Thread by @MacroTechnicals

MT GLOBAL MARKETS Momentum & Sentiment Recap as of 06Mar20 wk10 thread 1/n

• "The Only Thing We Have To Fear Is Fear Itself" - FDR

• Emergency FED rate cut
• Bonds soar
• VIX spikes
• Credit Default Spreads Spike
• Supermarkets Run
• Italy regions in lock down

2/n this will be another very long thread, so...

First as usual, Global Markets weekly performance overview

SPX remains stable, but that's not the point. Another round of heavy selling and plenty of new 52wk new lows in Risk assets and a rush into safe haven.

3/n Global Markets 4wk change... a red sea in RiskOn, a green sea in RiskOff.
After energy sectors tanked, and global rout of central bank cuts, and credit-refinancing risk popping up, now banks under pressure.

Q: will they ban again short-selling when it gets worse ?

4/n Global Markets cross assets YTD as of wk10 , total RiskOff BlackSwan

5/n Momentum / Trend / Exhaustion table

• of course with this sell-off, some markets seem oversold, and can also bounce, but the theme itself has not changed at all : wide range (high vola) and parking money (STIR/Bonds/Gold etc)

• COVID not contained = high uncertainty

6/n Credit Spreads : CDX NA IG and HY spiked the fastest in years. While not "high" in historical context (yet?), thin liquidity, one-way-street, but some systematic HF who bought protection 4 weeks ago, started to hit some bids to take profit.

7/n Europe the same: ITRAXX Main (IG Corps) and XO (Crossover Corps HY), CDS indices spreads (insurance premium) spiked as Italy COVID-19 is not under any control. And everyone knows it keeps spreading and disrupting global supply/demand chain + infrastructure

8/n update on European Financials: this disruption will obviously create cash-flow problems and refinancing risks. Next in line: banks. Despite CSPP and all new regulations from FSB, BCBS, having G-SIBs to increase MREL + TLAC (capital buffer), risk remains risk.

9/n posterchild for the balance sheet ("The left side of the balance sheet has nothing right and the right side of the balance sheet has nothing left") in context of their building - DBK. But already weak Italian banks under renewed pressure

10/n update on the major CDX and ITRAXX indices Y/Y basis (inv scale) = really one-way street RiskOff. If they don't bounce significantly, stocks will remain either range bound or weak.

11/n central banks greatest concerns are banks. US banks are much better equipped with capital, but that doesn't mean they are immune to risk spreading. One of the key reasons FED stopped hiking in Dec2018 = credit spreads spiking.

Here is an update on WFC MS GS JPM BAC ...

12/n last 2 weeks credit spread widening highly negative correlates to SPX , and as the virus just starting to take US hostage, uncertainty remains high, and so is RiskOff. SPX may outperform other indices, but overall will remain under pressure.

13/n VIX structure remains huge inverted and overall elevated and reflects further huge range with possibly more on the downside. Lower interest rates may help in the long run, but the current fear of virus spreading has not changed at all.

here updated chart I post every wk

14/n Interest Rates :

FED has cut 3x before (midcycle adjustments), but trying to be pre-emptive with this week's 50bp emergency cut.

That is very rare !

Here in historical context on a 4wk rolling basis. yes, it's in the history books !

15/n and as 50bp emergency cut wasn't enough, the market actually is asking for another 100bp within the next 9 months. Thats how the STIR fears the virus impact. FED looks like 100 miles behind that curve.

16/n having said that, the current UST curve is "flat". Overall level of interest rates are great for refinancing, but one has to add the current element of fear = rush to safe haven = pure parking money into the equation.

First time in history to have a flat curve so low.

17/n why is this relevant ? It doesnt happen so often, we witness this Bull-Re-Steepening, where FED cuts and market is strong bid on bonds. Often it was a signal of the R-word. But never on low rates like this, previously much high. If FED cuts 50-100bp, it's for one reason only

18/n some may think, let's park money in MMKT, e.g. SHY ETF... that's almost like putting cash under the pillow.

ED Futures also MMKT, STIR, but have a complete different leverage game.

Here is the SHY performance . it is like the name = SHY of performance

19/ on the other hand of the rates trading spectrum many people know TLT, 20+ years T-Bonds and yes, long duration safe haven performed well indeed, plus a recent spike due to the virus.

And the volume spike reflects the rush, FOMO in Bonds ! that's rare !

20/n many people think Zero-coupons (or in this case UST stripped from coupons = principal only) are useless.

Long duration w/ massive discount = led to huge performance special circumstance.

compare ZROZ ETF w/ TLT or SHY.

Now volume picks up as duration risk increases too

21/n US stock market breadth :

NYSE advance -decline rolled over.

22/n NYSE new highs - new lows rolled over

23/n NYA % of stocks over the "magic" 50d or 200d MA.

24/n SPX vs VIX expected range next week .

25/n MACRO M.PMIs

while globally PMIs this week (Feb surveys) were quite mixed and most likely doesn't reflect yet the ongoing virus disruption, it is the heavy weight China dragging all indices lower of course.

26/n Global M.PMI vs DM and EM (all GDP weighted) reflect the (not surprisingly) total cratering of China after half their country was in lock down.

27/n global big 4

• US barely above 50 and 6M L
• EZ still below 50 but 12M H, and wait for next month Italy, Germany, France update
• Japan 47.8 and 45M low (more QQE !! lol)
• China cratered

28/n Global M.PMI vs Energy & Ind Metals Y/Y. nosediving of course.

29/n US M.PMI vs SPX Y/Y and US10Y (bp) Y/Y. March surveys will be weak.

30/n Global M.PMI vs MSCI global stocks, G7 weighted bond yields and CDX/ITRAXX credit spreads.

Virus not under control, means further fear, further disruption for the time being.

31/n as some M.PMI started to recover after the trade war global slowdown and global central bank cutting rates, COVID-19 comes around out of nowhere.

in March there were 14 CB cuts (I don't track all of them), but the flight to quality is reflected in the G7 bonds, stocks lag

32/n update on my macro, CB, Rates, curve table. Can't be clearer that this.

33/n Italy breaking news was the wake up call recently.... and it just keeps coming.

Here this is what any country can and probably will face in one way or another. Shut down and preventing the virus spread.

How can anyone guestimate the economic impact ? Fancy DCF excel ?

34/ these are samples from the local Sainsbury yesterday. Even though nobody has a clue how long this will continue and how deep it will impact normal life, this also spreads fear ... because:

35/ ...because this is what’s happening... Sainsbury Sunday 3pm.

I never thought I witness a true bank run and couldn’t believe people queued at Northern Rock autumn 2007.

Now a supermarket run, toilet rolls, pasta, hand wash...

people panicking

36/ these were on sale

37/ Relax, nothing is under control !

38/ side story: Saturday my missus received her British citizenship 🇬🇧, council staff asked to wash hands, Mrs Mayor opted not to shake hands when presenting the certificate, but - drum roll - they asked everyone to speak into the mic for the swear/pledge and PASS THE MIC 🎤😂

39/ also: we celebrated the special occasion at the Duck & Waffle, hand sanitizers on all 3 reception desks, downstairs lobby and upstairs. But the bar & the restaurant both absolutely packed ! And so were the streets hence traffic jam.

40/ jokes aside. I am hearing a lot of bank staff is being asked to work at home. Research maybe ok, Sales to a degree, but traders ? How ?

Worst thing for further disruption: trading is put on pause sort of.

And if worst come, govts will ban short selling. been there, saw it

40/ this was coincidence and fun.

OR WAS IT ? 😂

41/END

that's all folks.

the amazing "weekend markets" show -2.5% on stocks. Wouldn't surprise me, and MIB will maybe open gap down.

stay safe.
wash your hands.
drink Corona.

enjoy he rest of your Sunday and good luck next week, it will be again extremely volatile.

ciao x

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