All Eyes On White House And Saudi Aramco
The S&P 500 Futures are up about 3.5%, and the US 10-year yield is up 13 bp to 0.67%. The White House is telling the world they're meeting with airline and Wall Street executives, and also that they are working on a package of fiscal measures. A payroll tax cut, paid sick leave, tax cuts for the hospitality and cruise industry, easing tariffs on China, and particular loans for small businesses have all been discussed.
And invariably global markets will again expect the Fed to do much of the heavy expected the Fed to launchpad every available monetary policy weapon its kit.
There's no official word so far, but the verbal intentions have undoubtedly helped.
OIL MARKETS
BLOOMBERG REPORTED THAT SAUDI ARAMCO (SE:2222) WOULD SUPPLY 12.3 MN BARRELS OF CRUDE OIL A DAY IN APRIL. THERE IS NO OTHER WAY TO VIEW THE KINGDOM'S DRAMATIC REVERSAL OF ITS POLICY OF SUPPLY RESTRAINT OTHER THAN IN AN EXTREMELY BEARISH LIGHT. THIS HEADLINE PALES IN COMPARISON TO THE CURRENT MARKET ASSUMPTION OF 10-10.5 MBD SO THAT IT COULD BE ANOTHER ROUGH DAY IN THE OIL MARKET. STILL, FORTUNATELY FOR TODAY, AT LEAST TRADERS CAN LEAN ON THE WHITE HOUSE FISCAL BACKSTOP TO TEMPER THE DOWNDRAFT.
IN THE ULTIMATE CASE OF PUSHING THE ENVELOPE, THIS DUMP IS EQUIVALENT TO ITS MSC, OR "THE AVERAGE MAXIMUM NUMBER OF BARRELS PER DAY OF CRUDE OIL (MSC) THAT CAN BE PRODUCED FOR ONE YEAR". THIS THEORETICAL CAPACITY HAS NEVER BEEN TESTED - IT IS AROUND 1 MN BARRELS PER DAY HIGHER THAN ARAMCO HAS EVER PRODUCED. I THINK MBS MEANS BUSINESS.
FOREX
LET’S CUT THROUGH ANY ILLUSION OF WHAT IS GOING ON IN THE CURRENCY MARKET TODAY AS PRICE ACTION WAS DOMINATED BY SHORT-COVERING REVERSING THE NASTY MOVES FROM MONDAY AS THE EQUITY MARKET WAS ALSO IN A SHORT-COVERING MODE. AS SHORT COVERING LED TO MORE SHORT COVERING AND SO ON AND SO ON. NOT TO BE CONFUSED WITH RISK-ON.
GOLD
GOLD IS STRUGGLING ON THE BACK OF POSITIONING, IMPROVING RISK SENTIMENT ON THE BACKEND OF THE WHITE HOUSE FISCAL RESPONSE, AND GENERAL NEGATIVE ATTITUDE TOWARDS COMMODITIES TRIGGERED BY THE OIL SELLOFF. CONVICTION LEVELS HAVE TO BE RUNNING LOW RIGHT NOW, ESPECIALLY AFTER FAILING TO BREACH $1700 WHEN IT APPEARED ALL THE CORRELATIONS STARS WERE ALIGNED.
ITALY AT GREATER RISK?
ITALY HAS EXTENDED A LOCKDOWN IN RESPONSE TO THE CORONAVIRUS OUTBREAK TO THE WHOLE COUNTRY, WHICH WILL HAVE SIGNIFICANT REPERCUSSIONS FOR THE ECONOMY. THIS COULD TRIGGER A NEGATIVE KNOCK-ON EFFECT ON SEVERAL FRONTS THAT ARE NOT PRICED IN.
PRESIDENT XI WUHAN VISIT TRIGGERS A RISK RALLY
After Chinese President Xi visited Wuhan, the capital of Hubei province this morning, Hubei government announced it would implement a "health code," a We
Chat App-based monitoring system, to start allowing people to travel within the province, as it tries to promote the work and production resumption in Hubei.
Onshore markets saw a recovery in risk as President Xi visited Wuhan. USD/CNH retraced from the highs following broad risk-on sentiment. We could see more intraday downside in spot, but 6.90-91 should hold as it's been pretty sticky in the past.
Equity futures are a fair bit off the lows, and USD/JPY has moved a couple of figures higher, leading to a lot of fear/risk premium being taken out of the curve. One-month USD/JPY is down to 17 vols from 22 with only a few points in between. The key bellwether marker USD/JPY is getting subject to express elevators rides both up and down these days as traders are getting whipsawed in every which way over the past 48 hours
Offshore USD/INR forwards are tracking the broader selloff in USD/Asia. Lower oil price should help India, which have a positive impact on the current account.