Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 3 Apr 2020, 8:59 AM


Wall Street Breakfast: Another Week Of Market Volatility?

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S&P 500 futures triggered another 'limit down' trading halt overnight after tumbling 5%, even after the Fed embarked on a massive monetary stimulus campaign to cushion the U.S. economy from the coronavirus pandemic. Interest rates were slashed to near zero, while the central bank said it would buy $700B in Treasury and mortgage-backed securities. It's also letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to zero percent.

Why the selloff?

"It's basically using up all [the Fed's] ammunition within a three-week span. And there’s nothing left,” said Terence Wong, CEO of Azure Capital. "The policy response is so strong, it's likely to spook investors," added Michael O'Rourke, chief market strategist at JonesTrading. Many investors also want to see coronavirus cases peaking and falling in the U.S. before it is safe to take on risk and buy equities again, while there's concern about earnings for 2020 and a potential recession.

Don't forget the oil-price war

Crude futures popped nearly 6% after the Fed's emergency action, but the gain quickly evaporated, with futures now tumbling about 5% to under $30/bbl. The action demonstrates the inability of policy support moves to save oil markets mired in a price war on top of the severely contracting global oil consumption. Meanwhile, gold climbed alongside Treasuries, as investors once again turned to safe haven assets.

Will COVID-19 hurt more than the financial crisis?

Data from China overnight provided a first glimpse of what the coronavirus can do to an economy amid a prolonged quarantine of millions of people. Industrial output tumbled by 13.5% and total retail sales plunged by 20.5% Y/Y in January and February, according to the National Bureau of Statistics. The urban unemployment rate surged to 6.2% in February, the highest level ever reported, and fixed asset investment slumped by 24.5% (down from 5.4% in the prior period).

Liquidity is the top priority

In a joint statement, the Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank pledged to use their swap line arrangements to ensure that dollars keep flowing across the globe. They added a weekly offering of the world's reserve currency over a longer maturity, and reduced the cost of the facility. Objective: Meeting the needs of companies and financial institutions rushing for dollars as the global payments system undergoes severe strain due to the coronavirus.

Big banks suspend buybacks

The largest eight U.S. banks, including BofA (NYSE:BAC), JPMorgan (NYSE:JPM) and Citigroup (NYSE:C), are putting share buybacks on hold through the end of Q1 and all of Q2 as they put capital to use by helping consumers and businesses. The move sounds smart politically, particularly as the Fed has re-launched QE with a vengeance, but it might dash the hopes of some bank investors. After all, what's the point of over-capitalization if a bank can't buy back stock when shares are cheap?

Global coronavirus cases overtake those inside China

The center of the coronavirus pandemic is shifting decisively toward the U.S. and Europe, as Italy reported 368 coronavirus deaths in just 24 hours. In fact, coronavirus deaths outside China (3,300+) have surpassed those inside (3,200) for the first time, according to figures compiled by Johns Hopkins University. Similarly, the 81,000 total cases in China have now exceeded the 88,000 outside the country, where cases of the disease were first reported in the Hubei province in December.

Over in Europe...

The Euro Stoxx 50 (NYSEARCA:FEZ) fell as much as 10% this morning as traders sized up recent developments hitting all sectors of the economy. Spain imposed a 15-day nationwide lockdown, banning its 46M citizens from all-non essential movement, while France and Germany closed large parts of their fortified borders. The U.K. government is also facing growing calls to take more drastic measures after the Trump administration expanded its travel ban to include the U.K. and Ireland.

Back in the U.S...

MGM (NYSE:MGM) joined Wynn Resorts (NASDAQ:WYNN) in temporarily closing Las Vegas casinos, while Colorado ski resorts suspended operations. NYC Mayor Bill de Blasio announced the shutdown of all city schools until April 20, adding that it's possible they may not re-open this year, and city restaurants were restricted to takeaway only. The CDC further recommended that organizers of events that are expected to draw more than 50 people should cancel them for the next two months.

Domestic air travel ban is on the table

The Trump administration is weighing "all options" to curb the coronavirus outbreak in the U.S., including an outright halt to domestic air travel. That's according to acting DHS secretary Chad Wolf, who added that the administration is following guidance from the CDC. Such a step hasn't been taken since 9/11, and it would raise questions about U.S. airlines' chances for survival without government support. Premarket: AAL -17.5%, UAL -13.5%, DAL -13.2%, LUV -10.4%, JBLU -9.3%.

Today's Markets

In Asia, Japan -2.5%. Hong Kong -4%. China -3.4%. India -8%.
In Europe, at midday, London -6.7%. Paris -9%. Frankfurt -8.1%.
Futures at 6:20, Dow -4.6%. S&P -4.8%. Nasdaq -4.6%. Crude -5.4% to $29.98. Gold +0.6% to $1525.80. Bitcoin -12.6% to $4555.
Ten-year Treasury Yield -17 bps to 0.78%

Today's Economic Calendar

8:30 Empire State Mfg Survey
4:00 PM Treasury International Capital


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