yet after stocks moved lower midday NY, but the VIX is flirting with 50bps a level that many in the market consider a critical inflection point for risk assessment.

And now that Year-end Japan has passed – it felt like Japan was keeping some pressure on short-end USD funding markets yesterday, most notably by the reaction to the Tokyo fix yesterday. It’s messaged FX prop, trader, to come out of their self imposed 24 hours of hibernation and have immediately taken it upon themselves to sell the US dollar.

Oil markets

The Global economy is experiencing unprecedented disruptions, and while the full effects of these disruptions are not yet evident, it is clear that the economy is experiencing the most abrupt and severe contraction since the Great Depression This is setting the stage for unparalleled Oil demand destruction which is getting exacerbated by Saudi unleashing a torrent of supply to the world right out of the gates this month making good on their oil war promises.

This is yet another signal that Saudi is digging in. The risk remains skewed to the downside for oil until this changes, and/or COVID-19 news flow turns positive.

Ignoring President Trump’s persuasions, Saudi Aramco is expected to offer up oil to any takers at the deepest discounts in decades as the state producer readies to ramp up exports intent on flooding the world with oil when there’s nary a demand.

Gold markets

Gold weakened in late European trading and remained on the defensive throughout US action, falling back below USD1,600/oz. But the fact that gold is not bouncing back as risk tanks suggest that the negative correlation to oil price is taking precedent.

Ignoring the sharp decline in US consumer confidence, with oil prices under pressure, the deflationary impact of low oil, which is harmful to gold, is taking president. Not to mention with oil prices sliding, the drop in foreign exchange petrodollars per barrel could curtail more oil-exporting central banks to cut bullion buys.

Currency Markets

The Federal Reserve has been quarterbacking the supply of US dollars around the world via USD FX Swap facilities. Now they opened up the door even broader US dollar selling overnight by offering up a temporary repo facility with foreign central banks that will start on April 6 and last for six months. This should be another element in easing dollar funding stress, including for countries that so far have not had access to swap lines.

In Asia, this repo facility will be most welcome and should be put to immediate use by Indonesia and Malaysia, who have the smallest reserve adequacy. This could be a potential turning point for the ability of central banks in these countries to address the dollar shortage in their markets.

G-10 View 

The lower implied FX volatility across G10 is especially pronounced in AUD, NZD, and GBP – currencies that have outperformed lately is encouraging. , But the disorderly decline in oil prices is challenging this benign dynamic of lower implied FX volatility and broad-based USD weakness. We missed a pretty chunky dollar sell-off from some extreme levels overnight and if you were unfortunate not to get any USD selling orders triggered, it’s going to be a bit more challenging with oil prices going into the tank today as lower oil prices( commodities) are not necessarily bad for the US dollar versus a laundry list of currencies, Commonwealth currencies notwithstanding.

The Malaysian Ringgit

However, for the Ringgit, it’s near term; fortunes appear to be tied to broader risk sentiment and the plight of the oil market. Of course, a drop on petrodollar per barrel hurts the government coffers at a time when leadership has little option but to abandon fiscal prudence. But with the US dollar trading broadly weaker across the spectrum and factoring in access to more USD via a unique Fed repo market, which could be viewed by traders as a possible game-changer, the Ringgit could trade more favorably.

Month-end addendum 

I fielded so many client questions about month-end rebalancing overnight, so I’ve added a couple of paragraphs to help demystify the process.

The simplest month-end model is: If US equities are down more than 2.5% in a month (they are down about 11% this month), foreign owners of US equities need to buy USD to reduce their FX hedges. If you are long a billion SPX and short a billion USD against it as a hedge, and your SPX is now worth $890m, you need to buy $110m to get back in balance. Hence the term, month-end rebalancing.

The reason why I was worried about this particular month that could have been lethal is that the March 2020 equity move is one of the largest in my trading careers spanning four decades Also, half the risk-takers that might normally provide liquidity offset to yesterday’s moves we’re hiding in the pipes sending everything to the eFX machine which were just churning and burning through what little liquidity was available.

I particularly like GBP as its especially loyal to the simple month-end model. And given the comparative lack of liquidity in Cable compared to the Euro per se, it tends to exhibit some wickedly outsized moves under these conditions.

Not so Cynical Today

I must be getting used to lockdown as I don’t feel nearly as cynical today.

US stocks are trading strikingly higher Monday as markets yaw towards month- and quarter-end. Investors are busily assessing progress on containing the virus and the torrent of stimulus all amid the prospects of buying an economic trajectory that is poised to drop sharply in 2Q20.

Stock market price action suggests that investors are comfortable with the “whatever it takes, whatever is necessary” policymakers’ response so far into a deep economic recession.

At a minimum, the massive monetary and fiscal stimulus gives investors some breathing room with fingers crossed for a health care solution. While at the same time, they are pilling into those equal opportunities bidding up shares of health care companies as they report progress on products that could help with the coronavirus outbreak.

The S&P 500 climbed more than 3 percent, adding to a strong showing last week, bolstered by the Fed all in an and Washington 2 trillion spending spree.

Indeed, the outlook would be much worse; was it not for timely and aggressive monetary and fiscal policy easing. While policy injections will buffer the impact of virus shock on economies, “It’s only when the tide goes out that you learn who has been swimming naked.” as risks may be shifting towards a more negative economic outcome.

But with trepidation everywhere, the market still managed to lift staring down the reality of a deep recession while counting on it being a brief one. Still, with investors on the apex of transitioning from the policy response phase to a more data-dependent chapter, the risk here is that the data is going to be a lot less assuredly favorable than the stimulus broadcasts in times of crisis. Still, any positive surprises will be welcomed with open arms.

And while there is a recognition that the coronavirus-linked economic disruption could last some time. However, economies adapt, and technology has ensured us of that while promoting localization.

And at the same time, the focus is starting to shift from the size of fiscal packages to the speed with which they can be implemented. This is positive in its own right as it suggests investors are already getting their shopping list ready for the bounce back when government policy tries to raise GDP.

Party Pooper section ( to remind me not to chase this market higher just yet)

I know equity markets are forward-looking, but at the moment, there isn’t very much to look forward to. It is difficult to see how any pension fund or even mom and pop are going to make a proportionately significant scale asset allocations decisions when there is still so much uncertainty over the outlook. At best, short-termism is likely to continue to dominate the duty list for now. But let us keep fingers crossed that a vaccine is on the way.

Oil Markets 

Given the harmful industry-wide effect that the unmatched oil price decline is having, especially on The US Shale Industry, President Trump called President Putin to discuss oil. Presumably, in an attempt to get Russia to pull up a chair to the negotiating table with Saudi Arabia or maybe even loosening sanction on Russia, as desperate times call for drastic solutions in turning around this wayward tanker.

Any sign of Russia/Saudi making nice will be positive for oil. But at this stage, the market is not entirely buying into it. But it is an evolving story, and oil prices have recovered above WTI $20 after a chaotic session as risk sentiment has revived more broadly with investors busily assessing progress on containing the virus.

But it does seem that Trump has hit a chord as the US Energy Department said energy chiefs from Russia and the US are set to discuss volatility in the oil market.

Running narrative

In 4 weeks, we’ve gone from the physical end was near, to now the physical end is here as oil traders understandably focus on the closing of developed markets in response to the COVID-19 crisis and the unprecedented demand hit to oil – exacerbated by a rising supply side.

The adverse price action was possibly compounded by the expectation of a messy Brent expiry given industry conditions and the heightened level of volatility across all asset at this tricky quarter-end due to US dollar funding pressures.

Trump flexes

While Trump is keen to flex his diplomatic influence, the thought here is that Russia is unlikely to change its stance based on US pressure alone. Whereas Saudi Arabia is more susceptible to change, given the extent to which it relies on the US for military support.

Even if Trump managed to broker an OPEC+ deal in some form, the damage is done, and investors will remain cautious about continued cooperation. So, any truce could be heavily discounted, notwithstanding that at this stage; it appears unlikely that we see significant large-scale cuts come back to the fore.

Also, excess supply was brewing even before the Saudi – Russia falling out & long before the collapse in oil demand. Indeed, this the most significant mismatch between supply and demand in modern history, suggesting that these aggravating factors will limit any price recovery even with a truce.

Gold markets 

Russia Central Bank will stop buying gold tomorrow as petrodollar shortages are weighing on reserves.

Gold prices have remained volatile but are set for its six consecutive quarterly lift with bullion prices during the quarter up ~7% so far.

While USD, yields, and a better equity market performance impacted gold, the slide in oil is also influencing bullion demand. The drop in WTI below $ 20bbl has deflationary implications.

While oil declines are partly due to a price war between Russia and Saudi Arabia, the deflationary impact of lower oil demand is negative for gold.

Also hurting gold, Russia’s central bank announced that it would stop buying gold starting April 1 but did not explain the reasons for its decision. However, it’s not catching institutional traders by surprise as lower oil prices mean fewer petrodollars per barrel for the central bank to buy gold; hence they have been conspicuously absent this year as oil prices have tanked.

If oil prices remain depressed, there will probably be a similar curtailment of bullion purchases across other oil-exporting central banks. These petrol central bankers have been the cornerstone for the market in the last couple of years and should more withdraw from the gold market for an extended period; gold’s upside may be limited.

But the real problem comes for gold if these central banks need to start selling gold in distressed fashion to support their economies if oil prices continue to languish.

Currency markets

It was another squishy USD funding squeeze across the quarter-end curve, and not wholly unexpected but less loud than what it could have been thanks to the Fed Swap lines. But the residual month-end knock-on effect should keep the dollar in demand for a bit.

The most boisterous and most vocal G-10 interbank currency trader the world knows is extremely quiet these days, suggesting to me that I’m not along this month end as many are deferring risk-taking activities while oppressive USD funding costs are still stretched.

(Beyond the month-end)

Singapore Dollar

The Singapore dollar reaction to MAS’s latest maneuvers suggests FX policy is now a mere compliment, with the focus squarely on very aggressive fiscal support and supplying liquidity to ensure the market plumbing doesn’t clog.

With MAS keeping the markets flush, and SGD triple-A bond spreads to US Treasuries at historically wide extremes. With the bulk of SGD FX deprecation premiums likely behind us and Singapore having the luxury of financing their fiscal deficit directly out of government coffers and no need to issue debt, SGD bonds could be in demand.

As bond flow pick up, I would expect the Singapore dollar to benefit even more so from the coronavirus divergence FX trade takes hold, which should help those countries currencies that took proactive and extreme containment measures and see the virus pass quicker.

The Malaysian Ringgit

Local risk sentiment should trade more favorable today, with both US equity markets in oil prices moving higher in lockstep during the US session. But month-end US dollar demand could keep risk-takers sidelined until later in the week.

Entering the Covid19 Rabbit Hole

For a while last week, it felt like a stroll through Wonderland with the Federal Reserve Board “all in” and world leaders dropping nearly $5 trillion fiscal stimuli in the markets lap. All amid sugar-coated promises, this would be the deepest yet shortest recession in modern-day financial history. But with Coronavirus cases in the US rising exponentially with lethality projection rates soaring and secondary cluster fears gripping Asia and Europe causing county-wide lockdowns, it certainly feels we’re nudging ever so closer to falling down the Covid19 Rabbit Hole with reports that the US death counts could reach 200,000

Global cases increased by 26% since Friday (now 713,000), led by the US 136,888 total cases (48% growth). Less well known is where the virus building now:

  • Turkey 147%, Portugal 43%, Belgium 47% all had significant growth over the weekend
  • Australia, New Zealand, Canada >60% growth over the past three days
  • Chile, Argentina >75% growth

Now policy responses read like a playbook: cut rates to zero, purchase a more comprehensive array of assets than ever before, pump fiscal spending with little regard to debt sustainability. Suggesting we are nearing policy fatigue where it becomes less effective, and as the surprise element diminishes, no one cares.

So, while policy responses in the US and Europe have been spectacular, allowing for markets to rebound last week. But the coronavirus keeps spreading globally, deepening fears of the economic and financial impact across countries. More market turmoil likely lies ahead.

If you’ve spent any time ocean fishing, you’re probably aware of the term “sucker hole, “a colloquial term referring to a short spate of good weaker that “suckers” sailor into leaving port just in time for a storm to resume at full force. Well, that’s what last week’s market felt like as now we are about to enter a vortex of bad earnings, bad economic data, and bankruptcies. Indeed, last week’s animal spirits will be severely tested.

Oil and copper did not rally; the Vix isn’t pulling back despite the S&P 500 10% higher last week.

With no visibility on the end of lockdown,the world is becoming increasingly branched, with business people wanting a quick reopen thinking the solution to a problem produces a worse net result than the problem itself. And scientists pleading for caution as we don’t want to overrun the hospitals and potentially deal with multiple rolling lockdowns. And possibly triggering the ultimate policy destabilizing moment that no one wants to see as the President (emphasizing business priorities) and Governors (highlighting science priorities) lock horns. Fortunately, the President says he is extending virus guideline to April 30.

Oil prices 

The primary narrative 

The spread of Covid-19 and the impact on oil demand will continue to pressure oil prices. And the virus headcount numbers out of New York City are providing those especially poor optics this morning.

Oil prices have softened in the aftermath of the US package hoopla and suggesting the direction of travel skews lower as markets anticipate a 2Q that will inevitably see a large build in inventories as demand echoes the shutting down of major global economies.

Storage facilities 

There is a relatively wide range of estimates on how much global crude storage capacity remains and on how quickly that capacity is filling.

However, when the storage capacity is filled, we should probably expect a response from Saudi Arabia, Russia, and other essential oil producers. On the other, the longer their response takes, the higher the risk of another steep decline in oil prices.

While WTI seems settled in the low 20$ as a baseline for now, however, it’s tough to rule out a drop into the teens or lower if Saudi Arabia and Russia stay the course.

Only then would the cash cost accelerate shut-ins and ultimately lead to a price rebound, but it would make for a horrible year for a good chunk of the world who are oil price takers.


On the supply side, which I think is less relevant today but a factor none the less. US Oil companies seem to be reacting more quickly this time than they did in the previous downturn. Energy firms cut the most oil rigs since April 2015, removing platforms for a second week in a row as a coronavirus-related slump in fuel demand has forced massive reduction in investment by oil and gas companies.

Drillers cut 40 oil rigs in the week to March 27, bringing down the total count to 624, the lowest since March 2017, energy services firm Baker Hughes Co. said in its weekly report.

False hope

Is there light at the end of the tunnel as several sources are reporting that refiners in the US and Europe are not buying Saudi Arabia’s crude, despite the steep discounts being offered as part of Saudi efforts to pressure Russia and other global producers.

Excess supply was brewing even before the Saudi – Russia falling out & long before the collapse in oil demand. Indeed, this the most significant mismatch between supply and demand in modern history, suggesting that these aggravating factors will l limit any price recovery even with a truce.

Gold Markets 

A shift back to ‘risk-off’ sentiment did little to support gold as the thought of distressed sales is still too fresh in trader minds. So, the market remained in tight ranges on Friday were all three sessions bore witness to profit-taking after steep gains last week. But US weakness helped to temper profit taking price declines.

But gold should shine through as risk sentiment weakens this time around. For the most part, the immediate need for equity margin call selling has already been done, suggesting there is no apparent reason to sell gold in this environment other than to book profits.

In both 2008 and 2020, gold has briefly been caught in the mix, where good trades were being liquidated in distressed markets. But last week there were clear signs the market is warming up the idea of central banks monetizing debt and leaving considerable excess liquidity in the banking system. But the key differentiator in 2020 is that QE is financing helicopter drop into households around the world. And interestingly enough, QE is even being discussed in ASEAN markets even when interest rates are far from zero, which could be the harbinger for a new form of debt monetization policy around the globe.

Currency markets

GFXC Issues Statement on FX Market Conditions

The Global FX committee (made up of banks and other stakeholders) has issued a statement (unprecedented as far as I can tell). Effectively it just says – “be careful this is going to be a big and busy month end” in slightly more technical language.

GFXC Issues Statement on FX Market Conditions

Dollar liquidity 

The dollar liquidity crisis appears over. It has taken more than $30 trillion in annualized bond purchases from the Fed, among others, but the dollar crunch now appears under control. US real yields have dropped almost 100bps in a few days, and cross-currency basis has normalized. So, with policy rates converging to zero, traders are now looking to take the Asia “virus divergence” trade global. In other words, bet on those economies that will see the virus pass quicker and return to some type of economic normalcy.

Markets may be able to look through some pretty horrible economic data—like the non-reaction to the historic spike in US jobless claims last week—but will likely be sensitive to the news on the duration of shutdowns and any signs of second-round effects extending travel alerts and lockdown measure.

Last week the Dollar pulled back as risk assets rebounded, but our best guess, as that all most of us are flying on, is that the epic USD rally is not quite over. But moth end flow will complicate matters, but with US equities in the tank, it’s unlikely we will see USD demand from rebalancing flows kick in today.

The Ringgit

The Ringgit will remain defensive due to secondary cluster fears, the negative economic effect of the MCO, and the prospect of lower oil prices, which reduces the supply of petrodollars, which is a crucial stabilizer for the Ringgit.

When US CARES, Markets Listen.

The S&P500 rose 6.2%, with smaller gains in Europe and modest declines seen through most of Asia. Oil prices rose 19%, gold up 1%, and US 10Y treasury yields fell 4bps to 0.83%.

Given this all happened after 2 percent of the US labor force filed for unemployment insurance last week, it has left more than a few economists and traders alike a tad confounded; still, perhaps that is the fundamental nature of this shock. The market seems happy that the number came in on the whisper, the rise in jobless claims could have been ‘worse,’ after all.

The fundamental problem isn’t the size of the print; instead, it’s how long this shock persists. Indeed, the biggest concern for the economy isn’t the immediate impact of things like jobless claims rather the longer-term effects. If the US economy moves into a protracted recession, then the business and human costs are likely to be much higher than the impact of the virus itself.

US jobless claims numbers honestly shouldn’t come as a surprise – this is not a recession pattern of job cuts where 10% is trimmed in a revolving design until businesses bottom out. Instead, this is one day fine, next day everyone is gone. And to which a large degree will be reversed when the virus passes. With that in mind, the market is running with the assumption that while this tumult will be the deepest recession in modern-day financial history, it will also be the shortest.

Even although I’m short the SPX near current levels right now and another order in to sell higher, I honestly hope bullish is the case and will be more than happy to cut and run with the market for humanity’s sake if nothing else. But since it’s impossible to gauge the ultimate economic impact or the duration of the Covid-19 pandemic for weeks, possibly months, and until that point, the sustainability of any rally in stocks is questionable, and  I remain relatively risk-neutral short SPX and short US dollar hedged.

The question is, will the next 500-point move be higher or lower? For me, a break of 2700 says more topside to comes were as a move below 2500 means lower, so choose your position carefully.

Anyone running multi-asset portfolios knows the quick returns are probably to be made in equities right now if you can catch the moves. However, why is this happening, and why is the US outperforming Europe? It boils down to Technology. The US has it, Europe doesn’t.

Couple that with “buy what worked before” mentality and funds are averaging in again on tech stocks that shouldn’t much be affected by the virus. Especially Microsoft and others that primarily focus on cloud computing, which does resonate now with the world working from home

Overall, there has been a general shift to neutrality from the perfect bear market conditions late last week, which is a good thing.

The Good

Jobless claims were horrible, and there’s no way to sugar coat that, but the market never lives in the present. The Fed’s bazookas appear to be filtering through, and that’s a massive positive the market is running with

By their policy design, the US dollar is starting to back off its rush, and most importantly, Signposts targeted by Fed policies have begun to show signs of less stress.

So, while the jobless claims were gloomy, investors like what they see as the Fed bazookas shots appear to be hitting their targets.

The strength of the US dollar was a massive problem. So, the Fed expanded swap lines to other central banks and then fortified them further. While there’s usually a lag effect but judging from moves in the US dollar over the past few days, the “dash for dollar” dollar funding is at least lessening.

There are widening influences suggesting that the high-water mark for panic in financial markets has passed. A less inverted VIX curve, narrower US high-yield credit spreads for the energy and airline sectors, and lower implied FX volatility reflects the substantial policy action led by the Fed.

And with the final piece of the policy puzzle about to be bridge ended, The US CARES Act, it will provide a much-needed social safety net for the millions lining up at the unemployment window. It will significantly assist in ameliorating Main streets biggest concerns as investors always favor humanity when it comes to risk.

The Bad

The S&P 500 is up 6.2%, or just over 150 points. I don’t think it’s wise to chase this -primarily because the worst of the virus has yet to hit and with only half of US states and a third of the US population are in lockdown. There’s no reason to believe the US population should be less immune to the virus than everywhere else in the world. Not to mention the notion that the world is quickly returning to work seems to be more a flight of fancy. Thousands of businesses and jobs will be lost regardless of government handouts.

However, why is this happening, and why is the US outperforming Europe? Tech. The US has it, Europe doesn’t.

The Ugly 

The latest coronavirus cases numbers from New York look ugly. It has 37,258 cases, up from 30,811 on Wednesday. That’s easily the most significant daily increase so far and keeps the growth rate in the 20% range.

Oil market 

The oil market was smacked with the ugly stick overnight after the IEA executive director Fatih Birol said demand could drop as much as 20 million barrels a day. Sending many Oil quant traders into an “oh dear” state as a 7-10 million barrels per day hit was the running assumption for many.

Although the US CARES Act relief ally ensued as the Main street parachute package, particularly the unemployment benefits, will likely delay oil products storage facilities cresting by another 2-4 months all things being equal

Still, over the short term, the spread of Covid-19 and the impact on oil demand will continue to pressure oil prices. And the virus headcount numbers out of New York City are providing those specifically poor optics.

There is a relatively wide range of estimates on how much global crude storage capacity remains and on how quickly that capacity is filling. However, when the storage capacity is filled, we should probably expect a response from Saudi Arabia, Russia, and other essential oil producers. On the other, the longer their response takes, the higher the risk of another steep decline in oil prices.

While WTI seems settled in the low 20$ as a baseline for now, however, it’s tough to rule out a drop into the teens or lower if Saudi Arabia and Russia stay the course.

Only then would the cash cost accelerate shut-ins and ultimately lead to a price rebound, but it would make for a horrible year for a good chunk of the world who are oil price takers.

Gold markets 

Gold performed in European trading, rallying notably in the lead up to the US opening and throughout most of US trading. Gold got a nice boost from a weaker USD, notably against the EUR.

Gold was a prime beneficially from the surge in US unemployment numbers, which argues for continued stimulus and monetary accommodation.

Currency Markets 

The USD demand on the back of funding issues has eased further in the past 24 hours. Accordingly, the USD has now started to slip back lower.

Congress expected to pass the US CARES act has accelerated USD selling, where the hard-hit AUD-GBP and EUR were prime beneficiaries.

The Euro

The EUR gained as the ECB formally scrapped its self-imposed limits on its bond-buying program. The ECB announced that issue limits “should not apply” to the new QE strategy.

The Pound

A downgrade also aided the GBP moonshot after the Covid19 lethality forecasts were revised down significantly by the Imperial Colleges, which in turn implies the virus is less dangerous in the UK.

The Aussie

The AUD gained on two fronts, its high beta to risk was evident overnight on the back of the US stimulus package. And the A$ benefited greatly from the drop in cross-currency basis swaps costs thanks to the Fed emergency Swap facilities.

Also, the drop in volatility leaves the long USD position at risk into month-end; as such, there’s been a considerable unwinding of long USD risk across the board overnight.

The Malaysian Ringgit

The drop in USD funding pressure is an absolute boon for the Malaysian Ringgit is the das for US dollars in Malaysia was even more intense than that for region peers. The fall in oil prices provided Malaysia with fewer petrodollars per barrel, and these oil dollars are usually considered a stabilizer for the Ringgit.

Factor in a generally better tone in the global risk markets, and the Ringgit will open stronger today.


Risk Rolls On as The Global Economy Prepares to Hit a Brick Wall.


It was another day of gains across Global equity marketsIn the US, the S&P500 gained a further 1.2% Wednesday with more substantial lifts through Europe and Asia after US leaders stopped tunelessly caterwauling to lay the foundations for the $2tn US stimulus package to be rubber-stamped some time in the Asia time zone. The full text of the bill has yet to be released. Still, the fine print is expected to include a massive expansion of unemployment insurance, loan facilities for small and large businesses, and additional healthcare resources. The Main Street parachute was initially received well by the markets, so hopefully, it will provide a sufficient safety net for the millions that are lining up at the unemployment window this week. With Senate Majority leader Mitch McConnell referring to the package as a “wartime level of investment into our nation.”

Wartime language is convenient for politicians, but wartime maximizes production. Lockdowns minimize production. A lockdown is the ultimate in demand shock. The risk is that companies fail as a result of this, creating a double demand drop. With the stimulus package stamped, the balance of risks must certainly shift back to the evolution of the pandemic. The question now is not how low Q2 GDP will be, but how long the global ‘lockdown’ will last.

Downside and Upside

On the downside, an increase in new cases in China and other countries that are returning to work is the main risk to monitor. But on the upside, (1) the adoption of large-scale testing for the virus and antibodies and (2) finding an effective medicine. And when combined, the risks are more balanced now, with the adoption of large-scale testing that should enable a partial return of economic activity once the epidemiological curve has been flattened. Ultimately all roads lead back to the fact investors need conclusive evidence of coronavirus infection curves flattening, bringing an end to lockdowns insight before pressing that buy button with some conviction.

Sure, the US Congress has agreed on a stimulus package worth more than $2 trillion, supporting oil prices and broader markets. While this is good news, but since it’s impossible to gauge the ultimate economic impact of the Covid-19 pandemic for weeks, possibly months, and until that point, the sustainability of any rally in oil or equity markets is questionable. And suggests the current high level of volatility will likely extend.

Government handouts ameliorate the US economy hitting a brick wall.

Any economy hitting a brick wall can be mitigated by unemployment benefits and other social transfers over short periods. Staying on that policy hamster wheel creates policy fatigue and opens so many different cans of worms that the markets hate. As I alluded to in one of yesterday’s notes, the market has a short memory and a short fuse. All the stimulus chatter will fade if the Covid 19 headcount curve goes vertical. The reality is the “Big Bazooka” sway is impossible to sustain, and not to mention the surprise effects greatly diminish. Ultimately policy is harder to maintain the more protracted virus outbreaks continue.

Quant side of things

From a quant side of the equation, it does appear systematic wanton selling has stopped removing one pillar of pressure from the market. Institutions have started to step in and put money to work, but flow dynamics suggest they continue to buy safety and names they already hold, essentially averaging in. This is not an actual risk-on behavior. But with little else working across a plethora of growth asset classes, anyone running multi-asset portfolios knows the quick returns are probably to be made in equities right now if you can catch the moves.

Investors wait for US jobless claims.

How will the markets survive the US initial claims going ballistic is probably on everyone’s minds this morning?

The problem is new jobless claims will measure the extent of US policy failure, and with the Congress dilly-dallying, it will not help the matters.

Now market participants are bracing themselves for a horrific peek into their future this week when US initial jobless claims are released. The high-frequency data will confirm we’re in a horrible vortex of the fastest and most substantial rise in the US unemployment in modern financial history.

In many ways, initial jobless claims will be the signpost that matters the most in the coming weeks as it will be a near real-time measure of whether fiscal policy worked.

Oil markets

Oil markets received a lift from the US stimulus chatter, but for the most part, activity remains rudderless awash in a sea of Oil.

Price action suggests that gauging the ultimate economic impact of the Covid-19 pandemic is a challenge but does skew lower. Still, one thing that will keep the canary in the product refineries chirping is that the demand collapse will accelerate product storage facility saturation, which could happen over the next few weeks. And at that tipping point, the producer surplus will become a massive logistical headache for oil storage consideration, which then opens up the trap door for oil prices to plummet below cash costs.

On US shale production sensitivity could react more quickly this time than they did in the previous downturns due to CAPEX concerns as with a few exceptions, the sector is now implying 2020 cash neutrality ~$45/bbl.

In addition to storage constraints, it remains challenging to call a floor in the oil price. I expect a high level of volatility as the market responds to news flow, both positive and negative. Still, we should probably continue to expect that an extended period of oil pricing in the $20s is possible with an occasional deep dive lower on storage constraints and inventory builds. Ultimately Oil prices will need some help from another compliance agreement to get out of the double whammy of negativity.

Gold markets 

Spreads are looking much better today after London Bullion Market Association alongside several banks asked the CME to allow gold bars in London to be used to settle futures contract deliveries. Physical gold could then remain in London with underlying ownership then transferred. Lower spreads are always welcome in any market, especially in gold, when physical is especially tight with refiners shut down around the world.

AS you can see, my relatively tight trading ranges over the 24 hours the market hated the EFP spread widening effect as participation fell off the cliff given the large execution cost market makers were forced to reluctantly pass on.

Gold markets like USD liquidity, and it is getting plenty of it, but seems to be getting held back possibly by oil prices and still the lingering crisis dynamics as its too early to rule out further distressed sales near term.

The considerable fall in the price of Oil is creating dollar shortages for oil-producing countries and emerging market (EM) economies alike. None more so than Russia as the massive Ruble decline in March matched by the oil price demise suggest Russia could shift from net buyer of gold to a possible net seller of gold to raise dollars. Even more so, if the US sanctions Russia to force them back to the bargaining table with Saudi Arabia,

Currency markets

Trader markets, so the Willey veterans play the weak hands.

In the meantime, traders are waiting for US claims, so I suspect more position jockeying today rather than a massive spec day, but eyes remain wide open for opportunities.

One such opportunity was USDMXN. The USDMXN is trading entirely in line with the risk on/off the sentiment of global markets. There has been more interest in selling USD overnight. The thought here is the amount of stimulus in the US will eventually benefit MXN.

The other good trade we hit on yesterday was the CNH. Traders had been talking about a possible deposit rate cut by the People’s Bank of China. So, CNH traded from 7.07-08 to just above 7.14 before the market reversed on the assumption 7.15 is a near term line in the sand for the PBoC.

The Malaysian Ringgit

Its an exciting dynamic that is evolving in Asia currency markets as inventors like the more draconian lockdown measures, which will see the virus pass quicker and life return to normal even faster. The improved Ringgit sentiment comes despite the Malaysian economy, which will pay the considerable upfront cost for extending the MCO. Still, with a robust policy backstop from the BNM and government support, the thought is the economy will return to standard form quicker.

The Waiting Game


The S&P surged 9.4% Tuesday, and media reports say the Dow Jones registered its best day since 1933, rising 11.4%. European and Asian equities rose as well. Oil slipped, and gold rose by 2.2%.

A final decision on a US fiscal stimulus package remains elusive; US Treasury Secretary Mnuchin said the deal is within striking distance with media reports suggesting an agreement could be made within hours. The size of the package under consideration remains consistent with recent media reporting at around $2tn (10% of US GDP).

US equities are rallying on expectations of a substantial bipartisan deal, which may be just a few hours away. But in “buy the rumor sell the news “fashion, the stock market could easily take another sharp leg lower once the good news is out, and investors conclude that it won’t be enough (yet) to address what’s going on in the real economy.

With that said, given the enormity of the package, it will most certainly be well initially well-received as it should be sufficient to avoid buttress “Main street” from falling into a  worst-case depression type scenarios, especially with the Fed prepared to monetize all the US government’s debt.

The reason why its critical to get this US Aid package wrapped up quickly and in a huge way is that in contrast to Europe, the US social and economic parachutes, and automatic fiscal stabilizers are much weaker. This means hundreds of thousands of US workers might get laid off every day congress dithers. But with no unemployment and health benefits, and in the absence of a quick and useful government safety net, the economic impact will be much worse in the US than in Europe.

E-minis have been surging all day long on the anticipation of the deal as the markets are still reveling in the Fed’s crisis response, which was nothing short of spectacular given that they are prepared to monetize infinite amounts of government debt.

Looking at flows overnight, it appears the Fed effectively addressed market plumbing issues while providing a whole range of liquidity backstops. And the proof is in the pudding as slowly, but surely liquidity is starting to return to futures markets which seemed to trough last week on Thursday when a lot of traders turned their algo and machines off.

Economic forecast 

Economic forecasts must now be made totally outside the grid of any historical experience. Given the rapid succession of downgrades, we should likely expect more pain over the short term, as the situation in New York and California continues to deteriorate. And with the entire population of India going into a government-enforced a 21-day nationwide curfew, it doesn’t suggest blue sky.

Big Fear 

But more worrisome is a University of Oxford Study that suggests far more people in the UK may have already been infected than scientists had previously estimated – maybe as much as half of the population, the majority with very mild symptoms or none at all. It calls for significant- scale antibody testing to establish what stage of the epidemic we are really in.

Lower Volatility 

The SPX move is consistent with the falling volatility (although the Vix remains sticky around 60) and rising dispersion, which are the early signs of market stabilization, thanks to the Federal Reserve Board going all in. But in the medium-term, markets will remain choppy given the uncertainty of coronavirus spread and significant risk appetite restriction from recent high volatility and cross-asset correlation (or lack thereof at times)

Signs That Systematic Re-Balancing Is Slowing

When does risk sentiment turn on bright?

Everyone is looking for a canary in the coal mine. Still, ultimately for risks sentiment to turn back on bright, investors need conclusive evidence of coronavirus infection curves flattening, bringing an end to lockdowns insight.

Oil markets

Oil prices have clawed back some intraday losses on the anticipation of news from Washington, announcing new initiatives to try to protect the economy from the effects of Covid-19 and hopefully will providing massive support to Main Street.

But the canary in the coal mine is chirping from the product’s market with gasoline and jet cracks under significant pressure responding to the absence of demand amid rapidly rising physical inventories.

Gold markets

With futures dislocating from the spot, liquidity has been virtually non-existent, where EFP at 40 was paid overnight, indicating total surrender in a frenzied panic to cover physical gold commitment. I’ve never seen anything like this in 20+ years trading gold.

Of course, under these conditions, gold is getting floated by liquidity concerns to a degree. Still, the overriding demand factor is the anticipation of a tremendous fiscal stimulus downpour, which should cement gold’s longer-term bullish outlook.

Besides, gold is getting more headroom absence of margin selling and as USD ease somewhat. The pullback in the USD and little change in yields allowed gold to rally. The flash estimates of March PMIs show the negative impact the COVID-19 pandemic is having on economic activity and should ring in more policy easing globally.

So gold is glittering in a global monetary response to the Covid 1 9crisis goes well beyond the Fed as the world tuns on the monetary and fiscal taps to dampen the horrendous economic effect of Covid19.

Currency market 

It’s hard to imagine the US dollar doesn’t get pummeled eventually but probably best to keep an open mind as the USD buying continues every NY session.

But with dollar funding normalizing, Fed monetizing 10% of GDP, gold ripping, and market plumbing issues addressed, the dollar should remain on offer. But more importantly, with the global US dollar shortage getting resolved, the “Greenback” must inevitably give way to the Fed’s new policy regime.

But as far as timing when the comprehensive global growth ebullience sets in and triggers the ultimate USD dollar demise, it’s probably more of a science call predicted on when the virus peaks globally, and people start partaking in everyday activities again.

So, with the Eurozone still under the Covid19 cosh, it’s going to take some more convincing than an infinite Fed policy backstop for G-10 currency traders to chase the EURUSD higher.

However, high-beta currencies to US equities continue to outperform like the Australian dollar and the Korean Won.

The Malaysian Ringgit 

Despite a slightly weaker US dollar tone globally, the Ringgit is still struggling from the political malaise, oil price volatility, and the domestic MRO, which continues to hobble any semblance of an economic recovery. While in the background, Malaysia’s bond investors are starting to fret as MGS are on the FTSE World Government Bond Index watch list, and the upcoming interim review is this month.

The Singapore Dollar

While an easing in US dollar funding conditions has provided some relief to the Singapore dollar given the city-states proactive containment measures and will see the virus pass quicker likely to be rewarded with more robust asset markets sooner than regional peers


The Fed Is Not The Problem. 

“If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.” Milton Friedman


Investors were chapfallen by the massive Fed action that has not led to more of a market rebound, with equities struggling to bounce and the US dollar hardy worse for wear.

It certainly isn’t a problem of insufficient Fed action as this move trumpets in unlimited government spending financed by unlimited Fed purchases arriving faster than anyone could have imagined. The Fed unleashed it’s all in howitzer to fund an array of programs, including Fed backing for purchases of corporate bonds and direct loans to companies and promises that it will soon roll out a plan to get credit to small- and medium-sized businesses.

This deluge is as much liquidity support as markets could wish for as the Fed plans to add a $625 billion balance sheet this week. That equals a staggering annual pace of $32 trillion per year.

Sure, it’s a titanic task to amplify the historical significance of today and not necessarily in a good way.

The basic tenants of how a government influences the economic decision-making process in a capitalist society have been discarded as Asian investors awake to the most significant monetary experiment in the history of financial markets.

And the famous quote by Milton Friedman does resonate this morning, “If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.”

Congress failure to launch is the problem.

However, Nancy Pelosi is reportedly open to a 2.5 trillion deal that is being hashed out between Schumer and Mnuchin.

Fortunately, we are close to a Presidential election, so it doesn’t seem likely that opposition from the Democrats will last for long.

And while congress dawdles, it also means that once a deal is signed, the market reaction will likely be a strong one, even if it will most probably take several attempts to arrive at the necessary size of at least several trillion dollars.

But the problem is not the Fed; the problem is politics.

Millions of workers are in the process of being laid off. Hence, as the days roll by without a political deal to backstop the economy, it will end up being a very costly misstep for every shape and size of business and, more importantly, the hard-working folks across the heartland.

The US Senate should be drawing on the experience of its failure to act fast in the 2008 crisis. Instead, it has yet again failed to act responsibly in the 2020 crisis. The proposed economic stimulus package is massive, but the longer the delay, the more colossal it will need to be to appease the markets, mainly when US initial claims are digested.

Unemployment is the key measure.

Unemployment will measure the extent of US policy failure, and now market participants are bracing themselves for a horrific peek into their future this week when US initial jobless claims are released. The high-frequency data will undoubtedly confirm we’re entering a vortex of the fastest and most substantial rise in the US unemployment in modern financial history.

In many ways, initial jobless claims will be the signpost that matters the most in the coming weeks as it will be a near real-time measure of whether fiscal policy worked.

No endpoint still 

Almost every economic and market outlook written – is now in the format of scenario analysis. But mostly it depends on how long lockdowns last. But frankly, the only reports that that matter is the ones coming from scientists where the longer containment time frame seems more likely. Suggesting that social distancing will be in place throughout most of 2020, where more draconian type lockdown rules could be relaxed and then fortified to ringfence virus hotspots flare or a second wave hits.

There’s probably so much more pain to come as when the notional growth devastation number totals are projected, and the tallies still may fall well short of the actual sum of all the losses to Global, European, and US GDP. So, stock market bulls and those who are typically the perma bids like pension funds are nervous about stepping back in too early.

I think the Olympics getting canceled is only the tip of the iceberg when it to sporting and other cultural events. And more significantly, how we intend to go about our everyday lives for most of 2020 not only will this be costly in an economic context, but the human toll on families is unmeasurable.

Oil markets

Optimism over a huge US fiscal number has helped dampen the oil market sell-off as the US fiscal policy is targeted as mitigating the negative employment shock and will effectively put money in people’s hands to buy gas.

While Oil bulls continue to hold on to a glimmer of hope after US Energy Secretary Dan Brouillette said the possibility of a joint U.S.-Saudi oil alliance is one idea under consideration to stabilize prices after a 48 % haircut in March alone.

The problem is, however, all the money in the world is not going to get people back on planes so long as the virus is spreading, and travel bans are in place. The fiscal deluge is a sentiment play as opposed to an actual demand-side pop, so the budgetary bounce will likely have a short duration bump on oil prices. But it will certainly provide a massive tailwind when the virus passes.

News flow on the demand side continues to run dreary with the spread of Covid-19 across the developed markets. It is now reaching colossal emerging markets oil importer like India, which is triggering complete shutdowns of massive oil-importing economies.

While the anticipated lengthy absence of air traffic presents a significant obstacle in its own right, but with the expected ramp in supply, which suggests storage will fill very quickly, and then prices will plummet as physical demand continues to evaporate.

But this will also effectively turn the wells off. The first balancing signs and supply-side effect are the initial waves of CAPEX cuts with the Baker Hughes rig count showing a significant fall of 19 oil rigs last week.

As far as the Texas OPEC coordinated effort, with the proliferation of small-scale producers in Texas (and across the US), it always made a coordinated US response unlikely. Still, as we will see by the drop in weekly rig count data, the low oil price may ultimately achieve the same end goal.

As with most growth asset classes, it doesn’t remain very easy to call a floor in the oil price. I expect a high level of volatility as the market responds to news flow, both positive and negative. Still, we should likely place more emphasis on an extended period of oil in the $20 with the occasional dip lower.

Gold markets

Gold surged after the Fed committed to unlimited asset purchases.

Gold should trade higher in the medium to longer-term but may face some selling and resistance near the psychological USD1,600/oz level as much will ultimately depend on the USD given the massive Fed policy deluge has hardly made a dent in the US dollar resiliency.

But the key for gold is how quickly the Fed swap lines can relieve some of the USD funding pain across global markets as if dollar funding returns to normalcy, and this will probably remove one of the primary reasons to sell gold.

Currency Markets

The USD has been incredibly resilient on the back of liquidity shortages and forced hedging by underhedged corporates and real money. It’s inconceivable by any stretch and by any economic model that the greenback can survive today’s Fed announcement unscathed.

Granted, we’re now entering the most significant monetary policy experiment in world history, but doesn’t all these dollars getting added by the Federal Reserve computers, cheapen the USD?

The Malaysian Ringgit

Higher oil prices and a slightly weaker US dollar should release some pressure on the Ringgit today, but we should expect the MYR to remain in the autoclave due to the covid19 domestic economic shocks.


A Morning The World Stood Still. Lockdown, Shutdown & Limit down

Investors are recoiling in horror this morning at the explosive Covid19 death and latest headcounts around the world. The rapid spread has triggered unprecedented draconian containment measures and sees the world come to a standstill. All the while Congress is dilly-dallying on an aid plan.

Also, traders are buckling in preparing for a horrendous peek into their future this week when US initial jobless claims are released. The high-frequency data will undoubtedly confirm we’re entering a vortex of the fastest and most substantial rise in the US and global unemployment in modern financial history.

Current estimates for new US jobless claims are running around 2 million, but with Canada reporting 500,000 last week (37mm population), which would imply a US equivalent of 4,420,000. If 2 million is the expectation, I’d argue it is “light” (under-reported) regardless of what the data shows.

The relative calm seen Thursday did not make it to the end of the week. The S&P500 fell 4.3% Friday despite modest gains in European equities. US 10Y yields fell 30bps to 0.85%, and gold rose 1.6% on speculation that the liquidation of safe assets will slow.

Given the widening spread of Covid-19 outside China, economists in the process of unilaterally downgrading global GDP forecast for the third and, in some cases, the fourth time in the past two months. These rapid and unprecedented downgrades illustrate just how fast we’ve moved from a brief health scare to a full-blown global recession.

Traders are now pricing in a severe global recession as the US/EU adopt drastic measures to contain the pandemic, likely pointing to an unprecedented G2 recession (since World War II). While the situation in China, South Korea, and Singapore seems to be contained, recent data suggest the virus is spreading in other parts of ASEAN and India. As such, to defend against a secondary cluster spread, all of Asia has effectively gone into lockdown mode, suggesting growth in the region will fall well below current negative revision. Which of course is going to trigger more central bank policy easing and government support

Oil prices 

Oil fell another 11.1%, weighed down by news of enforced social distancing in NY state, and lockdown measures in California, two of the largest state economies in the US.

Oil markets collapsed out of the gate this morning as prices react in tangent to stringent containment lockdown measure that has seen life come to a standstill around the world. People are working/staying at home and only using their cars for the essential matters, as total demand devastation sets in.

Perhaps the only reason prices have collapsed below WTI $20 per barrels are reports that Texas is considering pulling up a chair to the bargaining table with OPEC. What was inconceivable only weeks ago might become a reality.

But with the prospect of storage facilities filling quickly and the potential endpoint of “worthless crude oil” is increasingly discussed. If an agreement isn’t forthcoming, these talks never happen, or they end in a contentious break-up, oil prices will most certainly head for the bottom at a ferocious velocity.

Gold markets

Gold continued to react to financial market sell-offs and, at times, supported as government and monetary authorities’ attempts to manage the economic and financial ramifications of COVID-19.

But in the face of the significant liquidation, gold was only closed down $25 in a week when US equities fell 18%, the USD surged, and other commodities tanked, all of which suggest some but not all of the gold haven properties are starting to glitter again.

More concerning for bullion investors is that the USD has also moved sharply higher. But if the market can get beyond an immediate dash for USDs, gold will have a chance to move higher. It has remained an excellent portfolio diversifier for the past two years.

For gold investors, hopefully, the demand for US dollars from Emerging Market central banks won’t cause them to sell gold to raise dollar and support their economies in this time of economic stress. If that does happen, the trap door will most certainly spring.

Currency markets

A weaker USD is part of the solution. Still, a stronger USD is unavoidable if investors fret about the liquidity (short-term rollover risk) and solvency (protracted revenue shortfalls) of dollar borrowers round the globe.

Volumes have been light this morning, perhaps reflecting the fact many Singapore and Hong Traders are working from home moaning about their Wi-Fi connection and small screens. (Bloomberg)

But traders also think that there’s a chance of more policy intervention on the way. The Fed could increase the breadth of EM SWAP lines ( last week, MAS and BoK were offered lines). They could enter the FX Swap market flooding the short-dated cash markets with US dollars. Or they could even possibly intervene by instructing the NY Fed to seel US dollar, which would likely signal the start of a concerted worldwide central bank effort.



The EURUSD is most prone to be overwhelmed by the economic carnage with the Eurozone facing a demand shock without precedent in the single currency’s history. Italy’s coronavirus deaths now surpass China.

But it’s the debt sharing burden that will bring deep-seated political tensions to the surface between Germany and the broader Eurozone that will dominate the region’s political scrim for years to come post-coronavirus and could even signal a collapse of the single currency unit.

Asia FX

The significant increase in USD-denominated debt in Asia EMFX since the financial crisis suggests the demand for USDs will remain strong as the global economy weakens further.

The Ringgit

The Ringgit will likely come under further selling pressure on domestic economic concerns and more so against the backdrop of a stronger US dollar.

As well oil prices are under extreme pressure relative to 2018 and 2019, so the MYR oil price sensitivity will continue to provide a significant downdraft.

Also, the BNM will be most unlikely to drawdown on valuable US dollar reserves to support the Ringgit since the demand from local banks for dollars is robust.