US Stock Market: Multiple States Investigate Apple, Disney Delays Major Film Releases, Fear Gauge Rises

Thursday’s U.S. stock market losses led to investors seeking protection in options and Treasurys. This drove the Cboe Volatility Index (VIX) – seen by Wall Street as the market’s best “fear gauge” – to 26 and benchmark 10-year Treasury yields to 0.57%.

Some of the volatility was fueled late in the session by extreme “whipsaw” action. The wild, two-sided trade that steepened the late session selloff was triggered by a report from a watchdog group that said Apple Inc faces consumer protection investigations in multiple states. Apple traded 4.5% lower after the report.

Apple Faces Deceptive Trade Practices Probe by Multiple U.S. States:  Axios

Multiple U.S. states are investigating Apple Inc for potentially deceiving consumers, according to a March document obtained by a tech watchdog group, Reuters reported.

The Texas attorney general may sue Apple for violating the state’s deceptive trade practices law in connection with the multi-state investigation, according to the document, which was obtained by the Tech Transparency Project.

The document did not provide additional details.

The office of the Texas attorney general declined to comment. Apple did not immediately respond to a Reuters request for comment.

Apple has faced class-action lawsuits from consumers alleging that it deceived them about slowing the performance of iPhones with aging batteries. The company agreed to pay up to $500 million to settle one such lawsuit earlier this year.

Apple is also facing lawsuits alleging that it knew and concealed how the “butterfly” keyboards on its MacBook laptops were prone to failure.

Treasury Yields Fall Slightly After Jobless Claims Come in Worse Than Expected

Treasury yields dipped on Thursday after data showed U.S. jobless claims rose more than expected last week. The yield on the benchmark 10-year Treasury note fell one basis point to 0.584% and the yield on the 30-year Treasury bond were also lower at 1.274%. Yields more inversely to prices.

US Companies Making Headlines After Thursday’s Bell

Intel’s stock dropped 8% in extended trading after the company offered disappointing third-quarter guidance. Intel released its second quarter earnings, beating predictions of analysts surveyed by Refinitiv.

After Intel said the company’s 7mm-based CPU product timing is delayed, shares of Advanced Micro Devices climbed 7% in after hours.

Moderna’s stock dropped 2% in extended trading after falling 9.49% earlier in the day. The drop comes after the U.S. Patent and Trademark Office ruled Moderna does not have a claim to a patent held by a rival company.

The ruling could potentially delay Moderna’s race to produce a coronavirus vaccine. Shares of BioNTech jumped 2% while Novavax’s stock fell 1% in after hours.

Disney’s stock fell 1% after the closing bell. The company announced Thursday afternoon that its movie “Mulan” is delayed indefinitely and all Star Wars films and Avatar sequels have been pushed back a year due to theater closures and production shutdowns spurred by the coronavirus pandemic.

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

Price of Gold Fundamental Daily Forecast – Steady-to-Lower but Could Be Vulnerable to Stronger US Dollar

Gold futures are trading steady-to-lower at the U.S. mid-session on Thursday as investors continue to assess the impact of mounting coronavirus cases and worsening U.S.-China relations against the backdrop of firm demand for higher-risk assets amid growing optimism of a swift economic recovery from the crisis.

At 15:16 GMT, August Comex gold is trading $1806.50, down $7.30 or -0.40%.

Falling Treasury yields, lower stocks and a weaker U.S. Dollar could be enough to send gold prices higher later in the session, but right now, we’ll have to be happy with these three factors limiting losses.

Our key indicator is Treasury yields. When they fall, gold tends to weaken. Although this may not be the case at the U.S. mid-session, it’s too reliable an influence to ignore. Obviously, gold bulls would like to see the government and the Fed announce more stimulus measures, but that’s not likely to happen today. However, falling rates are indicative that something may be coming in those areas – at least investors appear to be indicating the need for additional help.

Wall Street Falls as Virus Fears Eclipse Upbeat Retail Report

U.S. stocks are down on Thursday with the S&P 500 retreating from a five-week high as concerns about the economic toll from another round of shutdowns across the United States offset data showing upbeat domestic retail sales in June.

Declining issues are outnumbering advancers 3.09-to-1 on the NYSE and 3.3-to-1 on the NASDAQ.

US Economic Data Mixed

The Commerce Department’s report showed retail sales jumped 7.5% last month compared with economists’ forecast of 5%, signaling the economy was continuing to limp out of a coronavirus-driven slump.

Another report from the Labor Department on Thursday showed weekly jobless claims fell to 1.30 million in the week-ended July 11, down slightly from the previous week but remain roughly double their highest point during the global financial crisis.

One emerging concern is in the labor market. Millions are set to lose their unemployment checks on July 31 when the government stops paying an additional $600 per week to jobless self-employed people, gig workers and contractors who do not qualify for regular state unemployment benefits.

Treasury Yields Edge Lower

U.S. government debt prices were slightly higher Thursday as concerns over rising coronavirus cases stateside and U.S.-China tensions tempered optimism arising from progress toward a vaccine. Yields were also pressured by the mixed economic news which may be a sign that investors are looking for additional stimulus from the government or Fed.

Dollar Putting in Mixed Performance

The U.S. Dollar strengthened early Thursday before turning negative for the session. The price action in gold appear to be mirroring the movement of the dollar.

The catalyst behind the earlier strength was poor Chinese retail sales as investors chose to focus on consumer spending rather than better-than-expected overall growth in the economy.

Short-Term Outlook

We’re seeing a mixed performance in the gold market today, but when the dust finally clears, we could find gold under pressure due to a stronger U.S. Dollar, which is getting a safe-haven bid from escalating U.S.-China relations.

However, losses could be limited by weaker equities and Treasury yields.

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

Should Gold Bulls Celebrate the Persistent ZIRP?

Yesterday, the Fed issued the statement from the FOMC meeting on June 9-10. The statement is little changed from the April edition. Nevertheless, there are two important differences. First, the members of the Committee have acknowledged the improvement in the economic situation since April, as they wrote that “financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.” Moreover, according to new wording, the virus and the measures taken to protect public health “have induced” (instead of “are inducing” in April) sharp declines in economic activity and a surge in job losses.

Second, the Fed used a subtle forward guidance, reassuring the market participants that the quantitative easing will not end or even be tampered with anytime soon. Perhaps to avoid taper tantrum, the FOMC wrote:

To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.

What does it mean for the gold market? On the one hand, the Fed’s balance sheet is already massive, as the chart below shows. Indeed, the US central bank’s assets have surpassed $7 trillion in May and they are expected to rise even to around $10 trillion because of the coronavirus crisis. So, the Fed’s intention to increase it at least at the current pace should raise it even more, spurring worries about the unconventional monetary policy and possibly support gold prices.

On the other hand, the Fed’s forward guidance and end of steady tapering of asset purchases could reassure the Wall Street that the party of easy money and unlimited liquidity is going to last. The tap with cheap money will not be turned off anytime soon, or it can be even unscrewed wider – so, the FOMC statement could support risk appetite and risky assets at the expense of safe-haven assets such as gold. However, it seems that positive impact triumphed as gold prices rose yesterday amid the dovish FOMC statement, as the chart below shows.

June FOMC Projections and Gold

The FOMC issued yesterday not only the statement of its monetary policy, but also its fresh economic projections. Not surprisingly, all projections are much more pessimistic compared to December. The GDP growth and inflation will be lower, while the unemployment rate higher, as the table below shows.

For example, the FOMC expects that the GDP will decrease 6.5 percent in 2020, increase 5 percent in 2021 and 3.5 percent in 2022, compared to positive 2 percent, 1.9 percent and 1.8 percent expected in December. What is important here, is that although the Fed sees recovery next year (which is normal, given the low base in 2020), the projections do not paint the V-shaped recovery, as the GDP will return to its pre-pandemic level only in 2022. As Powell said during his press conference “We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities.”

This is rather good news for gold.

The unemployment rate is expected to be 9.3 percent in 2020, 6.5 percent next year and 5.5 percent in 2021, versus 3.5-3.7 percent range seen in December projections. These are also quite positive projections for gold prices, as the unemployment rate is not expected to even return to its pre-pandemic level.

When it comes to PCE inflation, the FOMC sees muted inflation in 2020 (0.8 percent rate instead of 1.9 percent projected in December), and rebound in next years to 1.6 and 1.7 percent (versus 2 percent in both years forecasted in December). Lower inflation rates could reduce the demand for gold as an inflation hedge. However, the FOMC projects that inflation rates will be below its target, which will provide an excellent excuse for continuation of its dovish monetary policy, thus supporting gold prices.

Last but not least, the Fed sees its federal funds rate to remain near zero at least until 2022. As Powell said during the press conference “We’re not even thinking about raising rates,” Fed Chairman Jerome Powell told reporters.” This is also good news for gold from the fundamental point of view, which thrives under ZIRP and very low real interest rates.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.


Fed Offers No Surprises, Gives Investors What They Wanted to Hear

Most major market strategists agreed that the Fed delivered what the market pretty much expected that it wouldn’t do anything. Its monetary policy statement didn’t contain any surprises and was straightforward, offering little details. But who really expected the Fed to give any details at this time. The impact of the coronavirus on the economy is still a breaking story so the forward guidance will come later. Right now, investors just wanted to hear that the Fed will hold rates near zero for some time and that policymakers have their backs.

Here is a sampling of comments from a few major market players.

“They’re essentially saying, with the (rate) projections, that we’re going to hold steady until 2022. When you look at the next page…back to the infamous ‘dot plot,’ it’s only two that are showing any kind of increase in 2022. So even then, (zero rates are) likely to last three-plus years,” said Michael Skordeles, U.S. Macro Strategist, Truist/Suntrust Advisory Services, Atlanta.

Jon Hill, Interest Rate Strategist, BMO Capital Markets, New York said, “The kneejerk reaction is going to be very hard to dissect because generally the Fed’s signals were in line with expectations. They acknowledged that unemployment’s going to be high, inflation is going to be low and they are going to keep interest rates very low for at least the next two years. That should be positive for stocks. And they also stopped tapering their quantitative easing program.”

“As expected, with regard to rates and the like. Did they do yield curve control – they didn’t. We were struggling with whether they would go there or not in terms of tool chest. Obviously they retain the option to go there but maybe part of it is they are figuring out the full implications of it. And maybe part of this is that normally they are in the business of predicting economics and they do a lot of that, but part of yield curve control and part of forward guidance is forward and the pandemic part so do they really want to tether themselves to the mast as mush it might imply with yield curve control. But more is better than less in their view,” said Bruce Monrad, Chairman and Portfolio Manager, Northeast Investors Trust, Boston.


In my opinion, the Fed did what it had to do given the economic data it has at this time. It is probably too early for policymakers to give forward guidance, which the Fed avoided. Instead it remained flexible.

As new data about the impact of COVID-19 on the economy becomes available the Fed could become more targeted with its stimulus as well as offer more specific guidance on employment and inflation. Policymakers need to take the time to assess the situation and make its tweaks further down the road.

I don’t see anything in the Fed’s statement that could change the status quo in the financial markets. Rates are expected to remain low until the end of 2022 so Treasurys are likely to remain elevated. Low yields are supportive for stocks. In the meantime, the Dollar is likely to remain capped or under pressure, while gold is expected to remain underpinned.

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

Yields Tumble, Gold Moves Higher, Stocks Mixed After Fed Keeps Rates at Zero

The initial reaction to the Federal Reserve’s interest rate and monetary policy decisions released at 18:00 GMT on Wednesday was mixed with stocks weakening slightly, gold nudging higher and the U.S. Dollar weakening against a basket of currencies. More importantly, June U.S. Treasury futures rose which means Treasury yields fell.

Traders are now awaiting the start of Federal Reserve Chairman Jerome Powell’s press conference and the release of policymaker economic forecasts. This should shed more light on the central bank’s view of the economy and its need for further stimulus.

Traders expect to see more volatility into today’s close with even more reaction on Thursday as foreign market traders assess the Fed’s conclusions.

Instant Reaction:  Fed Sees GDP Falling 6.5% in 2020, Keeps Rates at Zero

The U.S. Federal Reserve on Wednesday signaled years of extraordinary support for an economy facing a torturous slog back from the coronavirus pandemic, with policymakers projecting a 6.5% decline in gross domestic product this year and a 9.3% unemployment rate at year’s end, Reuters reported.

In the first economic protections of the pandemic era, U.S. central bank policymakers put into numbers what has been an emerging narrative:  that the measures put in place to battle a health crisis will echo through the economy for years to come rather than be quickly reversed as commerce reopens, according to Reuters.

Federal Reserve:  No Short-Term Rate Hike Through End of 2022

In its policy statement, the Fed once again pledged to keep interest rates near zero until the economy “is on track” for a full recovery. The Fed also left unchanged its long-range forecasts for GDP, unemployment and PCE inflation.

There were no dissents to that stance.

The Fed also said it doesn’t expect to lift short-term rates through the end of 2022. Additionally, the central bank said it will keep buying Treasurys and mortgage-backed securities, at least at the current pace.

In its statement, the Fed said again it would use its “full range of tools” to support the economy.

The Fed also noted that financial conditions had improved, in part because of the central bank’s actions. The Fed also repeated that the coronavirus pandemic poses “a considerable risk” to the outlook over the next 18 months or more.

Fed Chairman Powell on Tap

We’re looking for a possible two sided reaction in the markets as Fed Chair Powell begins his press conference at 19:30 GMT.

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

US Non-Farm Payrolls Report in Focus – Look Beyond the Headlines Numbers for Valuable Data

Investors are anxiously awaiting the release on Friday of the U.S. Non-Farm Payrolls report from May, but that doesn’t mean we’ll see a major reaction to the news. Often times this report serves as dud. Furthermore, after an initial volatile reaction, the markets often settle into a range. Sometimes we don’t see the true reaction to the numbers until the following Monday after investors have digested the numbers over the week-end.

The report is actually comprised of three major sections:  the headline – Non-Farm Employment Change, the Unemployment Rate and Average Hourly Earnings.

A surprise in the report tends to trigger a volatile reaction. When two or more parts of the report contain surprises we often see a volatile two sided response. This usually occurs, for example, when the Non-Farm Employment Change is bullish, but Average Hourly Earnings are bearish.

We’re not expecting much volatility following the release of this report at 12:30 GMT on Friday because the data is stale. Investors are looking toward the future and putting less-weight on the past so this report could be shrugged off.

With parts of the country starting to open up, the focus for investors will be on how many employees have been hired back to their old jobs or have taken new jobs. Investors will also be interested in whether wages have held steady, or moved lower or higher. Furthermore, there will be some interest in what areas of the country are leading in rehiring, and what industries are doing the hiring.

Knowing what industries are hiring will give investors insight into what sectors of the stock market could recover factor. This data will be important to portfolio managers since they have to decide where to place money to get a good bang for the buck.

During the initial stages of the current rally, investors threw money at the stay-at-home businesses. Investor capital also flowed into cloud-related companies. Lately, we’ve been seeing money flow into those companies that are likely to benefit the most from the reopening of the economy like airlines, hotels, casinos and restaurants. Basically, the travel and leisure sector.

Friday’s Non-Farm Payrolls report is going to contain a lot of valuable information for the investor but you have to be willing to look beyond the headline numbers. The value in this report will come from the internals.

Investors shouldn’t be worrying about how many jobs were lost in May in my opinion, but about how many employees were hired back and in what sectors of the economy those hirings took place. If there is going to be a surprise in this report, it will be in this area of the report.

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

Fed Members Not Looking for ‘Snap Back’ Economic Recovery Ahead of Powell Speech

Several Fed policymakers offered their assessments of the U.S. economy in the wake of the COVID-19 pandemic last week ahead of this week’s speech by Federal Reserve Chairman Jerome Powell on Wednesday.

With earnings season winding down and economies in several states reopening, investors are going to be looking for a new catalyst to drive the price action in the stock market. With that in mind, there will be added emphasis on Powell.

Powell speaks via webcast hosted by the Peterson Institute for International Economics at 13:00 GMT. He is expected to speak about the current issues facing the U.S. economy.

Fed’s Bostic:  Pace of U.S. Economic Recovery Will Vary Across Nation

The pace and shape of the U.S. economic recovery when the novel coronavirus outbreak abates is still highly uncertain and will vary across the country, Atlanta Federal Reserve President Raphael Bostic said on Tuesday.

There are lots of different possibilities,” Bostic said of the shape of any recovery, noting that in the first instance it hinges on stabilizing the infection rate.

“What I would say is right now it is very hard to know with any degree of uncertainty which ones are more or less likely. In many communities the “V” recovery is going to be very difficult to achieve,” Bostic said in a webinar, referring to a scenario where there is a swift economic bounce back.

“But across the country there has been a fair amount of diversity of experiences, diversity of vulnerability, and that will translate into diversity of recoveries.”

“Many of the essential jobs are low-paying jobs … we’re going to have to collectively think about how do we make sure that the people who have put themselves at risk through this are not just discarded once we get to the other side,” he said.

Fed’s Kashkari:  ‘It’s Devastating’ – The Actual Unemployment Rate Could Be as High as 24%.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he thinks the jobs report likely understated the economic pain.

“I think the real number is probably around 23% or 24%,” Kashkari said. “It’s devastating.” On Friday, the U.S. Labor Department’s Non-Farm Payrolls reports showed a 14.7% unemployment rate.

Kashkari also said he doesn’t think the U.S. is bound to repeat what happened during the catastrophic economic downturn.

“I’m hopeful we can bounce back,” Kashkari said. “I’m optimistic, I don’t think we’re actually headed for another Great Depression.”

That’s because the policymakers in the 1930s did the wrong thing, according to Kashkari, which made the situation worse. Now, however, U.S. policymakers have been aggressive in their support for the economy.

“I think it’s becoming clear that we are in for a long, gradual recovery, which is unfortunate,” Kashkari said. “But I think we’re going to avert the depression scenario because policymakers are going to continue to be aggressive to fight that outcome.”

Fed’s Daily:  Sees Negative Growth in 2020, Slow Rebound for US Economy

Federal Reserve Bank of San Francisco President Mary Daly said she expects the U.S. economy to shrink this year with a recovery only getting under way next year.

“2020 as a whole is going to be a negative year, and then we’ll start to see a positive year in 2021,” Daily said Thursday in an interview with Bloomberg Television’s Michael McKee. With elevated uncertainty around the spread of the coronavirus, she said “that’s about as good as forecasting can get right now.”

“No one who I talk to is looking at a v-shaped recovery, they really think this will be gradual and it will take time to build confidence back up for both workers and consumers,” Daly said. “But they are more optimistic than you might think. They are ready to re-open and re-engage.”

“We are really looking at inflation being tepid not getting up to our 2% target for a while,” she said. The Fed will “do everything in our powers to achieve our dual-mandate goals and I think that gives market participants, households and businesses confidence.”

Fed Policymakers Took ‘Forceful Action’ to Fight Swiftness of Coronavirus’s Economic Destruction

Today’s Fed minutes didn’t shed much light on the central bank’s future moves, but it did highlight its concerns over the swiftness with which the coronavirus outbreak was harming the U.S. economy and disrupting financial markets. The speed at which the damage was spreading prompted policymakers take “forceful action”, the minutes of the meetings showed.

At its first meeting of the year on January 29, Fed policymakers were expressing an air of cautious optimism about the economy. Fed members were predicting steady growth in 2020 and continued strength in the job market after having to defend the economy in 2019 with three rate cuts to fight the negative consequences of the Trump administration’s trade war with China.

Even through the release of the January minutes on February 19, policymakers remained upbeat about the economy although they did concede the novel coronavirus “warranted close watching”. Ironically, that was the day before the U.S. stock market began its more than one month sell-off.

Comments at that time suggested policymakers thought the virus would likely have minimal spillovers to the rest of the world, disrupting the supply of parts and final goods from Chinese factories but not posing much in the way of a broader threat.

The Fed’s limited concerns in mid-February were probably being influenced by the data being made available from the World Health Organization (WHO) and the Center for Disease Control (CDC) at that time. Remember, it wasn’t until March 12 that the WHO declared the COVID-19 outbreak a pandemic.

On March 2, Fed Chair Jerome Powell announced the first of two emergency rate cuts. On March 15, Powell slashed rates to zero, broadened access to U.S. dollars for foreign banks and restarted the massive asset purchases that have come to define monetary policy in a crisis.

Despite the aggressive actions by the Fed, the virus had already spread to the United States, and the crisis was worsening here and around the world.

By then it was already too late for the Fed to consult its conventional models since they proved progressively less able to measure what was happening to the U.S. and global economy. At that time, the Fed had no choice but to whip out its playbook from the 2008-2009 financial crisis and to start making moves to stabilize the financial markets and the economy.

With today’s minutes, most Fed officials now agree the U.S. economy is in a recession that may cut U.S. output by double digits in the second quarter and place about 20 million people or more on the unemployment line, at least temporarily. The measures to control the spread of COVID-19 are primarily responsible for those numbers.

In its minutes, the Fed also reiterated its previous stance that it would be appropriate to maintain rates at the current near-zero levels until policymakers were confident that the economy had “weathered recent events.”

End Of Week Technical Take on Indexes, Metals, Currencies, Oil: April 3, 2020

See what to expect today and next week as we have some huge moves about to start up again. Chris Vermeulen of shares his take on all the major asset classes in this quick but high-level view on key assets.

Indexes, Metals, Currencies Video Analysis for 03.04.20


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.

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.


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.

Currency Carnage: FX Market’s Unhinged

  • In periods of excess market volatility and heightened uncertainty, the preference for staying ‘liquid,’ i.e., holding a more substantial amount of cash, increases. Some of it is purely technical (due to margin calls or a scramble to hedge currency exposure, for example), and some of it is precautionary (some corporates drawing on credit lines).
  • Corporate credit spreads have widened on the view that disruptions to supply chains alongside falling demand as a result of the viral outbreak could impair firms’ ability to access liquidity.
  • COVID-19 has disrupted trade on both the supply and the demand sides


  • The pandemic has increased pressures on globalization, amid signs of rising protectionism.


  • The surging dollar hits the global economy like a sledgehammer.


Well, its 3:30 AM in Bangkok, and I’m on my third cup of coffee trying to make sense out of this market carnage. But a safe bet I’m not the only market participant in Asia who had a restless night while continually waking up to check their trading apps and other mobile news services.

The market now realizes its some of all fear that the world’s central banks are powerless to stop the market turmoil.

With a more extensive and far quicker spread of the virus than generally expected just weeks ago and with early evidence that the impact on Chinese activity was far worse than initially projected, investors are hunkering down for a severe global recession.

As we buckle in for another volatile day on global trading floors, The S&P500 closed 5.2% lower Wednesday, unwinding the gains seen Tuesday. Weakness extended further after a 15-minute trading halt in the early afternoon, though a sharp rally in the last 30 minutes or so of trading softened the scale of losses. Smaller declines in European equities, and more minor again in Asia as well. What has been especially notable in recent days has been growing signs of forced selling of safe assets: US Treasuries sold off again Wednesday, with US 10-year treasury yields lifting a further 11bps to 1.18%. Gold fell 0.7%. And oil prices went into a freefall, down 24% to their lowest level since 2002.

Here’s my take of the currency carnage

Circumstances rapidly deteriorated with global mobility restrictions in full force. The global lockdown trigged self-accelerating appreciation of the US dollar as investors were forced to reduce leverage across all asset classes.

With few liquid options left to hedge into, the entire gale force of global risk hedging requirements spilled into the Foreign Exchange markets as nowhere else to hide other than the US dollar scenario steamrolled.

Much of the currency market focus has fallen on Cable overnight as the UK economy goes down the route of elsewhere and into full lockdown. The GBP hit 1.1500 overnight in fragile trade – the last time it traded lower than this was in March 1985, when 105 was the previous low. However, that is merely a symptom of the cause. Investors are forced to reduce leverage across all assets compounded by the USD liquidity squeeze.

It’s not like the downside outlook for the US economy is any better than elsewhere; in fact, non-traditional data confirm the US economy is shutting down quickly. Global currency markets have completely unhinged from a mechanical/technical reason compounded by the dash for dollars amid a USD liquidity squeeze.

Economics in the time of Covid

Economics in the time of Covid is a different beast with the best data being real-time that provides insight into the extent of the slowdown. US Restaurants are shuttered by mandate, and the data confirms a collapse with a few cities already at -100% table rates. But one of the more interesting ones is traffic data from TomTom. It shows the speed with which Houston went into a virtual shutdown, which both illustrates the ghost town outlook due to the collapse of the shale industry and mobility restrictions.

Yesterday London closing note I referred to the looming tail risk is that US unemployment is set to rise quickly. Attention has already turned to the scale of job losses, which will hit the US economy in the coming weeks and months. We’ll get our first clue of this on Thursday with initial jobless claims at 12.30 London. Headline expectations are for 220k initial claims, a modest increase from the previous week. The range of expectations isn’t huge, but the standard deviation of forecasts at 8500 is the biggest since December.

However, next week will be the truth bearer after state unemployment websites in Kentucky, Oregon, and New York crashed under the weight of traffic. And that according to an NPR/Marist poll conducted Thursday and Friday, 18% of households already reported someone being laid off or having hours reduced because of the coronavirus outbreak.US jobless claims highs of 695k in October 1982 and 665k in March 2009. I would expect these previous high-water markets to be obliterated and possibly hit 1 million new jobless claims.

Unlike the Lehman crash outside the financial sector, life went on as usual. In essence, restaurants took bookings; taxis took rides, shops were still bustling. This time around, the entire US (and global) economy on the precipice of shutting down, which means unemployment will skyrocket.

Where do we go from here?

Recently the focus has been on the market’s struggles, but ever so increasingly amid the market turmoil, and attention could start to turn towards the institutions that drive this market, especially the hedge funds themselves and their solvency. Yesterday it was announced that two UK property funds had become the first to “gate” due to market conditions. These will raise questions over whether other property funds follow suit, especially as investors in that sector could decide to sell whatever is liquid and is actively trading. Given the unbridled use of credit and leverage many of these institutions were operating on, we could be only bearing witness to the tip of the iceberg.

Will there be more financial repression if this continues? After all, there is nowhere safe at the moment to put your money other than a bank. The Fed and Bank of England may say they aren’t going to take rates negative, but what is going to stop commercial/ wall street and high street banks from starting to impose negative interest rates on their customers?

Oil markets

Crude oil is having a bit of a tough day today. Much of the impetus for the fall came after the headline earlier that Saudi Arabia’s oil minister told Aramco to keep supplying crude at a pace of 12.3mbpd over the coming months. And it has been one-way traffic since then.

The continued containment and lockdown response of the world’s major economies in response to Covid-19 will advance to a sharp impact on oil demand, but the OPEC+ producer group’s cranking up of supply into these unprecedented conditions will trigger even more selling.

The EIA US crude oil stockpiles rose last week while gasoline and distillate inventories fell last week, but the report predates the U.S. Covid 19 lockdown.

Even if global production remains static over the near term, let alone factoring in Saudi Arabia increased supply. Inventories will swell as gas and oil demand drops precipitously in the weeks ahead of when physical storage facilities are filled to the brim around the world. In this situation, it’s unclear if a point of equilibrium even fits into this scenario. As once the swift and savage physical rebalancing takes place, the markets could quickly fall to WTI $15 or even further, which is now becoming the base case for some.

Gold Markets

The gold narrative hasn’t changed provided there a cause for forced liquidation of other assets; gold prices will probably remain capped over the near term.

But as the demand for cash becomes more pervasive as personal liquidity and capital preservation become a dominant consideration in investors’ decision making. Bullion owners in any form physical, paper or scrap, will probably continue to liquidate in order to boost capital levels the more protracted the Covid19 global lockdown extends.

And if you’re wondering where the sovereign demand for gold is, according to Goldman, Russia demand has fallen off due to lower oil revenue.

But in my view, central banks are more concerned about increasing their USD holdings by any means and increasingly so through SWAP lines. At this stage, buying gold is well down their list of concerns. However, for the gold market concerns, hopefully, we don’t get to the stage where Central Banks need to sell gold to raise dollars as that’s when the trap door most certainly springs.

The World is All In!!


The Fed’s all-in strategy has failed to lift sentimentThe S&P fell more than 12% Monday, European stocks were between 4 and 5% lower following losses in Asia. US 10Y yields fell 22bps to 0.74%. Oil fell by almost 10%. Those moves follow weaker-than-expected Chinese activity data for January and February, intensification of citizen restrictions in the US and Europe, and despite leaders of the G-7 nations vowing to do “whatever is necessary” to support the global economy.

Unlike most instances of a sharp downturn in economic activity, this one was seen coming. The Fed bazooka does mater, But – critically – while the Fed wishes it could fire at the left-side of the V, it can only hit the right side with its stimulus efforts. Swamping credit markets with cash is their crucial motivation as conveying the appearance of keeping both credit lines and lending facilities awash with money during a possible credit crunch amid an economic downswing of this magnitude is critical. But painfully as it is, when you shut an economy down, low rates do not have a simulative effect on consumption until the shock passes.

This is 2008, but with a completely different focus. Back then, it was banks, his time bank balance sheets as fine the buffers built in after the GFC are working. Furthermore, liquidity tools are all working.

But this isn’t a banking crisis; it’s a global economic crisis where virtually every global industry will be facing extreme pressure without a public bailout.

Speaking of bailouts, one thing that has always been key in the market eye was how policymakers deal with a plummet in air traffic, which has sent Airlines shares into a death spiral while taking credit markets along for the ride. He combined One world, SkyTeam, and Star Alliance members have called on governments and stakeholders to provide extraordinary support. The group said there should be a re-evaluation of landing charges to mitigate revenue pressures.

Fortunately, for the airline industry, the White House was listening as economic adviser Larry Kudlow says the administration is drafting a financial assistance package for the airlines that are expected to include direct assistance, loans, and tax relief.

He also says it would consider sending cash to households as short-term relief. Hong Kong did something similar a few weeks ago, which, it was suggested then, is how sufficient helicopter money might work in practice while getting cash in the hands of the folks that need it the most.

Measures of volatility and risk in credit & equity markets are back to levels last seen in 2008 even as the Fed steps in again. But don’t misinterpret peak volatility with a trough in risky asset classes – history implies otherwise.

US bank stocks are around 18% lower. Eight US banks have announced they are suspending share buybacks and will instead focus on supporting clients.

Oil markets

Oil prices lifted off the mat in late NY trade after 24 hours of “sell sell sell” as COVID-19 newsflow over the weekend was exceedingly grim as Europe, and now the US begin to aggressively step up their reaction to the spreading of the virus. And emergency Fed cut in rates to zero serves to highlight the gravity of the situation.

Oil market historians are quick to point out that this is only the 5th ever demand decline in the modern era. But what’s different this time is that we are experiencing simultaneous supply and demand shocks.

Presumably, the market is getting supported by physical bargain hunters, but those storage facilities are rapidly filling. If storage does fill, quashing that demand, oil prices are sure to collapse further, and the global markets will then have to hope that the dispute between Saudi Arabia and Russia is resolved before we reach that point of no return.

In addition, the bounce in Asia could also be due to the front running of a possible China stimulus. Many traders are buying into the thesis that China will unleash the mother of all stimulus once China sees the virus through and people return to work

But Oil traders are hardly confused by the latest developments. On top of simultaneous supply and demand shocks, the market continues to move linearly as reports of global containment measure and more travel restrictions roll in. All of which suggest rallies will fade

And more damningly for oil prices is that perhaps the markets have underpriced the extent of the economic carnage as Covid-19 moves like a wrecking ball through the global economy.

When social distancing becomes and acceptable and widely used expression in everyone’s phrasebook, I don’t think people around the world are all that eager to jump in trains, plains, or automobiles, even if they wanted to. While the fear of secondary outbreak will likely keep them hunkered down well beyond peak virus

Gold markets

Yesterday early morning gold gains on the Fed rate cut reversed as equities slump, but losses pared; bullion is showing some signs of stabilization. Still, gold declines remain linked to investor’s need for cash.

A constant question on every bullion investor’s mind is why is gold retreating when uncertainty and’ risk-off’ sentiment is rising? Gold’s recent declines are chalked up to margin-related selling as equities fell. But there is an added fear element: the need for capital preservation is becoming a primary thought in investors’ decision-making process. Holders of gold, whether it be physical, paper, or even scrap, are liquidating to boost capital levels. But this may only go on for as long as equities remain so weak. The rebound late in NY is impressive.

Precious metals flow appear to be driven exclusively by forced liquidation across the yellow complex. ETF accounts are the most active with platinum leading the volume (the market is long; investors wanted to get out) and silver (XAUXAG ratio puffed up to all-time highs). Gold, which had attracted so much determinative subscription, there was initially more selling across the board overnight. Still, gold prices have axiomatically rebounded as gold is a hedge for all-seasons crowed was likely motivated by the deluge of central bank easing, which has made credit lines both reachable and actionable.

Similar conditions were seen in the aftermath of the financial crisis. Gold was initially caught in the crossfire but soon embarked on a rally to all-time highs. The policy response has been fast, and the velocity of devastation in asset values is unprecedented. But If gold is to retain its risk-off appeal, the recovery needs to be quick.

Good news for the gold investors is that the risk parity and vol control segment of the markets are running out of equity market risk to pare as stock market exposure plunged to GFC lows.

Forex markets



Traders need a more compelling reason to short the USD. Zero rates and QE will be very efficient in weakening the dollar once global growth sentiment turns around. But dollar funding stress across a breadth of global markets as evidenced but widening in the cross-currency basis last week signal more USD buying to come. However, if today’s Fed action effectively alleviates some for that credit stress, this would be the first step to a weaker dollar, particularly against currencies where risk premia are extensive such as EUR and AUD.

Beyond China (at a stretch), there is scant evidence that life is returning to normal. On the contrary, more significant restrictions on international travel, proximate social contact, and intra-country transit seem likely, which will undermine economic growth, with equity markets and credit markets taking more pain. Suggesting the greenback is not going out of favor anytime soon.

EM Asia FX

Yes, the global economic outlook is miserable, but what’s more critical for Asia FX risk is China. Yesterday’s China high-frequency activity data was horrible and even worse than expected amid the virus pessimism, which should continue to weigh on sentiment as China GDP revisions get marked lower.

The Bankers Association of the Philippines says FX and fixed income trading will be suspended from Mar. 17. (Bloomberg)

Taking a page out of China playbook, the Philippines policymakers are imposing the ultimate circuit breaker but shutting down the PSE as the island effectively goes into lockdown containment mod. It sounds like a prudent measure, although ultimately curbing short selling for a month or so might have been the first order of the day.

But the US dollar liquidity crisis needs urgent repair QE announced by the Fed overnight will help increase dollar liquidity in the global financial system. Still, the money needs to flow down to the real economy. This could give time. The fact EM central banks were not offered up Swap lines by the Fed at this time for them exchange UST’s for cash at the Fed window makes things a bit more urgent for small markets like the Philippines.

If there is a currency run in other parts of Asia due to the USD liquidity crisis, we may see similar curbs across Asia, starting with short selling restrictions.

In my view, its the USD liquidity crisis, not the economic damage is the absolute wrecking ball through Asia FX.

As Asia sees the virus pass before the west, things return to normal in ASEAN currencies quicker that most of G-10.

Fed Cuts Benchmark Rate to Zero, Launches Massive $700 Billion QE Program

For the second time in less than two weeks, the U.S. Federal Reserve (FED) cut its benchmark interest rates on Sunday, hoping the emergency move would help shore up the U.S. economy amid the rapidly escalating global coronavirus pandemic.

The Fed also launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.

In a statement, the Fed said it was cutting rates by 50 basis points to a target range of 0% to 0.25%.

“The effects of the coronavirus will weigh on economic activity in the near-term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range,” the Fed said in a statement.

“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the Fed said.

The move was considered an emergency because policymakers are not scheduled to meet until March 17-18.

Bullish for Foreign Currencies

The move by the Fed drove down U.S. Treasury yields, erasing the impact of last week’s moves by the central bank to shore up the financial markets. Lower yields weakened the dollar against all major currencies.

At 22:51 GMT, the EUR/USD is trading 1.1186, up 0.0081 or +0.73%. The GBP/USD is at 1.2418, up 0.0.125 or +1.02% and the USD/CAD is at 1.3753, down 0.0054 or -0.39%.

The AUD/USD is trading .6244, up 0.0066 or +1.08% and the NZD/USD is at .6100, up 0.0032 or +0.57%.

The safe-haven Swiss Franc is at .9467, up 0.0048 or +0.50% and the Japanese Yen is trading 107.211, down 0.808 or -0.75%.

Fed Intervened to Prevent Financial Crisis, Not to Save the Stock Market

Last Thursday, the U.S. Federal Reserve made a dramatic move to stabilize the financial system that many thought represented a stock market bailout. The Twitter-world was fast to call it a bailout with some tweeters suggesting if the Fed has enough money to bail out the stock market then why not those ordinary folks holding student loan debt or common mortgages. However, the real reason the Fed injected about $1.5 trillion into the debt markets was to keep them from collapsing in the face of the rapidly spreading coronavirus mania.

Were the debt markets on the brink of collapse? We’ll never know, but what we do know is the call was close enough to cause the Fed to take aggressive action. It also highlights how fast conditions can change even in a highly regulated marketplace. It was important for the Fed to act quickly because of lessons learned during the 2008-2009 financial crisis, where credit markets seized up, ultimately putting a couple of major brokerage firms out of business, forcing mergers and leading to the biggest bailout of the U.S. financial markets in history.

In short, the Fed did not flood the market with cash to save the benchmark S&P 500 Index from crashing or widely-held Amazon shares from wiping out small-investor 401K accounts. Its aggressive move was not meant to save the few, but to save the many from a major collapse of the vital Treasury market. This move was designed to prevent another financial crisis.

Every day, small banks, big banks, brokerage firms, hedge funds, money markets and the Federal Reserve participate in the repurchase agreement or repo market. The world’s financial institutions use this type of transaction to fund themselves using government debt as collateral. Due to the excessive demand for Treasurys, liquidity has become a major issue. Essentially, if the repo market seizes up for some reason, much of the financial system will cease to function. This occurred during the 2008 financial crisis which is often described as a “run on the repo market.”

So the Fed didn’t bailout the market last week, it provided liquidity to a major market that became less liquid as financial firms gobbled up safe-haven Treasurys as protection during the coronavirus crisis that turned our bull markets into bear markets in a matter of weeks.

With the major investors taking cash out of the markets by buying Treasurys, the Fed made a move to address this shortage by putting cash back into the market.

I wrote on March 10 that investors should ignore the headlines and focus on the direction of Treasury yields. “Looking at the short-term, stocks could continue to retrace their recent break if yields continue to rise. That’s the simplest forecast.”

Stocks closed lower last week, but Treasury yields moved higher. Some of the selling in the stock market was related to investors making adjustments to lower earnings. This is normal. What isn’t normal is a stock market crash and that aggressive selling was being fueled by fears of a financial crisis, not only a recession.

Now that the Fed has stepped in to provide liquidity, the Treasury bond buying could subside. So we could actually see yields and stocks rise at the same time. (I know, it’s not what you’ve been used to seeing.) Furthermore, rising yields and stocks could also pressure other safe-havens like the Swiss Franc and Japanese Yen. Gold could continue to tumble as rising rates drive up the U.S. Dollar, making dollar-denominated gold a less-desirable asset.

In summary, the Fed didn’t intervene last week to save the stock market, it moved to save the financial system. And it probably made the best move at the right time. Just look at how many markets were impacted by its move to make liquidity available. If conditions worsen, don’t be surprised if the Fed does it again.

Put that in your trading toolbox:  Fed intervention, yields rise, stock selling subsides, dollar rises, and safe-haven bonds and Japanese Yen break. Gold, well with yields rising, gains are likely to remain caps and losses could grow.

Fed monetary liquidity is good news. Massive government fiscal stimulus will be next. Hopefully, the Fed and the government can get on the same page and provide a double-dose of stimulus simultaneously.

Market Riding The Wave Of Fiscal Leadership 

Better market sentiment eventually won out in US equities overnight, the S&P500 closing almost 5% higher after a volatile session that saw the index in the red at one point, and after substantial recovery in oil prices. Oil prices are up ~10% over the past 24 hours after the historical declines were seen Monday. US 10Y treasury yields have also risen, up 25bps to 0.79%.

But with White House headlines driving the bus, this thing could flip on a dime as we’ve had many failures to communicate with this administration, fingers crossed they don’t mess this one up big time.

Expectations for a “major” fiscal stimulus package by the US government have underpinned sentiment – even if the volatility suggests the market still needs a bit of coaxing. Indeed, investors were in desperate need of leadership from policymakers’ Central banks can do their bit, but in times of viral cataclysm, it’s governments that must be seen as in charge of the proceedings. US President Trump’s actions evidenced how little it takes for markets to respond favorably.

In the early stages of a fiscal response, an expression of dogged determination to do by any means necessary can be a game-changer. In a later stage, however, discernment will be based on the quality and how rapidly the measures are rolled out.

Although there remains a lot of uncertainty and pessimism in the market, traders are flourishing in this environment as the big swing moves are a recipe for fast money to merry make given the linear smorgasbord of risk on/off trades available in the market.

Oil markets

Oil investors are taking comfort, and prices are finding support from the White House administration plans for economic stimulus and a slowdown of new COVID-19 cases in both China in Korea. The virus outbreak in China looks increasingly to have come under control, while the drop in case counts in Korea, the best proxy case study for investors, is providing a light at the end of the Covid19 tunnel. As Korea sees off the virus, markets will assume aggressive quarantining in countries with advanced medical care will follow suit.

The good news is that oil markets appear already to be pricing in the rapid return of Asia oil demand. While we should expect volatility that could even briefly punish oil into the upper $20/b range, with the fiscal taps expected to open wide on a global manner, oil prices could find support. They may even continue to claw back lost ground when those fiscal pumps actuate.

The overnight bounce also demonstrates there is already some awareness that markets may have been too quick to price in a worst-case supply scenario for oil.

The bad news is that there no end insight sight to Saudi Arabia and Russian squabbling. However, OPEC members have been quick to remind market participants that backroom channels remain open. But if both colossal oil-producing giants are determined to take this fight ” the championship distance, it will be bad news for oil bulls. Reports overnight that Saudi Arabia is committing to supply 12.3mb/d of crude in April (around 2.8mb/d above their current production level) suggests any prospect that relies on cooperation from Saudi seems unlikely in the near term. While other press reports suggest Rosneft could raise production by 300kb/d very quickly from 1 April, suggesting Russia is also digging in for the long haul

Falling an exogenous supply shock, I see two possible upside scenarios from here: 1) Russia and Saudi Arabia could resolve their differences, paving the way for a return of the OPEC+ agreement and coordinated supply cuts to support the oil price. 2) Saudi Arabia and the rest of OPEC could decide to go it alone and collectively do what they can to help oil prices.

Despite the sizeable crude build, as reported in the API survey, oil prices have held up as the White House continues to fortify the cracks with a mega stimulus package.

Gold Markets 

The once-in-a-generation supply/demand shock in oil has temporarily diverted cross-asset market maker’s attention away from gold. It feels like the broader commodity complex has bedewed the price action, but so far, deeper dips to $1640 are currently well supported. Negative real rates and the sticky nature of the gold buyer propensity could offer up a primary level of support. Still, it’s far from a one-way street amid newfound USD demand as confidence remains shattered after failing to take out $1700 when the gold stars were aligned. And gold could fall much more now if Covid19 case counts continue to fall in Asia and the incidents in Europe stabilizes, which could trigger a cheapening of the global yield curve (price decreased yield goes up) and green light risk sentiment.

I also expect more opportunistic producer hedging at these levels – interest remains out of South Africa remains heavy, which continues to cap upticks.

If you follow my blog, you know I’m a regular buyer of RCM one once bars, but with Bangkok awash with scrap given the XAUTHB elevated level I don’t leave home without my gold testing kit these days as I can buy scrap 96-99 % pure $ 50-100 below spot yesterday. This could be taking some physical demand away from the market given Asia is awash with scrap, and smelters are doing vibrant business these days while offering Jeweler demand at a discount to spot. Indeed, the essence of gold is all about the supply and demand curve.

Currency markets 

The US Dollar

Despite rising fears of a global recession and credit crisis spurred by bankruptcies in energy, tourism, airlines, and other industries, the trading equation is getting more complicated. Over the last 24 hours, we have had a ton of policymaker noise.

President Trump’s seeming denial of the coronavirus crisis has unquestionably been a significant factor driving flows over recent weeks. Investors started to price in ever worse pandemic outcomes; the longer a credible response was absent. The ultimate game-changer came about on Monday, when the first indications that the White House might change tack, and immediately markets responded positively. Trump said that on Tuesday afternoon, he would announce ‘very dramatic’ actions to support the economy with ‘major’ steps to get ‘very substantial relief’ for businesses and individuals. It’s great for the USD when the President has the US  markets back

The Euro

The Euro fall is not merely a position reduction move ahead of the ECB, although that notion provided to be an extremely timely inflection for those that cut on the EURUSD surge to 1.1470-1.500 (my target zone entering the week). The move higher in EURUSD was all about the Fed cutting rates, likely down to zero, possibly as soon as next week, with the ECB unable to match the moves. Because monetary policy cannot backstop a coronavirus-driven economic hit, equity and fixed income markets panicked regardless. Once fiscal policy measures are being taken, they will become a driver of relative market performance. With the White House administration leading by example, US exceptionalism will without any time. As long as the European policy response remains underwhelming, EURUSD might not move much beyond 1.1500.

The Japanese Yen

Equity futures are a fair bit off the lows, and USDJPY has moved above 105 as a consequence of risk turning on. And while the critical risk marker has been subject to express elevator rides in both directions. The thought of fiscal by the US and Japan in a coordinated fashion does hint that the US treasury is willing to overlook a Tokyo policy influenced marginal cheapening in the Yen for the betterment of global trade and investor sentiment.

The Ringgit

Trades will take some comfort in the White House fiscal policy inspired rebound in the commodity markets that see oil prices claw back a chunk of the Monday losses. The problem for trading ASIA FX is how will lower US interest, but weaker growth in China impact currency sentiment. So, we could be back to growth vs. differentials. In my model, the three-month growth outlooks win out every time with global interest rates, so low m high yielder strategies aside.

In stock markets flow the Asia to big to miss optimism continues to resonate to a degree amid the genesis of rapidly falling regional rates, and the prospect of a stable and even more robust RMB does flicker the green light on ASIA FX pullbacks. However, growth risks suggest that chasing a local currency rally is but a mug’s game until the economic data definitively pivots.

With the market in a dollar buying from of mind, there will be some spots to pick on a pullback to 6.97 USDCNH while currency Ringgit leaves look attractive if you think the Oil market rebound will stick as the Ringgit could be a stable beta to oil trade in the making.

Gold Peeks Above $1,700 amid Coronavirus Fears and Market Turmoil

On Sunday, Italy registered a huge jump in new cases of the COVID-19, the stock market plunged, while the oil market crashed. Tuesday morning, and Italy is on lockdown. Meanwhile, gold jumped above $1,700. What’s next for the yellow metal?

Gold Jumps Above $1,700

Last week, I wrote that:

from the fundamental point of view, the environment of fear, ultra low interest rates, weak equity markets and elevated stock market volatility should be positive for the yellow metal (…) the good news is that the markets expect further Fed’s interest rate cuts on the way – it lays the foundation for future gains in the gold market.

And indeed, we did not have to wait long for more gains. On Sunday, gold jumped briefly above $1,700, reaching another psychologically important level, as the chart below shows. The yellow metal made it to this price point for the first time since late 2012.

Chart 1: Gold future prices from March 3 to March 9, 2020.

C:\Users\arkadiusz.sieron\Desktop\GOLD\FUNDAMENTAL GOLD REPORT\stooq gold march 9.png

Yes, you guessed, gold went further north amid the growing spread of the COVID-19. Data reported to the World Health Organization by March 8 shows 105,586 confirmed cases in the world, of which 24,427 originated outside China. Actually, over 100 countries have now reported laboratory-confirmed cases of the new coronavirus.

What is really disturbing is that Italy reported a huge jump in total cases and deaths from the COVID-19 on Sunday, a surge from 4680 and 197 to, respectively, 7424 and 366, as one can see in the chart below. The jump in figures comes as the Italy’s government introduced a quarantine of 16 million Italians in the Lombardy region and 14 provinces and announced the closure of schools, gyms, museums, ski resorts, nightclubs and other venues across the whole country. In the US, more than 500 people have been confirmed to have the virus and more than 20 of them have already died.

Chart 2: Total number of confirmed cases of COVID-19 in Italy from February to March 2020.

The spread of the COVID-19 increased the risk of a full-blown world pandemic and global recession. The expected economic slowdown slashed the demand for oil. To make matters worse, the OPEC and Russia did not agree on production cuts. Instead, the Saudi Arabia slashed its April official selling price and announced plans to raise production in a bid to retake market share. As a consequence, the WTI oil price plunged below $30, or 34 percent in the biggest crash since 1991, as the chart below shows.

Chart 3: WTI oil price from March 3 to March 9, 2020.

Moreover, the stock market plunged again. The futures on S&P 500 went down 4.5 percent on Sunday evening in North America, and closed 7.5% lower (that’s over 225 points down). It’s not surprising that investors are fleeing equity and oil markets and increasing their safe-haven demand for gold.

Another positive factor for the gold prices is the collapse in the bond yields. The 10-year interest rates have plunged below 50 basis points on Sunday. As a reminder, in December 2019, the yield was slightly below 2 percent. It means a huge change. The bond market action implies that investors are expecting recession and the Fed’s accommodative response. It would be hard to imagine better conditions for gold to shine.

Chart 4: US 10-year Bond Yields from March 3 to March 9, 2020.

Implications for Gold

What does it all mean for the gold market? Well, I am of the opinion that the prospects for gold are positive. We have not yet reached the full-on panic. The epidemiological peak is still ahead of us. With Italy rolling out a massive quarantine, the fears over the COVID-19 impact on the supply chains and the global economy will intensify. Moreover, the biggest headwind to the gold market, i.e. strong US dollar, has been removed. As the Fed’s interest rates cut worked to soften the greenback, gold can now benefit from both the safe-haven demand and the weak US dollar.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron, PhD
Sunshine Profits – Effective Investments Through Diligence and Care

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Trading Alerts.


As Yields Move Higher for Week, Keep Your Eye on the Leader – US 10-Year Treasury Notes

U.S. Treasury yields are moving higher on Tuesday but holding near record lows reached the previous session as a relative calm returned to crude oil and equities after both markets were routed on Monday. The early price action indicates the risk markets are recovering a little bit, which may be the result of investors coming in to by the dip in equities.

At 03:29 GMT, the benchmark U.S. 10-year yield is 0.643%, up 0.145% and the U.S. 30-year yield is at 1.097%, up 0.159%.

The German 10-year Bund is at -0.835%, up 0.09%. Japanese 10-year Government bonds are at -0.08%, up 0.053% and in the UK, the 10-year is at 0.168%, up 0.008%.

‘Not in My Lifetime’ U.S. Treasury Yields

Government paper investors were shocked on Monday when U.S. 10-year Treasury yields fell below 0.5%. Traders said a plunge in oil prices combined with worries about the spreading coronavirus combined to drive market participants into Treasuries, accelerating a years-long rally that took yields to levels not seen in anybody’s lifetime.

Traders also said the groundwork for the rally was solidified by unprecedented asset purchases by the Federal Reserve, stubbornly low inflation, changing U.S. demographics and slower growth.

Where to From Here?

Let’s face it, few analysts got the call on yields right. Additionally, forecasts have consistently overshot the eventual path of bond yields over the years.

The Fed delivered a huge surprise last week with an emergency 50-basis point rate cut. Investors are now betting the central bank will deliver at least another 75 basis points in rate cuts this month, according to the CME’s FedWatch tool.

Some investors believe that some U.S. government debt instruments may one day fall below zero, a move that would contribute to the world’s already-massive pile of negative yielding debt.

Follow the Leader – US 10-year Treasury Yields

As a Chicago guy, I was taught nearly 40-years ago that the Chicago Board of Trade Treasury traders were the smartest traders in the world and that if you want to know where stocks are going as well as the health of the economy, watch the yields.

Yields were plunging well before the stock market “caught up” to what they were saying, and they are going to be the first to signal the all clear signal.

Tuesday’s early “lower-high, lower-low” chart pattern is the first since March 3 and only the second since February 19. This chart pattern makes Monday’s high a Minor Top. It doesn’t mean the trend is changing, but it can eventually develop into one.

Looking at the short-term, stocks could continue to retrace their recent break if yields continue to rise. That’s the simplest forecast.

A more complex forecast would involve a change in trend on the 10-year Treasury Note chart. This could take 3 to 5 days to develop.

But, traders should note that as of 04:00 GMT, 10-year Treasury Note Yields are trading higher for the week.