Oil Spikes After Bomb-Laden Tanker Truck Detonates In Northern Syria, Killing At Least 34
A massive blast has ripped through a crowded commercial hub in the Northern Syrian city of Afrin along the Turkish border.
Turkish state media initially reported at least ten civilians killed after a bomb-laden fuel tanker truck exploded. Turkey’s state-run Anadolu news agency called it a “terror attack” carried out by unknown assailants. Subsequent updated reports said there are at least 34 dead, with the death toll expected to rise as emergency responders battle the resulting blaze.
UPDATE: 34 dead & 30+ wounded in today’s bombing in #Afrin.
Locals now suspect it was a truck/tanker loaded with explosives, which detonated near a fuel station.
Local reports say scores are among the wounded, with Syrian opposition media group the British-based Syrian Observatory for Human Rights (SOHR) describing “The explosion was caused by the detonation an IED [improvised explosive device] on the road to Turandah, which caused material damage.”
Kurdish regional media cited a source in Afrin who said further “the blast caused a massive fire at the city’s main bazaar.”
The attack may have targeted a fuel station in order to create maximum impact, according to early reports.
The scene is utterly horrific:
#Breaking:
At least 13 killed and 30 wounded today in Afrin, #Syria after a car bomb exploded near a market.
Among causalities there are also some children. pic.twitter.com/ah2LhKTDHf
Unconfirmed reports suggest Syrian Kurdish militia fighters may have been behind the attack. At first glance it also bears the hallmarks of an ISIS attack, given the now ‘underground’ insurgent terror group has conducted similar ‘fuel tanker attacks’ in the past.
It follows Turkey’s cross-border military operation last year dubbed ‘Operation Olive Branch’ in which Erdogan effectively annexed Kurdish enclaves on Syrian soil.
UPDATE – The #YPG-linked HRE guerrilla resistance has claimed responsibility for today’s truck bombing in #Afrin, claiming its target was an #SNA HQ.
In fact, the attack hit a market — 34+ civilians are dead, many of them women & children. pic.twitter.com/HWwt8ywTM6
Given international tickers and headlines, including Reuters, described that it was a massive “oil tanker” blast in Afrin – which it should be noted is a completely landlocked city currently occupied by Turkish armed forces – oil prices apparently spiked on the news.
And given the liquidity issues, June is dominating the price volatility intraday…
Given the coronavirus pandemic has in the past two months dominated headlines and the fight against the virus has become a singular occupation of governments across the globe, including in the region, the Middle East has remained relatively ‘quiet’ during that time.
Tuesday’s massive and deadly blast has changed that – it appears world markets are still potentially sensitive to significant destabilizing events in the war-torn region.
WTF Chart Of The Day: “Normal” Versus “Not Normal At All”
Update (1030ET): Sometimes headlines hide just how dramatic the situation really is and putting the delusion into words is hard amid two months of superlatives. However, shortly after posting out macro update, David Rosenberg tweeted the following which everyone should read and consider as they BTFD on the back of The Fed…
“The Conference Board confidence report showed that just 34% of consumers, that 70% chunk of GDP, believes that business conditions are “normal”. That jives with an 18-year high 20x forward P/E multiple how, exactly?”
WTF indeed!
* * *
After plunging in March, expectations were for The Conference Board confidence survey to crash even further in April as COVID concerns began to really rage and lockdowns went nationwide.
The Conference Board’s headline index plummeted by 31.9 points, the sharpest drop since 1973 to its lowest since May 2014…
Source: Bloomberg
The Present Situation crashed to 76.4 (its biggest drop ever)…
But ‘hope’ never fails, with expectations rising very modestly from 86.8 to 93.8.
Shifting from American people to American business, The Richmond Fed Manufacturing survey confirmed the utter calamity across businesses in America, crashing to its lowest on record…
Source: Bloomberg
And finally, what all of that summed up means for the overall PMI… is a disaster
The Chairman of the House Intelligence Committee Rep. Adam Schiff is keeping the truth from the American people. He doesn’t want anyone – beyond those in Congress and the Intelligence Community – to have access to the closed door transcripts of witnesses that have been already been declassified regarding the FBI’s Russia probe.
Frustration is mountingagainst Schiff, D-CA, and so is patience among those in the administration, Congressional lawmakers and intelligence community who believe the American people have a right to see for themselves the testimony given by 53 witnesses behind closed doors during Congressional investigations into the FBI’s questionable actions and malfeasance during its investigation.
There’s a reason Schiff is fighting back, despite the unanimous bipartisan vote to release the transcripts in the fall of 2018. Schiff doesn’t want you to know the truth. The truth will destroy his credibility and the deceitful disinformation campaign he worked so hard to spread against President Donald Trump and his administration for years. This is the major reason why he has fought so diligently against his own committee’s vote and why he has scrambled behind the scenes on Capitol Hill to keep the documents, which should have been made public within weeks or months of the vote, from every seeing the light of day.
Many sources in the administration, who are familiar with the process, have said the same.
“It’s really concerning Adam Schiff is negating the bipartisan vote to release these transcripts to the public,” said an administration official, with knowledge of the declassification process.
“He’s even going against his own prior statements about transparency. Schiff obviously wants to control what people see in a desperate bid to keep the discredited Russia collusion narrative alive.”
Schiff’s narrative, which is already laden with holes, will completely fall apart if the transcripts of the 53 witnesses in the FBI’s ‘so-called’ Russia collusion probe go public. According to sources, 43 of the transcripts have already been declassified. Ranking Republican member Devin Nunes has pointed the finger at Schiff, saying he is acting as a blockade in preventing the release of the documents. Nunes, who was a guest on the Sara Carter Show last month, also stressed the importance of making public the secret testimony of former Intelligence Community Inspector General Michael Atkinson, in which he discussed his controversial handling of the so-called whistleblower complaint regarding Trump and Ukraine. Nunes said, like the transcripts regarding the Russia hoax, Schiff is fighting to keep Atkinson’s testimony secret. Nunes, along with other senior Republican lawmakers, have an ongoing investigation into Atkinson. Without sharing details, Nunes said Atkinson either lied to members of Congress or he needed to ‘seriously’ clarify his statements.
Some of the testimony being kept from the public includes former Director of National Intelligence James Clapper, longtime Trump friend Roger Stone, as well as former Clinton campaign chairman John Podesta. There’s also testimony of former FBI Deputy Director Andrew McCabe and Perkins Coie lawyers Michael Sussman, a former DOJ lawyer who passed along alleged details about Russian interference to former FBI general counsel James Baker. Moreover, there is Don Jr’s testimony, former White House aide Hope Hicks and Marc Elias, the chairman who was the Clinton campaign’s general counsel that hired the embattled research firm Fusion GPS to investigate the debunked theory that Trump conspired with Russia.
Those transcripts have been kept from the public by Schiff, D-CA, because it is damaging to their “impeachment scam,” said Nunes on the podcast.
But pressure is mounting and more and more against Schiff.
The letter specifically ordered that the witness transcripts not be shared with President Trump, nor the White House lawyers. He made this clear, even if the declassification process required sharing, Solomon noted.
“Under no circumstances shall ODNI, or any other element of the Intelligence Community (IC), share any HPSCI transcripts with the White House, President Trump or any persons associated with the White House or the President,” Schiff wrote in a March 26, 2019 letter to then-Director of National Intelligence Dan Coats.
“Such transcripts remain the sole property of HPSCI, and were transmitted to ODNI for the limited purpose of enabling a classification review by IC elements and the Department of Justice,” Schiff added.
On Friday, a senior intelligence official told the The Washington Examiner that “Schiff is thwarting the will of the House Intelligence Committee as expressed in the bipartisan vote in September 2018 to make these transcripts public. He has appointed himself arbiter of what the public should see and has refused to allow the White House to review its own equities, making declassification of 10 of the transcripts impossible. It’s difficult to imagine any motive other than Schiff is still trying to control the narrative on Russia collusion.”
Schiff, on the other hand, is deflecting and instead has attempted to accuse acting Director of National Intelligence Richard Grenell of ‘undermining critical intelligence functions.’ Nothing could be further from the truth, as I recently reported.
Grenell is in the process of restructuring the DNI. It is something that should have happened years ago. Further, Grenell has been overseeing changes that have had consequences for U.S. national security after numerous classified leaks have found their way to the media after private briefings to congressional members.
Grenell argued in a recent letter to Sen. Mark Warner, D-VA, that leaks to the media after classified intelligence briefings with lawmakers on foreign election interference have presented serious concerns and mounting challenges for the intelligence community. Grenell noted that those leaks give “our adversaries unnecessary advantage during a critical time for our nation,” stated the letter which was first published by SaraACarter.com.
In fact, it is presumed that Schiff has leaked significant information and even lied about that information to the media. He manipulates information that public can’t see for themselves.
On one side, he argues for having access to more classified information but on the other side he wants to keep information that’s already been declassified from the public. All you have to do is ask why?
For nearly four years the Democrats and former senior officials from the Obama administration have done everything in their power to create a narrative that has divided our country and destroyed lives.
Those officials have tainted agencies like the FBI, CIA and other intelligence services by weaponizing the system against political opponents.
Schiff has played a significant role in aiding those officials, like former CIA Director John Brennan, former FBI Director James Comey and others to do so.
If Schiff has nothing to hide and nothing to worry about then he needs to move out of the way. If he does have something to hide, he will continue to fight to keep the American public in the dark.
Here’s my message to Schiff: If you want transparency Chairman let’s have it, release your blockade on the 53 transcripts and let the American people decide for themselves.
A Violent “Slingshot” Higher: CTAs Flip From -69% Short To +100% Long On Close Above 2901
As BMO noted earlier today, when looking at the ongoing daily low-volume levitation in stocks, “there is a real risk the optimism is getting ahead of itself and equities are vulnerable to disappointment with the results of the reopening.” For now, however, the path of least resistance – and arguably the max pain trade – remains higher, due to the pent up optimism from the gradual reopening of the global economy (similar to the perpetual hope that was Trump’s Phase 1 trade deal with China for much of 2019) and as Nomura’s Charlie McElligott writes this morning, the global stock market “is breathing an ongoing sigh of relief with rolling lockdown unwinds/reopening plan releases around the globe: in the past 72 hrs, Italy, Spain, Belgium, France, Switzerland, Norway and Germany have updated details on relaxation of restrictions; in the U.S., Ohio, Mississippi, Colorado, Hawaii and New York all began announcing initial “easing” steps of stay-at-home orders.” All of this is contributing to a buoyant risk-asset move – with EU Banks and Autos again rallying powerfully = further pain-trade for these crowded “Cyclical” shorts – while the prior multi-month FTQ bid in US Dollar is incrementally “leaking” out with another large down day in DXY, as we noted in our market wrap.
As also noted previously, earlier in the session we saw WTI Crude and Gold powerfully hit with WTI front futures smashed yet again on more June contract selling from ETFs and Index products headlines as now S&P GSCI is also rolling from June to July in a race to the death vs USO and the negative feedback loop thereafter, but as McElligott points out, “this new escalation of the US Dollar weakness actually caused Commodities rally off lows—before CL1 now again under pressure as US traders get back to work.”
Meanwhile, with stocks now solidly in “positive gamma” territory…
… the Nomura strategist notes “the return of heavy overwriter (vol selling) flows in US Equities, a trend that has accelerated in recent weeks, and has helped normalize US Equities single name- and index- Vols”, and now, with the VIX curve term-structure too normalizing yesterday from the multi-month inversion in the front-end (i.e. again upwardly-sloping), Charlie believes that “it is likely that the return of systematic roll-down participants will further escalate the repricing / compression of Vol even lower.”
Focusing on the last point of normalizing/compressing Vol, something which McElligott has previously called a “Crash DOWN, Crash UP” cycle, he points out that “it matters as a second-order slingshot in dictating a mechanical RE-LEVERAGING across the Vol Target universe into re-establishing or growing their Equities positions.”
There is no clearer example of this than today’s Nomura QIS CTA Model, which estimates that the CTA position in S&P 500 futs would flip from “-69% Short” to a “+100% Long” on the close above 2901 (right on top of spot), with Charlie adding “that anecdotally on these days where the model indicates a “flip” potential, said buying to cover and go long is likely already part of the flow creating the current move (ES1 +1.2%)“
Source: Nomura QIS
This CTA reversal would come in conjunction with Nomura’s analysis of Vol Control funds, as we estimate an incremental “re-buy” of +$14.5B of US Equities off the lows over the past 1m for these mechanical products.
One place where this equity “slingshot” hurts the most is the “pain” for the shorts with Cyclical Equities where yesterday was yet another performance bleeder, as US shorts again significantly outperforming longs as we noted in our Monday EOD wrap, thus Charlie’s “1Y Price Momentum” factor market neutral strategy was again hammered -2.8% yesterday and now -13.5% MTD—particularly boosted by the “bear-steepening” in UST curves as a macro catalyst (which was fueled by not just the +++ risk-asset move and well-subscribed UST front-end issuance, but also the $24B of new US high-grade paper brought yday).
Why are shorts getting steamrolled? As the Nomura strategist explains, the extreme positioning/crowding resulting from the Covid flight to safety into the “Everything Duration” / “Slow-flation” barbell longs (Secular Growth and MinVol / Defensives), in conjunction with the seasonality of the “April Momentum Reversal,” the rolling “whatever it takes” moments for both Central Banks and Governments, as well as Equities’ ability to pull-forward good news (i.e. COVID-19 curve flattening, reopening plans) “all made for this painful set-up in the folks’ short-books—exactly as laid-out in my March 31st note “WATCH YOUR CYCLICAL-BETA SHORTS INTO APRIL’S “MOMENTUM REVERSAL” SEASONALITY, “PEAK COVID” PULL-FORWARD, MONPOL EASING AND FISCAL STIMULUS.”
Bronx ER Doctor Explains Why Reopening The Economy Now Might Actually Save Lives
Last night, after we reported on a pair of ER doctors arguing that the US states should lift their lockdowns immediately (during the course of their argument, which was mostly rooted in trends they’ve witnessed first hand, they apparently made the error of bringing up ‘personal liberty’ and ‘the Constitution’, words that prompt progressives to stop listening and start squawking about killing grandma to further enrich the billionaires) YouTube decided that their argument constituted ‘misinformation’ about the coronavirus outbreak and deleted the video after it racked up more than 5 million views.
We found that curious, since even doctors and epidemiologists have told mainstream news organizations that our understanding of the virus is still developing, and things we thought weren’t accurate just weeks ago and now being re-examined. One such aspect is the heavy handed lockdown response implemented across the US, and elsewhere. Urban leftists and out-of-touch Silicon Valley billionaires simply don’t understand that there are millions of Americans out there – many of whom happen to be white – who are absolutely terrified about losing their livelihoods, and don’t understand why all of this is necessary to combat a virus that leaves the vast majority of those infected unscathed.
The first rounds of ‘surveillance’ testing in the US, carried out in New York and in California’s Santa Clara County (the Cali effort was part of a private study, while New York State is testing random samples of the population to try and discern how widely spread the virus has already become) have suggested that the number of total cases is much, much higher than official numbers reflect. The most recent data released by Gov. Cuomo suggest that 1 in 4 people in NYC might already be infected, a figure that rises to 40% in some poorer areas like parts of the Bronx, where most workers are ‘essential’.
Many have blamed politicians for sending ‘mixed messages’ to the public, but the truth is, the message has changed along with our understanding and experience dealing with the virus.
And now, an ER doctor at a hospital in the Bronx is arguing that it’s time to reopen the economy, while pointing out that many thousands of unnecessary deaths could result if we don’t reopen quickly enough, as millions of Americans delay or skip critical preventative care, including people with heart disease and other health issues that make doing so particularly dangerous.
Daniel Murphy, an emergency room physician at St. Barnabas Hospital in The Bronx. Murphy contracted the virus during the early days of the outbreak, and accidentally spread it to members of his family. Luckily, they all quickly recovered and he returned to work in time for the big rush.
Murphy readily acknowledged that the outbreak has been by far the worst public health emergency of his 30-year career in medicine.
COVID-19 has been the worst health-care disaster of my 30-year career, because of its intensity, duration and potential for lasting impact. The lasting impact is what worries me the most. And it’s why I now believe we should end the lockdown and rapidly get back to wor.
From mid-March through mid-April, the ER staff at St. Barnabas huddled in groups of about 20 every morning. We asked ourselves what had happened over the previous shift. We generated a list of actionable tasks for the following 24 hours. At first, we addressed personal protective equipment and the management of patients with mild illness who were seeking COVID-19 tests.
Two weeks ago, Murphy said, their ER was slammed with calls, and patients were dying from severe COVID-19 left and right. But as the curve has ‘flattened’ – a trend closely documented by data collected by New York State – Murphy and his team have noticed a massive drop in emergency patients with COVID-19.
Then came the wave of critically ill patients in numbers none of us had ever seen. This lasted for two weeks. The number of patients on ventilators accumulated in the ER and throughout the hospital. We witnessed an unprecedented number of deaths. The tone of the huddles became more somber. We became accustomed to the morbidity; we did our jobs.
It is precisely what I have witnessed that now tells me that it’s time to ease the lockdown. Here’s why.
Then, all of sudden, on April 7 at 1 pm, Murphy noticed that the non-stop parade of ambulances carrying critically ill COVID-19 patients seemed to have stopped suddenly. From that point on, the number of ER admissions started to decline precipitously.
First, the wave has crested. At 1 p.m. on April 7, the COVID-19 arrivals slowed down. It was a discrete, noticeable event. Stretchers became available by 5 p.m., and the number of arriving COVID-19 patients dropped below the number discharged, transferred or deceased.
That drop was “striking”, as the doctor explained, because the community he serves is overwhelmingly poor, and sported high rates of infection. The surveillance data released by NY State so far suggests that the area surrounding the hospital may have seen infection rates climb as high as 40%.
The mechanics of this ebb and flow have led Dr. Murphy to suspect that the lockdowns have actually done little to blunt the ‘peak’, a conclusion that’s supported by Sweden’s policies and outcomes.
This was striking, because the community I serve is poor. Some are homeless. Most work in “essential,” low-paying jobs, where distancing isn’t easy. Nevertheless, the wave passed over us, peaked and subsided. The way this transpired tells me the ebb and flow had more to do with the natural course of the outbreak than it did with the lockdown.
Whatever Murphy’s first-hand experience might suggest about the usefulness of lockdowns, what’s wrong with waiting a few more weeks, just in case he’s wrong? Well, Murphy explains, even if we set aside the economic damage and its long-term ramifications for personal health, there’s an even more urgent issue at hand: Because of the lockdowns, too many Americans are delaying critical non-COVID-19 care.
The problem is that in addition to the drop in coronavirus patients, the hospital has also reported a massive drop in patients of all types and categorizations as more people are apparently staying home despite injuries or symptoms that are probably critical for fear of catching the virus. There’s simply no other explanation for such a statistically significant drop.
Without a doubt, many of those who aren’t healthy but have opted to delay care that could prevent lethal strokes, heart attacks or other diseases.
Second, I worry about non-coronavirus care. While the inpatient units remain busy with sick COVID-19 patients, our ER has been quiet for more than a week. We usually average 240 patients a day. For the last week, we averaged fewer than 100. That means our patients in this diverse, low-income community are afraid to come to the ER for non-COVID care.
Gotham-wide, the number of 911 ambulance runs declined to 3,320 on April 18, down from a peak of 6,527 on March 30, according to New York Fire Department data. The current nadir is significantly below the average.
A large share of those staying home surely have emergency medical and surgical conditions not related to the novel coronavirus. The growing numbers dying at home during this crisis must include fatal myocardial infarctions, asthma exacerbations, bacterial infections and strokes.
Another huge problem that has been almost completely ignored is that child vaccination rates have plummeted during the pandemic.
Meanwhile, our pediatric volume in the ER has practically disappeared. Visits to primary-care pediatricians are also down, with vaccine schedules falling behind. Everyone seems to be avoiding the health system — an important and unfortunate consequence of the stay-at-home strategy.
Third, inordinate fear misguides the public response. While COVID-19 is serious, fear of it is being over-amplified. The public needs to understand that the vast majority of infected people do quite well.
And finally, as we noted above, Dr. Murphy argued that the virus is already much more pervasive than official data reflect.
Finally, COVID-19 is more prevalent than we think. Many New Yorkers already have the COVID-19 infection, whether they are aware of it or not. As of today, over 43 percent of those tested are positive in The Bronx. We are developing a significant degree of natural herd immunity. Distancing works, but I am skeptical that it is playing as predominant a role as many think.
There’s no question that testing is “important work”, Dr. Murphy added. But there’s no reason it can’t happen “in parallel” to an economic reopening. And even as it stands, scientists continue to find flaws with tests that call their results into question. All of this will likely take months, if not years to sort out. And we simply can’t wait that long without making the ‘cure’ more damaging than the ‘disease’.
More testing will better establish the numbers among those with mild illnesses and no symptoms. My professional experience tells me the number of infected people will be high. Testing is important work, but it should happen in parallel to the immediate resuscitation of the economy and getting people back to work.
At present, the testing is imperfect. We can’t wait months. We must protect the vulnerable and mitigate without destroying the economy.
So, will Google and YouTube censor Dr. Murphy, too?
Nearly one in three Americans have experienced a temporary layoff, permanent job loss, reduction in hours, or reduction of income as a result of the coronavirus situation. Eighteen percent have experienced more than one of these disruptions.
Looking at these events separately, 10% of Americans report they have been temporarily laid off from work as a result of the coronavirus, and an additional 2% say that the situation has caused them to permanently lose their job. More common than loss of employment are reductions in hours (15%) and loss of income (26%).
Gallup also finds that these impacts have been more pronounced among those in lower income brackets. Among those respondents whose annual household income (before the pandemic) was less than $36,000 annually, 14% report being temporarily laid off, 4% have been permanently been let go, and 32% have seen a loss of income.
These data reinforce a recent Gallup finding that 25% of employed Americans think they are likely to be laid off in the next year. Despite this concern, among those respondents who have been laid off, 85% believe it is likely that they will be able to return to their job once the crisis has ended, with 60% saying that it is “very likely.”
After a slight disappointment in January, analysts expected US home price growth to relatively stable… but instead it re-surged – rising 3.47% YoY (for the 20-City Composite) – the best YoY gain since Dec 2018.
Source: Bloomberg
Phoenix, Seattle, Tampa, Charlotte reported highest year-over-year gains among 20 cities surveyed, but…
“Importantly, today’s report covers real estate transactions closed during the month of February, and shows no signs of any adverse effect from the governmental suppression of economic activity in response to the COVID-19 pandemic,” Craig J. Lazzara, global head of index investment strategy at S&P Dow Jones Indices, said in a statement.
“As much of the U.S. economy was shuttered in March, next month’s data may begin to reflect the impact of these policies on the housing market.”
But, of course, this data – as always with Case-Shiller – lags dramatically and since February, a lot has happened. So the question is – what happens next for home prices?
Source: Bloomberg
With all the smoothing in the index, we suspect not a lot, but under the surface of plunging sales, plunging homebuyer and homebuilder sentiment, and soaring mortgage deferrals, nothing good is coming soon in the US housing markets.
BMO: Optimism Is Getting Ahead Of Itself And Equities Are Vulnerable To Disappointment As Economy Reopens
Authored by Ian Lyngen, Jon Hill and Benjamin Jeffery, rates strategists at BMO Capital Markets
In a continuation of the recent trend, risk assets have extracted sufficient optimism from the reopening preparation to further recoup much of March’s losses. S&P 500 futures touched 2905 overnight and appear poised for another strong open despite the recent turmoil in the energy sector and a widely anticipated negative Q1 GDP print on Wednesday. The divergence between domestic equities and other financial markets has become the hallmark of the current financial crisis; so much so that we find ourselves wary of a capitulation of the bears which would add future upside impetus. Just how linked risk asset performance is to the realities of a post-pandemic world remains to be seen; although we’re sympathetic to the notion that global central banking largess will result in limiting the downside for the labor force while still struggling to create demand-side consumer price inflation (or prevent downward pressure).
This leaves the cynical among us to highlight the pre-crisis attempts at stoking inflation as the archetype for the coming years. Recall that in the absence of higher AHE/CPI, easy global monetary policy primarily drove more attractive valuations of equities, housing, and tighter credit spreads. The asset-price inflation narrative isn’t new in this macro environment, however as a potential driver of the divergence between stocks and bonds, it offers a compelling explanation. Said differently, while investors are skeptical of the Fed’s reflationary prowess, much more credence is given to policymakers’ ability to prop up risk assets.
We’re also open to the argument that the difficulty in judging the potential economic fallout from Covid-19 leaves investors with little else to trade except for incremental milestones. The next up being the staged reopening of the US economy. While there is a real risk the optimism is getting ahead of itself and equities are vulnerable to disappointment with the results of the reopening, for the time being it is a difficult trend to wholeheartedly fade. Instead, we’ll go-with the two enduring themes of consolidation in US rates and slow-and-steady improvement in risk.
A quick glance at the consensus for Q1 real GDP leads one to envision a somewhat counterintuitive scenario; a ~4% contraction of the domestic economy followed by the S&P 500 drifting >3000 on progress toward reopening. This would represent just -11.6% from the record highs and put stocks -7.2% year-to-date. The next several trading sessions hold the potential to exaggerate the ‘disconnect’ which continues to create a sense of collective unease with the way in which markets have responded to the pandemic. Habituation of grinding gains creates complacency; this speaks to the prospects for another downside correction in stocks should May see any signs of a resurgence of Covid-19 cases.
As the pre-FOMC session, today will largely function as a placeholder in the Treasury market with 65 bp the present equilibrium for 10-year yields. Breakevens continue to struggle to break 125 bp and given the repricing experienced in the energy complex our expectations are for more of the same. It’s encouraging to see the stabilization of the curve which has come to pass in the last several sessions. 2s/10s at 44 bp this morning leaves the benchmark curve at the upper-end of the range held throughout the latter half of April. Supply has had remarkably limited influence on the outright level of yields during the crisis and we don’t expect that will change anytime soon. The inability of Monday’s $190 bn front-end offerings to even incrementally flatten the curve is a new couture to the market’s supply indifference and it will be telling to see how far that extends as month-end comes into focus. The Treasury benchmark month-end need is 0.14-year and the largest since August 2016.
First, it was N95 masks, then toilet paper, then hand sanitizer, and now nicotine patches; but we suspect the next virus-related item to be in ‘shortage’ is here… the COVID-19 Antibody Test.
This test checks for a type of antibody called immunoglobulin G (IgG) that is the result of past or recent exposure to COVID-19, also known as the novel coronavirus. The human body produces IgG antibodies as part of the immune response to the virus. It usually takes around 10 to 18 days to produce enough antibodies to be detected in the blood.
Test results may help identify if you were previously exposed to the virus and, if exposed, can check whether or not your body has produced antibodies. Antibodies typically suggest protective immunity after you’ve recovered or been exposed to COVID-19. However, evidence is still being collected to determine if IgG antibodies provide protective immunity against SARS-CoV-2, the virus that causes COVID-19 infection.
If you were never diagnosed with COVID-19, this test can help determine if you may have been previously exposed to the virus.
If you were diagnosed with COVID-19, this test can check whether or not your body has produced antibodies.
Multiple sources, including the CDC and healthcare experts, recommend you discuss your test results and whether to return to work with your healthcare provider and employer.
For the safety of our patients and employees, we have limited appointment times for COVID-19 Immune Response testing.
This test may be helpful if you:
Have had a positive test for COVID-19 and it has been at least 7 days and you want to know if you have detectable levels of IgG antibodies
Have not experienced a fever or felt feverish in the last 3 days
Have not experienced new or worsening symptoms of COVID-19 in the past 10 days: loss of smell or taste, shortness of breath or difficulty breathing, feeling weak or lethargic, lightheadedness or dizziness, vomiting or diarrhea, slurred speech, and/or seizures
This test may NOT be helpful if you are:
Feeling sick or have had a fever within the last 3 full days, please contact a healthcare provider
Trying to diagnose COVID-19, please contact a healthcare provider
Less than 7 days since being tested for and diagnosed with COVID-19
Directly exposed to COVID-19 in the past 14 days
A person with a compromised immune system, a condition that makes it difficult to fight infections
For the latest information on COVID-19, please visit our website for information for patients.
Note: This test can sometimes detect antibodies from other coronaviruses, which can cause a false positive result if you have been previously diagnosed with or exposed to other types of coronaviruses. Additionally, if you test too soon, your body may not have produced enough IgG antibodies to be detected by the test yet, which can lead to a false negative result.
At this time, antibody testing is mainly used in studies to determine how much of the population has been exposed to COVID-19. There is not enough evidence at this time to suggest that people who have IgG antibodies are protected against future COVID-19 infection. Positive or negative antibody tests do not rule out the possibility of COVID-19 infection. Results also do not provide any information on whether you can spread the virus to others.
Antibody testing is going to be the next big project in attempting to understand and control the coronavirus outbreak in the United States. It’ll give us data not only on who currently has the virus, but much needed data on who has already had the virus.
This will help the country shape the picture of how far the virus has run its course and what areas could potentially be close to herd immunity, if any. More importantly, it shows whether or not people have encountered the virus despite potentially not ever having symptoms.
The big question is – will Quest be reporting the results back to big brother (and Bill Gates) for your own good?
The question, however, is what happens next? While there has been much debate from the economic perspective, the market has risen in anticipation of the event. Is it an “all clear,” for the bulls, or are there still longer-term concerns.
“On a very short-term basis, the previous ‘deep oversold’ condition that provided the ‘fuel’ for the rally has been reversed. Also, all primary ‘overbought/sold’ indicators are now fully extended into overbought territory.”
“If the markets can rally more on Monday and break above the downtrend, the 61.8% retracement level becomes a viable target. Above that resides the 200-day moving average. Both levels are going to provide formidable resistance to a move higher.”
Yesterday, the market did break out of that range, and moved higher, keeping the rally intact for now. However, that does not mean investors are “free from risk.”
Here Comes May
As Stocktrader’s Almanacrecently noted, we are rapidly approaching that time of year where spring ends, summer begins, and stock markets have typically struggled.
“As of Friday’s close, the DJIA is now up 7.3% so far this April, which is a retreat of 0.1% since last Thursday. S&P 500 is also 0.1% lower now than one week ago at 8.2%. Thus no progress has been made at returning the current ‘Best Six Months’ to positive territory.”
“The rally has stalled out this past week, and the MACD is still positive but is now trending toward a negative crossover. Continue to hold long positions associated with DJIA’s and S&P 500’s ‘Best Six Months.’
We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover.“
While not every “summer period” is a negative, the long-term history of investing during summer months is not stellar.
However, this summer, more than most given the state of the actual economy, earnings risk, and a potential revaluation of markets, the odds of a weak summer period has risen markedly. (This is particularly the case as we head into the Presidential election.)
Risk / Reward Turns Negative
As noted, the move higher yesterday is indeed bullish in the short-term. Such is why we added a short-term “rental trade” to our portfolios yesterday. As noted for our RIA PRO subscribers (30-day Risk-Free Trial)
“With the breakout on Monday, we added a ‘rental trade’ to our portfolios using the S&P 500 ETF (SPY) as our proxy position.”
Our trading parameters remain exceptionally tight with a stop-loss at the 50-dma. The target for the trade between is $293 and $297.
The reason the parameters are so tight is the risk and reward of the market has deteriorated further
Here is the current setup:
Reward:
2.3% to the 61.8% retracement from the March 23rd lows.
4.7% to the 200-dma.
Risk:
2.8% to the 50% retracement (and 50-dma) from the March 23td lows.
4.9% to last week’s sell-off lows, which is now minor support.
14.5% to the sell-off lows in early April.
22.2% to the March 23rd lows.
“From an optimistic view, a reopening of the economy, a virus vaccine, and an immediate return to low single-digit unemployment rates would greatly expand the bullish ranges for the market.”
However, even a cursory review of the data suggests a more “realistic” view. The economic damage is going to be with us for a while. Until earnings estimates are revised substantially lower to reflect the “actual economy,” you must presume the relevant risks outweigh the current reward.
That’s what the numbers are telling us, which is why we are trading and treading carefully.
Narrow Markets Aren’t Healthy Markets
I commented on the narrowness of the market over the weekend. Narrow markets are risky as they tend to be a momentum chase that can turn quickly. As David Rosenberg noted Monday:
“Big Safety and Big Tech are still carrying the day as so many cyclical sectors remain in varying levels of disarray. We have three companies with nearly a $3 trillion market cap (Microsoft, Apple, and Amazon) or 16% of the total pie, and five companies now comprise 20% of the index.
That is a deeper concentration than we had at the peak of the tech bubble in March 2000! Such masks the pain ongoing in consumer-cyclical services, financials, resources, industrial, transports, and small caps.”
More importantly, as noted by Goldman Sachs, via Zerohedge:
“The gap between the three-month returns of the S&P 500 stock one standard deviation above the average vs. one standard deviation below the average has registered 40%, nearly twice the 10-year average of 23%.”
What this suggests is that “many market participants – ourselves included– have expressed incredulity at the fact that the S&P 500 trades just 17% below its all-time high amid the largest economic shock in nearly a century.”
This lack of market breadth is very concerning when the median S&P 500 constituent trades 28% below its record high, putting an 11% gap between the measures of market breadth.
These “gaps” tend to “get filled” and not in a good way.
Credit Flashes A Warning
Another concern remains the risk of defaults in the credit markets. While the Fed is bailing out the bond market on the investment-grade side, there is a limit when it comes to supporting the junk bond market, and there is a lot of debt about to go bad.
Back to David:
“Well, I see on page B1 of today’s WSJ one forecast of what the bond market is telling us about high yield debt defaults from my old Merrill colleague Marty Fridson who says an 8% rate in the next twelve months. Moody’s is even higher at 11.8% by the end of 2020 and 13.1% by the end of 2021Q1. That is tough to square with the message from the stock market because lows tend to coincide with trough multiples, not cycle-high multiples.”
With unemployment headed to 30-million people, businesses closing, GDP dropping by 20%, and wages/incomes imploding, the amount of debt about to go bad, and be downgraded is mind-bending.
Importantly, when the debt is downgraded from investment grade (BBB to AAA) to junk status (BB to DDD) pension funds, mutual funds, and portfolio managers who are NOT allowed to own “junk bonds” will be forced to liquidate. Such is why the Fed was willing to buy “junk” bonds in March which had just been downgraded. There was literally no market.
Unsurprisingly, the liquidation event will happen again as commercial office space, retail, restaurant, auto, and credit card debt defaults surge again.
This will be a risk-off event for the stock market.
The Return Of Wyckoff
Let me conclude with this piece from Bruce Fraser.
I recently discussed the Wyckoff cycles of the marketas a partial explanation of why the “bear market” is not complete yet. To wit:
“Many signs are suggesting the current Wyckoff cycle has entered into its fourth and final stage. Whether, or not, the current decline phase is complete, is the question we are all working on answering now.
“Wyckoffian trendline analysis is a potent and useful tool. The stride of a trend is often set very early in the uptrend. This analysis is fractal in nature and can be employed in time frames from very short-term to very long-term. If the stride is set early a trend can be examined and exploited for most of its duration.”
“A weekly uptrend forms in the $SPX in 2016, setting a stride for the bull run. A Demand Line extends from the two adjacent lows. The intervening April 2016 high determines the Overbought parallel line (and channel).
The throw over and Climax arrive in January of 2018 and sets a Range Bound condition for the next 21 months. The Upthrust (UT) of the BCLX sets up a decline into a December 2018 Shakeout.
The rally that followed returned to the Demand Line in Climactic fashion producing a Throwover and Overbought condition in 2020. The rally into the Demand Line from below is a position of weakness and resistance. The decline that followed is a demonstration. Note how weak the $SPX was below the Demand Line in 2018.
A parallel (to the Demand Line) extends from the Shakeout Low. The recent rally has returned the $SPX to this Oversold Trendline from underneath where it has stalled.”
Trading With A Bearish Bias
While we have added equity risk to our portfolios over the last several weeks, we have done so cautiously, and hedged, as the balance of the data continues to suggest that risk is prevalent.
Such doesn’t mean in the short-term that markets can not continue to ignore the fundamentals and trade on optimism. We have seen too many periods in history where this has been the case.
Currently, the markets are trading on confidence of the reopening of the economy.
However, after that, we are going to have to deal with reality.
Investors are “flying blind” as we head into the “dog days of summer.” We have no idea how bad the economic and earnings data is going to be, but we are going to get the first glimpse of it this week.
It’s likely not going to good.
It will probably be horrific.
The question will be if the markets can continue to ignore reality?
