U.S. Equities rebounded from the biggest rout since 1987 as the U.S. government stepped up its efforts to offset the financial damage caused by the Coronavirus. Treasuries tumbled. The S&P 500 closed up almost 6% after trading in the red earlier, continuing a streak of volatility last seen during the Great Depression. The Dow Jones Industrial Average notched a 5.2% gain. Treasuries eased, erasing all of the nearly 25 basis point drop in yields on Monday. The Trump administration moved to send checks to Americans as soon as in two weeks to stave off the financial effects of an unprecedented upheaval in social interactions that looks set to plunge the world into recession. It also asked Congress for hundreds of billions in aid. The Federal Reserve reintroduced additional crisis-era tools to stabilize financial markets. The policy responses came after stresses appeared in the short-term funding and front-edit credit markets. The three-month dollar Libor rate jumped the most since 2008, and similar maturity cross currency basis swaps for Euro-Dollar, a proxy for how expensive it is to get the US Dollar, traded at the widest since 2011. Data showed U.S. Retail Sales fell in February, indicating the main driver of the economy, Consumer Spending, had begun to slow even before outbreak containment measures began. Companies began to scramble for cash, with Kraft Heinz, Caesars and MGM drawing down credit lines. Overnight markets again reversed. U.S. and European stock futures slumped and the Yen advanced, retracing some of the previous day’s moves as traders continue to test where fundamental valuations lie amid rapidly changing news flow. Rallies fizzled throughout Asia, with Japanese shares ending barely up after rising over 4% at one point. Sydney stocks plunged more than 6%, while shares in Hong Kong fell nearly 2%. S&P 500 futures once again fell by their limit after the index gained 6% on Tuesday. Australian and Japanese bond yields were higher, while Treasuries stabilized after tumbling Tuesday. As the Trump administration moves toward a big fiscal package and the federal government shifts to working from home, Treasury Secretary Steven Mnuchin warned the Coronavirus could send U.S. Unemployment up to 20% without government intervention. Oil resumed declines to trade near the lowest since 2003 and copper dropped below $5,000 a ton.
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Equities
With the Coronavirus grinding the global economy toward a standstill and Central Banks dramatically stepping up efforts to stabilize capital markets and liquidity, The Trump administration asked Congress for more than $1 trillion to combat the virus’s effects, a third attempt to juice government spending. A bear market does not preclude rallies. The biggest rallies can be in bear markets — erratic swings are exacerbated by the present high-volatility regime and strained liquidity conditions. With VIX remaining significantly above the long-term equilibrium, alarm bells are still sounding and traders should be wary of relief rallies.
The S&P 500 closed 6% higher at 2529. However, this morning Futures on the the S&P 500 are locked limit down at 2398.
The Dow rose 5.2% for a 1059 points gain to close at 21,237.
Euro Stoxx 50 closed 2% higher but is opening 4.1% lower this morning.
MSCI Asia Pacific Index dropped 2%.
Currencies
Here is a summary of the main changes in F.X. Markets:
The Japanese Yen depreciated 1.7% to 107.66 per dollar.
The offshore Yuan was at 7.0419 per dollar.
The Euro dipped 1.6% $1.1007, which is the biggest fall in 21 months.
Bonds
The yield on 10-year Treasuries rose 28 basis points to 1.00%.
The Yield on 30-Year Treasuries gained 32 basis points to 1.60%.
German Yields gained three basis points to -0.43% for its sixth consecutive advance.
Commodities
West Texas Intermediate crude dropped 6.4% to $26.87 a barrel.
Gold strengthened 12% at $1,532 an ounce. However, this morning most of these gains have gone and we are now trading at $1500.
This morning on the Economic Front we have Euro-Zone CPI and Trade Balance at 10.00 am. This is followed at 11.00 pm by U.S. MBA Mortgage Applications. Finally, at 1.30 pm we have Building Permits and Housing Starts.
March S&P 500
Although the VIX closed 8% lower we are still trading near all-time highs at 75.91. Today is the sixth trading session that we have closed near the highs for the market then to reverse the next day with the Futures locked limit down at 2398 as I go to press. The Fiscal Compensation that I spoke at length about yesterday is finally happening with all Americans’ expected to receive a cheque for $1000 in the next two weeks. Central Banks could increase their Quantitative Easing programmes to absorb the entire additional debt issuance. In short, they could simply expand the monetary base for every G7 Economy by 25% of GDP. This would help stabilise Equity Markets. I am still flat the S&P and today I will lower my buy level slightly to 2280/2330 with a 2255 stop. I will continue to be an aggressive buyer on any further plunge to 2100/2180 with a 2055 stop. As I said in my Commentary above that we often see the biggest rallies in Bear Markets. So far in this brutal sell-off we have not had two decent trading sessions where the market has rallied. This time is getting nearer and is why I am reluctant to chase the S&P lower. Therefore, my only interest in going short is still from 2670/2715 with a 2742 stop.
EUR/USD
The demand for the US Dollar is incredible with the Euro falling to 1.0975, 500 points below last week’s high. I see further downside to 1.0830/1.0890 and possibly 1.0650/1.0725 where I will be an aggressive buyer with a 1.0595 stop. I will now lower my sell level to 1.1080/1.1130 with a 1.1175 stop.
June Dollar Index
The Dollar rallied 2% yesterday and is trading just below 100. We have now rallied over 5% in a week. I am still flat and today I will raise my buy level to 98.70/99.20 with a 98.35 stop.
June DAX
While the Dow made a new low for the year yesterday both the FTSE and DAX had a higher low. This is the first positive divergence that we have seen since the sell-off started last month. I am still flat the DAX and today I will raise my buy level to 8290/8440 with a 8195 stop.
March FTSE
The FTSE just missed my initial my 4930 buy level before rallying to close over 5300. This move higher was helped by a combination of a severely oversold market and the promise from the UK Government that it has pledged a massive £330bn to help businesses during this unprecedented crisis. Today I will move my buy level higher to 4880/4980 with a 4815 stop.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 20020 buy level with a low of 19905 before rallying to my revised 20195 T/P level and I am now flat. My T/P level was too low as the market rallied to close on the high of the day at 21,237. In my opinion we are very near completing this phase of the sell-off and it is why I am aggressive buyer from 19150/18000 with a 17400 stop. Even though the market is locked limit down I am not going to chase the Dow lower and I will leave my 22300/22500 sell level unchanged with the same 22650 tight stop. The Dow has initial support from 19450/19700 where I will be a buyer with a 19295 stop. If I am taken long I will have a T/P level at 20070. If I am taken long at my aggressive buy area I will still look for a retracement to at least the 24,000 area. If I am taken short I will have a T/P level at 22070.
March NASDAQ
My NASDAQ plan worked well with the market trading the whole of my sell range for a 7450 average short position before selling off to my 7360 T/P level and I am now flat. This morning the NASDAQ is locked limit down at 7075. We have strong support from 6770/6840 where I will be a buyer with a 6690 stop. The NASDAQ has resistance from 7550/7650 where I will be a seller with a 7725 stop.
June BUND
The BUND gapped lower at this morning’s open and is now trading over 200 points below last night’s close. The Bund has now fallen over 800 points in a week. This morning I bought the Bund near the bottom of yesterday’s buy range at 170.20 before getting stopped at 169.75 and I am now flat. The Bund is severely oversold with support from 168.70/169.30 where I will be a buyer with a 168.35 tight stop.
Gold Rolling Contract
Gold continues to be volatile with $60/70 moves a regular occurrence. I am still flat Gold. I have no edge in this market given the fact that we are trading $450 above the December 2015 low while at the same time Silver has broken its equivalent low from that day. I am going to stay flat the Gold market for now.
Silver Rolling Contract
I am still flat and today I will raise my buy level slightly to 11.50/11.90 with a 11.05 stop.
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