Thread by @MacroTechnicals

MT GLOBAL MARKETS Momentum & Sentiment Recap as of 20Mar20 wk12 thread 1/n

• Global Economic Stillstand
• Unprecedented virus spread prevention causes cash-flow , funding hole
• pricing discovery attempt on forced govt lockdown
• market, govt, hospitals overwhelmed

2/n the long overdue rollover of the business cycle and therefore a market correction needed a trigger, like every cycle, this was COVID-19, and geez did it expose the leveraged debt situation and thin liquidity market if one needed it.

this will go down in every history book

3/n CREDIT spreads especially HY corps went through the roof, see charts of CDX and Itraxx series

4/n using inverted scales to reflect a typical RiskOn/Off phase, all these CDX, ITRAXX series on a bp chg YoY absolutely collapsed (= sharply rising spreads) in a speed never seen before.

5/n to further illustrate this, here CDX NA HY 4wk rolling change.

+550bp in no time.

6/n or this: CDX NA IG (inv scale again) bp chg yoy vs SPX YoY

RiskOn collapse = total RiskOFF

7/n the chain reaction is unprecedented. money market operation collapsed, funding frozen, Libor OIS spread and VIX sky rockets, FED and all other CBs emergency rate cuts, QE programs, and fiscal package to stop the cash flow bleeding as countries go into lockdown

8/n MMKT, FED funds futures, FF eff rates collapsed to ZIRP. and will stay there for a long while. maybe going NIRP, but FF futs curve not showing this yet.

this is not stimulus, this is to rescue the economic acute heart attack.

9/n FED going to ZIRP and govt announces trillions fiscal package means a ton of issuance 5s, 10s, 30s are in the pipeline. First reaction curve steepening on gigantic supply, but FED will absorb first. Balance sheet will probably double to 7-9trillions (incl O/N rolling repos)

10/n if you follow me and my weekly recaps you recognise this chart. Curve was previously hugely inverted from MMKT to 2Y, and has collapsed with 2 FED emergency cuts. now into recession mode. or worse.

11/n nobody sane would argue the yieldcurve predicted the virus, this is just a trigger. it was overdue.

inversions were probably looking for a deeper trade war slowdown , it doesnt matter now.

re-steepening like every other cycle turn and bear market. just different trigger.

12/n but the global lockdown, the complete standstill of the supply/demand chain is now so severe, every country's unemployment or jobless claims will absolutely spike. cycle or not. it will spike. I hear estimations I have to choke. NFPguesses will tank.

13/n I am posting this chart since a long time, bit of curve fitting and half-joke-model. Never knew what could possibly the trigger for a long period of elevated volatility VIX if this would be a "leading" indicator. But, this looks actually freaking scary now.

14/n didn't adjust the scales now, and I believe VIX won't stay that high (70+) for very long time, but geez MF, went that through the roof and has a gigantic backwardation curve with uncertainty and huge daily/weekly expected trading range.

15/n another chart for the history books... rolling US3M 4wk chg.

16/n "tongue-in-cheek" model update as I post this usually once a month.

this is pre any March eco macro data and so far only shows the re-steepening yldcurve,rising credit spreads and spiking VIX.

the rollover of the cycle and the market was overdue, but WTF, COVID-19 trigger

17/n this is how it could look like in a few weeks... with ISM/MarkitPMI collapsing to 40, UoM consumer confidence 62/55, UE rate 7% etc.

The MRI MacroRiskIndicator will absolutely tank, we all know this.

18/n here is a very rough list of countries GDP, and how much 90days or 12 weeks could contribute...

or the hole in a total shutdown to zero.

not every country is in lockdown, there is still GDP output, but these numbers are references for CB QE, govt rescue packages.

CHOKE

19/n Manufacturing PMI were already in recession. They will all tank. So will services PMIs.

15 CBs cut rates,propsed QE + fiscal packages.

re-steepening Yldcurves

FX/US$,stocks,commodities off the cliff.

2020 is a nightmare and let's hope all virus cases curves flatten soon

20/n no further comment...

21/n here are examples what happened to the credit market...

HYG ETF of course tanked like anything else, samples on the right show 2 of their holdings. from 3 to 10/11% yield. Huge refinancing risk. Probably downgrade tsunami, which kills the rest. funding has a heart attack

22/n this overlay is half curve fitted and shall not represent any sort of "fair value" , it supposed to show how refinancing risk shoots up (bond spread, but inverted curve) and stock plunges.

sample: TSLA.

23/n just an update on "2 biggest car makers short squeeze of the century" VW vs TSLA.

epic deja-vu.

24/n oh, forgot the momentum/ trend/exhaustion scores chart....

bit meaningless if one has a market crash.

US$ cash is king, bonds outperformed hugely. And coffee is up green as traders need 40 cups an hour. lol

25/n this has caused panic, on Wall street, main street and governments actions.

26/n please don’t be ignorant and play a superhero, just do this for a short period of time: social distance or stay home. it helps to reduce the spreading

27/n yes, some flu and virus are seasonal, this covid-19 will also be gone soon. But hospitals are totally overwhelmed and social distancing helps. be safe and stay healthy!

28/end that's it.

I wish you and my blockers and haters the very best.

this is all very very difficult to cope with.

take care x

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