Daily Market Outlook, March 16, 2020

Daily Market Outlook, March 16, 2020

Daily Market Outlook, March 16, 2020 

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The US market managed to pull off a last minute rally ahead of Friday’s closing hour; the Dow Jones, S&P 500 and NASDAQ notched more-than-9% DOD gain, their best daily performance since 2008. This followed rebounds in European market earlier as markets staged a strong recovery from the ruthless global selloff on Thursday. 

That said, US stocks still closed the volatile week lower by 8- 10% as the Covid-19 pandemic sharply raised the risk of a global recession. Trump declared a national emergency on Friday. On Saturday, the US Administration closed in on a deal with Congress to approve an aid package that offers paid sick leave and free virus testing to Americans. 

The Fed slashed rates this morning by 100 basis points and announced that it will restart purchases of $700b worth of bonds, marking its back-to-back off schedule reduction within two weeks. The RBNZ too made an emergency 75 basis points cut in its OCR ahead of its scheduled 25-Mar meeting and is mulling QE. 

Futures tied to US key stock benchmarks have since fell sharply; the USD is seen tanking against its major rivals as of writing. Gold rebounded after falling nearly 9% last week, Brent crude seen trading lower at $32.76/barrel this morning after losing 25% last week. Focus now turns to the BOJ which has just brought forward its Thursday meeting to today. 

On the CFTC front, the investment community was seen going against the USD, with net implied long USD positions in the leveraged accounts pared, and in non-commercial accounts cutting almost to neutral levels. Big declines were seen in the EUR and JPY short positioning in the non-commercial and leveraged accounts, suggesting that the reversal of carry trades that benefited the EUR and JPY since late-Feb may have run its course.

Fed cut rates to near 0% in second emergency move, to restart QE: The Federal Reserve slashed the fed funds target rate by 100 basis points in an emergency move this morning and announced that it would purchase $700b worth of bonds that include treasuries and mortgage-backed securities, effectively launching a new round of quantitative easing. The Fed’s move was unprecedented as this marked a back-to-back off-schedule cut in less than two weeks. It came just days ahead of this week’s scheduled FOMC meeting and barely two weeks after its recently first off-schedule 50 basis points cut on 3 March, bringing the total reduction to a massive 150basis points to a range of 0-0.25% in less than a fortnight. In its statement, Fed said that the effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. It is expected to maintain these new levels of rates until it is confident that the economy has “weathered recent events” and is on track to meet maximum employment and inflation targets. Chairman Jerome Powell held a press conference after the announcement. He reassured that the Fed still has tools and rooms to act to counter this economic slump. There is no forecast this month and the next one is likely in June, mentioning that the second quarter will be very weak and outlook beyond that is highly uncertain.  

RBNZ jumped in with 75 basis point emergency cut: The RBNZ too kicked the week off by cutting its official cash rate by 75 basis points, an emergency decision as the scheduled meeting was on 25 March. The move brought the OCR down from 1.00% to 0.25%, the level at which it would be “for at least the next 12 months” according to the central bank. RBNZ cited rising economic implications of the Covid-19 outbreak and the negative impact on the New Zealand economy will continue to be significant. RBNZ said that further stimulus is required and added that it is mulling a QE program; “a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions”.  

Weaker US consumer sentiment in early March: The University of Michigan Consumer Sentiment Index slipped to a five-month low of 95.9 in early March (Feb: 101.0) according to a preliminary reading, reflecting concerns over Covid-19 outbreak and falling stock prices. The index only covers the first 11 days of March and predates the negative development of Covid-19 in the country that has led to eventual cancellation of numerous sports and culture events, closure of museums and Trump’s declaration of a national emergency.  

Low imported inflation on oil price weakness: US import price index dropped 0.5% MOM in February (Jan: +0.1% revised), its first decline in four months thanks to the sharper than usual fall in imported fuel prices (-7.7% vs -0.6%) that was led by lower cost of petroleum and to some extent lower natural gas prices. YOY, import prices extended further decline of 1.2% (Jan: +0.3%) after a modest increase, contributing to overall subdued inflation in the system. Inflation is expected to moderate further in March onwards following the severe drop in oil prices amid a Saudi and Russian oil feud as well as softer demand stemming from the Covid-19 pandemic that had only accelerated in March.  

UK house price jumped to record: The UK Rightmove House Price Index rose 1.0% MOM (Feb: +0.8%) and jumped 3.5% YOY (Feb: +2.9%) to its record high in March as the housing sector recovery continued post Brexit. The recent BOE’s 50basis point rate cut could help propel demand further but Covid-19 outbreak poses a significant downside to the sector in the short term. 

 

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Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD:  1.1180 (EUR727mn); 1.1100 (EUR727mn)
  • USDJPY:   109.60 (USD1.2bn); 109.55 (USD420mn)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.12 Bullish above)

EURUSD From a technical and trading perspective, price pulled back sharply to test pivotal 1.1050/30 support which represents symmetry swing and Fibonacci 61.8% retracement of the February advance, as this level supports there is a window for another leg higher to develop. The next leg up will be confirmed with a daily close above the near term VWAP at 1.12

GBPUSD (Intraday bias: Bearish below 1.26)

GBPUSD From a technical and trading perspective, the inverse head and shoulders scenario discussed in last week’s Weekly Market Outlook appears to be negated, unless price can stage an impressive key reversal pattern today closing above Friday’s highs then it appears price looks poised to make a rund to test bids and stops below 1.20

USDJPY (intraday bias: Bearish below 105.89 Bullish above)

USDJPY From a technical and trading perspective, anticipated upside correction extends to test the equidistant swing objective sighted at 107.96, as 108.50/109 prior trend line support no acts as resistance there is a window for another leg lower to develop to retest prior swing lows a close sub 105.80 will flip the daily chart bearish again as per the near term VWAP

AUDUSD (Intraday bias: Bearish below .6300 Bullish above)

AUDUSD From a technical and trading perspective as .6300 contains upside attempts look for a test towards the support cluster towards the psychological .6000 level (equidistant swing and pivot cluster)

 

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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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