Asian stocks looked set to slump after US equities tumbled the most in 12 weeks, while worries over a jump in coronavirus cases added to concern the recent rally had gone too far.
US equities were sharply lower Thursday, the S&P500 down a frightening 5.9% following similar losses through Europe and Asia as spikes in virus infection rates in the US spooked the pants of global investors.
While overall growth in infection rates nationwide remains steady, the FT notes seven-day average rates of new cases in California, Florida, Georgia and Texas are at or near record highs. Bloomberg reports officials in Houston are getting close to imposing a new stay-at-home order and are looking to reopen a pop-up virus hospital.
Underpinning the risk-off tone was the Fed's downcast economic outlook which highlighted those specific financial concerns around the virus. I don’t think you could have imagined a worse setup for risk if you drew it up in a ‘How to Trade an Overcooked Stock Market’ 101 manual.
Was it too pessimistic a view? Who knows. The employment data remains depressed and the trajectory of the data will matter. But, for years on end, the market continues to struggle with the Fed’s exercise in verbal gymnastics, much to the detriment of risk assets.
Asset bubbles and inflation are not a concern to the Fed. That was made abundantly clear, which means more is coming from the Fed and when that happens does it mean buy the dip?
If equities like cheap money you’d think risk markets would have perhaps embraced Fed Chair Powell's comment that the Fed "wasn't even thinking about raising rates." Putting aside the fact that Powell even felt he needed to make that statement, equities have decided that's enough for now.
Robin Hood and their merry bunch of retail investors have recently dominated headlines in the financial press and, sadly, likely bore the brunt of the recent market capitulation. For the most part, at the very tail end of the equity market rebound (+3000 S&P 500), this was probably the most undescribed institutional backed rally of all time.
In options markets, traders have been piling into downside trades, especially in the US, so – possibly not today, but on Monday for sure – it will be worth watching whether they stick with these trades or opt to recoup the premium.
The stock market moves are staggering but it feels like there’s little blood on the street. Sure, there are the usual blather mouths out there telling everyone "I told you so," but everyone knew this market was overcooked and were waiting for the ball to drop. There should be no joy and, most of all, no back-slapping when hard-working folks’ money is getting poured down the drain. I wish the new kids on the block had taken some advice from the pros not to chase this thing as the asset price disconnect to economic reality was becoming more laughable than it had become worrying in institutional circles.
Bizarrely – and I can’t believe I’m going to type this after an eye-watering 230-point drop top to bottom on the SPX this week – at the moment, until there’s indisputable evidence of a secondary outbreak in NY, the market moves still seem more about profit-taking than a new period of risk-off.
With that said, I’m not in the markets at all and not even entertaining the thought of reversion until next week as the secondary spreader is nothing to mess with while it conjures up the worst fears in traders and global investors alike.
And with the Bloomberg Commodity Index (BCOM) falling the most since mid-May amid broad declines in energy, metals and agriculture, and WTI crude futures plunging by the most since late April, there’s no point trying to take on the broader market as a whole until, at minimum, the BOCM pivots resoundingly higher.
Call me a fool, but that’s how the picture looks to me right now – and that’s notwithstanding the possibility that governments will not close down vast swaths of the economy, instead deferring to handling outbreaks with proximity guidelines.
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In this edition of “Charts of the Week”, we will have a look at precious metals where the short-term outlook has turned brighter, as well as Bitcoin which is going through a major sell-off right now, followed by Oil – which is finally on the move after days of consolidation – and two major currency pairs.