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@MacroTechnicals

, 19 tweets, 8 min read

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MT GLOBAL MARKETS Momentum & Sentiment Recap as of 10Apr20 wk15 thread 1/n

• "the only game in town" - just got bigger as of Apr9th. FED QQE
• led to massive RiskOff week
• Vola down, spreads tighter
• US now 17m jobless claims
• lagging flash Consumer Confidence plunged

2/n clearly, this was the biggest news all week. The already existing massive tools just got larger, deeper, more equity stake Treasury via ESF, lower rating structure... and you thought previously was the kitchen sink ?

federalreserve.gov/monetarypolicy…

3/n QE (via SPVs) now includes corp debt, and "fallen angels", e.g. FED already covers part of the capital / rating structure as there will be a downgrade tsunami.

Corp bond/loan ETFs like LQD, HYG, JNK, BKLN etc got some extra boost on Thursday.

4/n while risky assets clearly rebounding, here is a YTD chart with some US Bonds ETFs and the destroyed oil as a comparison.

5/n FED is embarking to another unprecedented (this must be the word of the year), journey.

Balance sheet is already back to ~$6T as UST and MBS were purchased but pace is slowing down dramatically here.

Next wave is towards Corp Debt, Bonds, Loans, ETFs etc via SPVs

Vertical

6/n remember Wu Xia shadow rate back in the post GFC ?

This is a amateur attempt from my side, but given the fact, FED is back to 0%, and they announced the largest ever QE/QE+/QQE program, where is the shadow rate ? Or where could it be ? -3% ? -5% ?

"unprecedented" again

7/n FED ZIRP will be there for a long time. Possibly going NIRP (although NIRP never worked in Europe or Japan)...

The leveraged debt problem in the US is so damaged, COVID19 and the lockdown exposed the ultimate problem = cash-flow standstill. FED had no choice. Monster QE

8/n nobody can't objectively say how and when the damaged economy will rebound, but the monetary and fiscal package is a cash flow rescue, not a stimulus. There could well be another real stimulus package later.

But the signal is clear, and VOLA coming down easier to predict.

9/n the XXL addition to the exisiting first draft of QE+ obviously resulted also in a massive credit spread tightening, here representative using CDX IG and HY, Itraxx look same.

if FED starts to buy corp IG & high Yield debt, the default cycle maybe slowing with a buffer.

10/n huge rebound in CDX YoY (inv curve) vs SPX YoY.

11/n YTD snapshot of global airlines, carmakers, luxury brands and other discretionary assets

12/n Global Markets performance wk15 = RiskON (yeah, I wrote RiskOFF earlier to see if someone reads my stuff)

anyways, stocks jumped, credit risk strong, Govvies softer,

13/n and here YTD

14/n momentum / trend / exhaustion scoreboard update wk15

15/n we had University of Michigan this week, preliminary, and a massive drop shouldn't surprise anyone. It's totally lagging now given lockdown, rising jobless claims.

Let's see if FED tools would bring this chart into V-shape which I doubt at the moment.

16/n same lagging signal for usually leading indicators... next week Philly Fed and NY Empire state... they will come weak...

17/n ...as well as China GDP... numbers were questionable before COVID, why would they be real now ? GDP will be ugly, and PMI V-shape doesn't mean economy V-shape. It's a diffusion index.