Goldman: This Is How The Selloff Changed On Thursday
Dip-buyers tried – and failed – yesterday to bring an end to the avalanche of stock market losses, but the moves in bonds, FX, and commodities are just as stunning and in an overnight note, Goldman Sachs explains how the cross-asset sell-off changed on Thursday… and what they are watching.
Via Goldman Sachs,
As we look across moves in equity, credit, rates, commodities, China equities, US Health Care and volatility, we believe the timing of moves in each asset helps us to estimate how sentiment has shifted. We believe that understanding these sentiment shifts has implications for asymmetric moves around upcoming political and macro catalysts as well as the steady stream of COVID-19 updates. We detail these shifts and our favorite options trades below.
Exhibit 1: How the sell-off developed and what we are watching now
Total return of FXI, SPX, CDX IG 5Y, VXX, TLT, USO
How the cross-asset selloff developed:
A. Early January: Treasuries rallied and oil declined as institutional investors used these assets to reduce the risk of multi-asset portfolios to a global growth slowdown.
B. Late January: China Equities began to decline in late January as COVID-19 cases increased in China. US Health Care stocks sold off more than SPX in anticipation of the Iowa Caucus (not shown).
C. Early February: Broad US equities rallied as individual investors bought ETFs and select Tech/Consumer stocks as the Iowa catalyst passed. China equities rallied as the rate of growth of COVID-19 cases in China seemed to plateau.
D. Monday-Wednesday of this week: US Equities, US Credit, Treasuries and Oil all declined in a correlated sell-off. This pushed Treasuries and Oil to even further extremes. US Health Care Equities sold off more than the SPX demonstrating that political risk was a significant driver of selling pressure.
E. Thursday of this week: The VIX spiked to its highest level since February 2018 and SPX futures liquidity dropped to near all-time lows. Low liquidity likely amplified the price impact of equity selling flow. This marked a significant change in the velocity of the sell-off.
What we are watching now:
F. China Equities were up 2% in the month of February as of yesterday’s close, outperforming the SPX by 9%. Some underperformance of the SPX vs FXI during a period when investors have become more concerned about the impact of COVID-19 on the broader global economy was understandable; however, the resilience of FXI in recent days seems inconsistent with a view that global growth risk has significantly accelerated. We will be closely watching equity performance in China looking for opportunities to buy puts on FXI or calls on US/European markets.
G. Treasuries and Oil prices were leading indicators heading into this broad equity decline; we will be closely watching these markets for evidence that investors are removing these hedges and positioning for a rebound in growth sentiment. We have yet to see investors reduce these hedges. This indicator is not yet supportive of buying calls on US equities. Buying TLT puts appears attractive for investors that expect global growth sentiment to improve.
Four Notable Derivatives Market Developments:
1. SPX futures liquidity declined significantly on Thursday, reaching its lowest level since December 2018.
This supports the idea that the sell-off accelerated due to a lack of liquidity rather than an increase in fundamental investors selling. Single stock liquidity also declined, but is at less extreme levels.
Exhibit 2 : S&P Futures liquidity declined to near all-time-lows yesterday
Daily median E-mini future bid-ask depth ($mm notional), based on 5-minute intraday snapshots
Exhibit 3 : Single Stock liquidity has declined, but is slightly above Dec-2018 lows
% of market cap tradable while only expecting to move the stock 10bps for Russell 3000 companies
2. Systematic Options selling flows: Rolling of short put positions likely exacerbated SPX moves on Thursday.
As of Wednesday, the SPX broke out of the +/-3% range relative to its 1 month moving average. We estimate, there are over $100b of AUM in systematic SPX 1 month put and strangle selling strategies. These portfolio managers generally sell 1-month puts and strangles and only adjust positions if the options sold trade significantly in-the-money. We use the 1-month moving average of the SPX as a proxy for the SPX level when they initiated their positions. On Wednesday, the SPX traded to 5.7% below the 1-month moving average, likely beginning to trigger rolling activity (these investors would buy back their in-the-money-puts and sell new out-of-the-money puts). This activity is visible as excess selling pressure on SPX futures and pressure on SPX option put-call skew. On Thursday, we believe this rolling activity combined with lower SPX futures liquidity than in prior days, likely exacerbated price moves as the SPX declined to 9.5% below its 1-month moving average.
Exhibit 4 : Rolling of short options positions outsized underlying equity liquidity
SPX relative to its 1 month moving average
3. Investors have rushed to hedge single stocks, showing a fear of further sell-off acceleration.
We find S&P 500 average stock put-call skew has been statistically more useful than index put-call skew as a contrarian indicator for predicting forward returns of the SPX over a two-month period (R-squared of 12% over the past 3 years). Ahead of earnings season, this signal suggested muted returns for stocks. Single stock skew is calculated using the volatility surfaces of all individual stocks in the S&P 500 and it is more likely to be indicative of broad positioning across the market and less likely to be influenced by a few large trades by macro investors in index options.
Exhibit 5 : Elevated concerns are priced into single stock options
S&P 500 average stock put-call skew
4. Healthcare stocks underperformed the SPX early this week showing that investor worries about political risk increased sharply following the results from Nevada on Saturday.
Weakness in Health Care stocks as we approach Super Tuesday looks similar to the last week of January when political concerns led investors to reduce risk ahead of the Iowa Caucus. We see unusually high potential for a relief rally in Health Care stocks next week as investor concerns are likely to be relieved in the short term by the passing of Super Tuesday.
Exhibit 6: Options pricing suggests Health Care sentiment is at bearish extremes
XLV total return relative to the 1 year rolling percentile rank of 3 month implied volatility and put-call normalized skew
We believe that investors have reduced Health Care exposure and implemented hedges this week in anticipation of Super Tuesday as a catalyst and will see fewer near-term catalysts after we pass Super Tuesday. To be clear, we are not taking a view on the result of Super Tuesday as we believe a wide variety of potential outcomes are likely to lead to an improvement in sentiment for Health Care stocks.
…the real message will likely get lost in all this. Most likely the popular narrative will be to blame the coronavirus as the unforeseen event, nobody could have seen this coming, this was not something anyone could have prepared for.
While that’s true on the surface it completely misses the larger point: The Fed, with it liquidity operations masked all the underlying issues in the markets over the past year. We had no earnings growth in 2019, we had multiple expansion. The bond market never confirmed the reflation trade, Gold had been rallying for months signaling something was amiss. And now the Fed left itself vulnerable to not being able to deal with a real crisis and basically openly invited people to TINA chase stocks into high valuations.
The Fed gave no warning to investors, instead it cheerlead investors off the cliff. Even last week Fed officials defended valuations and saw nothing wrong with anything adding to the atmosphere of complacency.
And now everyone will blame the virus, but not the reckless chase into stocks into historic valuations to begin with.
But, as Nomura’s Charlie McElligott warned, the fear of this potentially imminent – and likely coordinated – central bank “interventionary” response (let’s call it: this upcoming Sunday night, before the Asian open) will keep markets in a dangerous space, because strategies and traders which are potentially “pressing” shorts 1) either directionally (CTA model now “in play” of outright “short SPX”) or 2) pressing-shorts to managed “net exposures” or hedge long books, will be exposed to a surge squeeze higher, while investors who have been “grossed-down” by their risk management VaR models won’t be exposed to an “up-trade” in risk and likely feel obligated to “grab into” a short squeeze.
European Nightmare As Turkey “Opens The Gates” On Refugees While Covid-19 Ravages Nearby Iran
As coronavirus ravages Iran and threatens to spread through the broader Middle East, potentially hitting refugee and war-torn populations hardest, it appears Erdogan is now making good on prior threats to “open the gates” of a flood of refugees on Europe. On Friday top Turkish officials were quoted as saying Turkey has no choice but to “loosen” its stance on the some 3.4 million refugees it is hosting.
This was the immediate, and perhaps predictable reaction, to Thursday’s dramatic escalation involving the deaths of some 33 Turkish soldiers in Idlib via airstrike, in the single deadliest day for Turkey in Syria throughout the entirety of the war. Widespread early reports said it was a Russian strike, but in a sign that Ankara doesn’t want to confront the more formidable Russian Air Force, it has blamed Syrian forces.
Turkey has announced it has opened its until now sealed border with Idlib for at least 72 hours, and will allow unhindered passage of refugees to Europe.
Turkish TVs broadcast footages showing migrants are boarding boats off Turkish coast, departing to Greek islands pic.twitter.com/YLMEM1lCMk
Turkey will open its southwestern border with Syria for 72 hours to allow Syrians fleeing the pro-government forces’ assault free passage to Europe, Turkish official sources have told Middle East Eye.
The decision came after a security meeting chaired by Turkish President Recep Tayyip Erdogan in Ankara late on Thursday after 33 Turkish soldiers were killed in Syria’s Idlib province.
A senior Turkish official said on Thursday that Syrian refugees headed towards Europe would not be stopped either on land or by sea.
The European Union is downplaying the fact that crowds of Syrian refugees have already been seen en route to Greece via land borders as well as the Aegean Sea.
Buses in Istanbul were filmed providing transport to refugees and migrants to the Bulgarian and Greek borders.
Refugees gathered in Fatih, Istanbul, today after 5 buses brought by Turkey already left toward the Greek/Bulgarian border. Syrians know they are being used, but they don’t care. They want to live without fear. pic.twitter.com/0Z4CwrbKtc
An EU spokesman was quoted in Reuters as downplaying the potential “flood” from Turkey coming: “I would like to stress that there was no official announcement from the Turkish side about any changes in their asylum seeker, refugee or migrant policy,” the spokesman for the EU’s executive said. “So from our point of view the EU-Turkey statement … still stands and we expect Turkey to uphold its commitments.”
But the reality on the ground may quickly prove these words moot:
Al Jazeera’s John Psaropoulos, reporting from Athens, said the situation was “a European nightmare” as “the floodgates [are] being opened”.
As European officials mull whether this is but more of Erdogan’s threats or perhaps an early “taste” of what’s to come, or whether the flood has begun, Greece and Bulgaria have begun taking action, bolstering patrols along border areas with Turkey.
7/ If you are a refugee in Turkey, this is what you are watching the whole day on TV.
“Hundreds of Syrian refugees in Turkey have begun preparing to travel towards the country’s borders with Greece and Bulgaria after Ankara’s sudden decision to no longer impede their passage to Europe,” The Guardian reports early Friday.
“Turkish police, coastguard and border security officials were ordered to stand down overnight on Thursday, Turkish officials briefed reporters,” the report adds.
Greece appears to be responding by completely shutting any Turkish border access point to any and all traffic.
Buses line up in Istanbul to take refugees to European borders, via Al-Akhbar.
And further, according to The Guardian: “Turkish news agency Demirören showed footage of what it said was 300 people, including women and children, walking on highways and through forested land in north-west Turkey towards the EU border early on Friday. Syrians, Iranians, Iraqis, Pakistanis and Moroccans were among those in the group, it said.”
The WHO is especially concerned of an outbreak among refugee populations in war-torn regions of Iraq and Syria.
“Refugees and internally displaced populations across Iraq and Syria have been identified as the most vulnerable groups in the region, should the spread of the virus become a pandemic,”The Guardian reports of recent statements.
“Health officials in both countries remain under-equipped to deal with such a a reality that seems more possible with each passing day,” the report added.
Via Business Insider
Sprawling and densely packed “tent cities” of refugees along the border areas of Syria remain the most vulnerable.
Needless to say, we now have a dual crisis unfolding that’s indeed even more of a “nightmare” for Europe and the world than many could have predicted: a refugee flood, borders being opened, and the global threat of Covid-19.
Rabobank: “So, It Was Right Not To ‘Buy The Dip’?”
Authored by Michael Every via Rabobank,
So it was right not to “buy the dip”.
Virus cases continue to escalate almost everywhere that already had them, despite government lockdowns, and nobody and nowhere is proving immune. Iran’s Vice-President is infected and their ambassador to the Vatican has just died from it; now the Pope is feeling ill, if not necessarily with COVID-19.
Nigeria has its first case, which could mean havoc for that economy with its lack of healthcare facilities.New Zealand has an Iran-linked case. Lithuania has a case. The Netherlands has its first case. Germany and Spain are seeing more and more cases, and Italy is up to 528 with 17 deaths. Even in South Korea, being held up as a benchmark of how a developed economy with full data transparency and rapid, wide virus testing can respond, the number of new cases continues to rise. It’s also worth noting that while China is seeing fewer new cases—apparently–it is also seeing dozens of deaths each day (now 2,788 with 44 just added). That makes COVID-19 look more and more deadly as the epidemic data move around. The WHO helpfully stress that this “could get out of control” but still isn’t a global pandemic…so closing down global travel is not a solution.
In hindsight, and not being the head of a World Health Organisation, might I ask if perhaps having done so a month ago might have done the trick?
But too late.
We now also see panic and confusion in parts of the US: dozens have now tested positive in California, with reports of potential virus patients being treated by staff without protective suits, while in Hawaii there has been panic buying reported. The new “Virus Czar” Mike Pence has also just appointed some very old faces, Treasury Secretary Mnuchin and Economic Advisor Larry “airtight” Kudlow, to help him out: because of their vast professional experience in epidemiology and virus science, obviously. As we see ever-increasing virus circles, does that ever-decreasing pool of White House talent inspire confidence? Not so much, despite President Trump’s confident assertion that he is doing an “incredible” job.
After all, even his Austin Powers Mojo (baby) of the stock market is voting with its feet. Stocks slumped once again yesterday, with the S&P -4.4% to mark another awful day in a terrible week, and the Dow down the same and a whole baseball cap lower at 25,767. Moreover, futures point to another large decline when the markets reopen today: the Nikkei was down -4.2% at time of writing, for example, with most of Asia deeply in the red. We are now past a mere 10% technical correction and seem to be heading for a bear market, which is only logical when one considers the global backdrop. Indeed, the worst week for equities since 2008 surely beckons. Do you want to be long going into the weekend, even at these lower prices, when any number of worrying headlines may potentially hit the screens?
At the same time, the 10-year US Treasury is now trading at 1.24%, a fresh record low. Let nobody say again that the US yield curve does not have predictive power: it clearly told us a killer virus pandemic was imminent. The market is now expecting Fed rate action as soon as next month. However, we have recently seen the Bank of Korea hold its ground on rates despite the far greater local crisis occurring there; and the ECB’s Lagarde came out to say she didn’t see any immediate need to act.(Europe being behind the curve is more of a dog bites man story, however; plus, the ECB has little left it can usefully do anyway.) Yet the US is an economy where that stock-market Mojo (baby) really seems to matter more than little things like wages – or so you would say looking at the collective policy actions taken by US authorities for decades. As such, the Fed must indeed be a good bet to start slashing rates *to no practical effect on the virus* soon.
Underlining that negative economic scenario globally, in South Korea Hyundai is shuttering a plant in Ulsan: first there was a problem with Chinese inputs for Korean firms, and now the problems are local; in Japan, Tokyo Disneyland is closing; and in Hong Kong, a dog has been found to have a weak form of the virus, raising another potential channel of infection ahead if confirmed. Meanwhile, China is still trying to get back to business as usual and estimates say it is back at 60-70%. The problem remains how to do that without the virus erupting again – and all the more so now the rest of the world seems to be infected.
In terms of currencies, EUR is somehow still looking strong vs. USD, which is surely a technical correction and not a vote of confidence. Recall that in the virus background the UK and the EU are about to go over the trade cliff together based on their stated negotiated positions: the EU for years asked the UK what kind of deal they wanted and the UK would not commit; now the UK has said “Canada” and the EU has said “Sorry, we are out of Canadas.” This risks a WTO “Australia” as the only option left on the menu. But back to FX. China is still trying to send out a signal that all really is well with CNY at 7.01. However, AUD is at 0.6522, which screams the opposite in a market that is not used for virtue signalling. Meanwhile, JPY is under 109 even as nobody is going to school or Disneyland.
While all of this is happening nobody is really talking about the US-China Cold War, which COVID-19 is likely to freeze even further; or that 33 Turkish soldiers have just been killed in Syria in one day at the hands of Syrian (read Russian) forces. As we have already noted this week, this virus pandemic is an accelerant to the pre-existing global conditions we had of populism, deglobalization, concern for national security over economic “efficiency” (read corporate profits), and rawer real politik; with co-morbidity factors like that, it is likely to prove highly damaging to the health of the “global liberal order”, which is surely close to being moved to the ICU (if there are any beds available).
After all, the US is talking about forcing firms to produce masks and anti-virus clothing in the US via the sweeping Defence Production Act of 1950, i.e., dating back to the Korean War. The UK has only 15 specialist beds available for patients in the deepest need of respiratory assistance: you think that will do? Ex-Chancellor Sajid Javid can stomp Thatcherite-ly in Parliament all he wants about fiscal prudence and debt, but the tide–and the virus–is flowing in the opposite direction.
US Personal Incomes Grow At Fastest Pace Since 2018, Spending Growth Slows
Amid all the carnage, a sliver of good news is that incomes jumped more than expected in January (+0.6% MoM vs +0.4% MoM) and while economists will be gravely disappointed spending rose less than expected (+0.2% MoM vs +0.3% MoM) prompting a healthy rise in the savings rate from 7.5% to 7.9%…
This is the biggest jump in incomes since Dec 2018 and spending growth was the weakest since Feb 2019…
Source: Bloomberg
On a year-over-year basis, December saw a big surge (due to Dec 2018’s stocks-market-plunge-driven collapse in spending) and January saw that give back some as incomes grew at 4.0% YoY…
Source: Bloomberg
Under the hood, the picture was mixed with private workers wage growth slowing compared to rising government worker wage growth…
Finally, we note that The Fed’s favored inflation indicator – PCE Core Deflator – rose to +1.63% YoY (though less than expected)…
Source: Bloomberg
Of course, all of this data is ‘old’ and hit before the impacts of Covid-19 really started.
Not until well into the Democratic debate Tuesday night did the COVID-19 coronavirus come up, and it was Mike Bloomberg, not a CBS moderator, who raised it:
“The president fired the pandemic specialist in this country two years ago,” the former New York mayor said.
“There’s nobody here to figure out what the hell we should be doing. And he’s defunded the CDC.”
Not 24 hours later, President Donald Trump, home from India, was in the White House briefing room, flanked by the nation’s foremost health experts, deputizing Vice President Mike Pence to head the task force to lead America’s battle against the spreading disease.
Yet, by Thursday noon, the Dow Jones average was down 3,000 points on the week, a 10% plunge from its recent all-time high.
Trillions of dollars in equity value had been wiped out.
The great bull market of the Trump presidency may be history.
Though only 60 Americans are known to have been infected, and none has yet died, fear has begun to grip the nation as well as the world. Yet, as of now, the numbers don’t justify the emotion.
The death toll as of Thursday was 2,800, out of 82,000 cases of coronavirus worldwide. The great majority of these are in China, where the virus originated, though the disease has spread to every continent, with Italy and South Korea the hardest hit outside of China.
Whatever happens medically – the mortality rate of the virus is between 2 and 3% – it’s hard to see how the world averts a recession if COVID-19 is not soon contained and controlled.
Already, Democrats are piling on Trump for cutting funding for the Centers for Disease Control and Prevention and failing to reflect the seriousness of the threat. And the issue does present a challenge to Trump’s presidency. His handling of it may determine his stature as chief executive.
Yet the issue is also tailor-made for Trump.
First, the disease comes out of Xi Jinping’s China, not Trump’s USA.
Second, the president occupies what Theodore Roosevelt called the “bully pulpit,” the White House. He can use that pulpit daily to command the airwaves and inform, lead, unite and direct the nation during what could be a months-long crisis. And Trump alone has the power to declare a national emergency, should that be needed.
If Trump acts as a leader, urging unity in the struggle to contain the virus and discover a vaccine, the hectoring from the Democratic left, already begun, can come to be seen as unpatriotic.
Also, Trump’s probable opponent this fall, who would be in charge of preventing the coronavirus from spreading like the Spanish Flu of 1918-19, is Bernie Sanders. And what are Sanders’ credentials and plans?
Under “Medicare for All,” Sanders intends to nationalize the entire U.S. heath care system and abolish the private health insurance plans of 140 million Americans who now depend on them.
As for the pharmaceutical industry, uniquely situated to assist in the crash effort to find a cure for the coronavirus, Sanders will confiscate its profits and put those profiteers out of business.
Still, given the alarming news coming from countries all over the globe, there is a risk that by November, the U.S. and the world may have tumbled into a recession. Airlines are already canceling flights to and from Asia. Cruise ships are pulling into ports and off-loading passengers. Travel and tourism are suffering terribly. Schools are closing.
Chinese factories that produce essential parts for factories and finished products in the U.S., Europe and Asia are shutting down. Supply chains are being severed. Shortages are cropping up.
The Japanese are talking of canceling the Olympics. If the virus spreads here, the question arises: Will our two parties still hold their nominating conventions this summer in Milwaukee and Charlotte?
The chickens of globalization are coming home to roost.
In recent decades, America’s economic and political elites of both parties surrendered America’s economic independence for globalism, a new interdependence of nations, where we Americans no longer rely on ourselves alone for the vital necessities of our national life.
That decision is now being exposed as the folly against which Hamilton and economic nationalists always warned.
According to The Washington Post, critical ingredients of medicines and drugs, upon which many American lives depend, are made in Chinese factories now in danger of being shut down.
In the ongoing struggle between nationalism and globalism, the globalists are taking a beating. Like the Chinese and Japanese and Koreans, Americans are not going to be looking to the WHO or U.N. to ensure their health, but to their own nation-states. And if a pandemic threatens, transnationalism’s “open borders” ideology is not a policy that will bring universal acclamation.
Like Trump’s America, all nations, in this crisis, are going to put their own people first. As they should.
Geneva Auto Show Canceled As Switzerland Bans Public Events Amid Virus Fears
The 90th edition of the Geneva Motor Show (March 5-15) has been canceled following the Swiss government’s ban on all public events that gather more than 1,000 people until March 15 due to new fears Covid-19 is rapidly spreading across Europe.
Palexpo not yet officially confirming the cancellation of Geneva motor show “but we heard the announcement from the Federal Office and we know what that means”. IE the show’s off.
Maurice Turrettini, president of the Geneva International Motor Show Foundation, said: “We regret this situation, but the health of all participants is our and our exhibitors’ top priority. This is a case of force majeure and a tremendous loss for the manufacturers who have invested massively in their presence in Geneva. However, we are convinced that they will understand this decision.”
“A few days before the opening of the event, the construction of the stands was very nearly complete. A week ago, during the press conferences announcing the 2020 edition, there was nothing to suggest that such a measure was necessary. The situation changed with the appearance of the first confirmed coronavirus diseases in Switzerland and the injunction of the Federal Council on 28.02.2020. The event is canceled due to this decision.
In the meantime, the dismantling of the event will now have to be organized. The financial consequences for all those involved in the event are significant and will need to be assessed over the coming weeks. One thing is certain: tickets already purchased for the event will be refunded. The organizers will communicate about this as soon as possible, via their website.”
The Geneva car show is one of the biggest in the world, so it’s a blow to automakers who were planning on debuting new models.
This comes as Switzerland reported 15 confirmed virus cases. It borders northern Italy, which has the largest amount of cases and deaths in Europe.
“The Markets Are Really Panicking”: VIX Explodes, Markets Crash In Worst Week Since Lehman
Friday’s market performance has traditionally been the weakest, even during the meltup phase ahead of the recent coronacrash, and as such it will probably not come as a surprise that today’s overnight rout which followed the biggest 6-day correction from a peak for the S&P on record…
… has accelerated only this time without even a casual attempt to buy the dip, with the S&P plunge accelerating, and briefly dipping below 2,800. As shown in the chart below, the S&P is now down over 13% from its Friday high, and the selloff shows no signs of abating as both man and machine is now openly dumping risk as the coronavirus epidemic gets worse by the day.
Futures on American gauges were all down at least 0.8%, a more modest drop than elsewhere in the world, but still suggesting U.S. stocks will retreat for a seventh straight session, cementing the worst week since the global financial crisis. Wall Street shares plunged 4.4% on Thursday alone, the largest fall since the August 2011 US downgrade. Futures pointed to a modest 1% drop later, but the S&P 500 has lost 12% since hitting a record high just nine days ago, putting it in so-called correction territory
“Investors are trying to price in the worst case scenario and the biggest risk is what happens now in the United States and other major countries outside of Asia,” said SEI Investments Head of Asian Equities John Lau. “These are highly uncertainty times, no one really knows the answer and the markets are really panicking.”
And as the accelerating global coronavirus panic sent world stock markets skidding again on Friday into a angry sea of red…
…compounding their worst crash since the 2008 global financial crisis and pushing the week’s wipeout in value terms to $5 trillion. MSCI’s all country world index, which tracks almost 50 countries, was down more than 1% ahead of U.S. trading and almost 10% for the week – the worst since October 2008.
… the VIX exploded, with equity volatility soaring briefly above 47, before stabiling around 41; it was below 15 a week ago, surpassing both the late 2018 selloff, the Feb 2018 Volmageddon, the Aug 2015 ETFlash crash, and the highest since the US downgrade in 2011.
The rout showed no signs of slowing as Europe’s main markets slumped 3-5%, with the Stoxx Europe 600 Index paring a tumble of 4.5%, though it was still headed for the worst weekly performance since 2008. All 19 sectors gauge dropped more than 1.8%. Europe’s airlines and travel stocks have plunged 18% in their worst week since the 2001 9/11 attacks in the United States.
The index, which measures expected swings in U.S. shares in the next 30 days, typically shoots up to around 50 when bear market selling hits its heaviest and approached almost 90 during the 2008-09 financial crisis.
Earlier in the session, Asian benchmarks from Tokyo and Seoul to Shanghai and Sydney posted drops of more than 3% as Asian stocks suffered the steepest one-day decline in 16 months, with the materials and energy sectors falling the most. The MSCI Asia index ex-Japan shed 2.6%. Japan’s Nikkei slumped 3.7% on rising fears the Olympics planned in July-August may be called off due to the coronavirus. All markets in the region were down, with China’s Shanghai Composite dropping 3.7%, as the global rout knocked mainland Chinese shares, which have been relatively well supported this month. The CSI300 index of Shanghai and Shenzhen shares dropped 3.5%, to bring its weekly loss to 5% and the worst since April. Trading volume for MSCI Asia Pacific Index members was 36% above the monthly average for this time of the day.
Hopes that the epidemic that started in China would be over in months and that economic activity would quickly return to normal have been shattered this week as the number of international cases spiralled. As such, focus was on the number of international coronavirus cases, where there was no sign that the virus spread is slowing with cases in South Korea topping 2,300.
“The coronavirus now looks like a pandemic. Markets can cope even if there is big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “But at the moment, no one can tell how long this will last and how severe it will get.”
New cases continue to appear outside of China, with New Zealand and Lithuania reporting their first infections. The head of the World Health Organization said the coronavirus has the potential to become a pandemic and is at a “decisive” stage. Land Co and AltPlus led declines in the Topix. The Shanghai Composite Index retreated 3.7%, with Shenyang Jinbei Automotive and Anhui Tongfeng Electronics posting the biggest slides.
Disruptions to international travel and supply chains, school closures and cancellations of major events have all blackened the outlook for a world economy that was already struggling with the U.S.-China trade war fallout.
The ongoing dive for safety sent yields on 10Y Treasury bonds to fresh record lows, dropping as low as 1.1550 in frenzied European trading% before staging a modest rebound. It last stood at 1.2143%. That is over 20bps below the three-month bill yield of 1.43%, deepening the inversion of the yield curve, and virtually assuring a recession.
Yields on bunds also dropped, while European peripheral bonds sold off. Japan’s 10-year government bond yield headed for its largest weekly decline since January 2016 and the yen rallied by as much as 1% against the greenback to touch 108.51
In commodities, oil prices languished at their lowest in more than a year having plunged 12% this week – the worst since 2016 – while all the major industrial metals have dropped between 3% and 6%. Expectations the Fed will cut interest rates to cushion the blow are rising in money markets. Analysts say Fed funds futures are now pricing in about a 75% chance of a 25 basis point cut at the central bank’s March 17-18 meeting, with some traders betting on 2 rate cuts as soon as next month as Kevin Warsh tells CNBC this morning a Fed emergency announcement on Sunday may not be a bad idea. The European Central Bank historically lags the Fed but it is now seen cutting by another 10 basis points by June.
In FX, the dollar traded mixed and the euro continued its advance on the back of short covering; the Swiss franc touched its strongest level against the U.S. currency since September 2018. The pound fell against the euro and money markets priced in a Bank of England interest-rate cut for May on concern the coronavirus could trigger a growth downgrade for the U.K. The kiwi slumped to its weakest since October on increasing expectations for the Reserve Bank of New Zealand to ease monetary policy; New Zealand confirmed its case of coronavirus on Friday, adding to a spate of new infections outside China
Looking at the day ahead, we have a raft of data releases out: the US will be releasing preliminary wholesale inventories for January, as well as January’s personal income, personal spending and the PCE deflator. In addition to this, we’ll get the February MNI Chicago PMI, the final February University of Michigan consumer sentiment index, and Canada’s GDP for December. From central banks, we’ll hear from Bundesbank President Weidmann, the Fed’s Bullard, and the BoE’s Haldane and Cunliffe. Foot Locker and Wayfair are among companies reporting earnings.
Market Snapshot
S&P 500 futures down 1.1% to 2,921.75
STOXX Europe 600 down 4.5% to 371.80
MXAP down 2.5% to 155.42
MXAPJ down 2.6% to 509.87
Nikkei down 3.7% to 21,142.96
Topix down 3.7% to 1,510.87
Hang Seng Index down 2.4% to 26,129.93
Shanghai Composite down 3.7% to 2,880.30
Sensex down 3.7% to 38,269.99
Australia S&P/ASX 200 down 3.3% to 6,441.20
Kospi down 3.3% to 1,987.01
German 10Y yield fell 7.7 bps to -0.62%
Euro up 0.4% to $1.1048
Brent Futures down 4% to $50.12/bbl
Italian 10Y yield rose 8.1 bps to 0.908%
Spanish 10Y yield rose 1.9 bps to 0.329%
Brent futures down 2.9% to $50.69/bbl
Gold spot down 1.1% to $1,626.49
U.S. Dollar Index down 0.3% to 98.19
Top Overnight News
German growth will almost certainly be weighed down by the coronavirus, even if it’s still unclear how much, said Bundesbank President Jens Weidmann. Numerous trade-related uncertainties continue to threaten the nation’s export-oriented companies, and the virus outbreak presents an additional economic risk, he said at a press conference Friday
South Korea reported 571 more cases on Friday, taking its tally past 2,300, and Japan’s Hokkaido declared a state of emergency. Switzerland banned events with more than 1,000 people
Joe Biden is hoping fora win in South Carolina on Saturday to propel him to a strong showing three days later on Super Tuesday that would give fresh momentum to his flagging campaign for the Democratic presidential nomination
U.K. house prices climbed at the strongest annual pace since July 2018 this month, continuing a positive trend following Boris Johnson’s election win, according to Nationwide Building Society
German unemployment unexpectedly fellfor a second month, highlighting the resilience of the labor market to a manufacturing slump and new threats from the coronavirus outbreak
Asian stocks traded lower across the board following the bloodbath on Wall Street which saw the Dow plummet almost 1200 points, S&P break below the 3000 mark and the Nasdaq zero in on the 8500 level. Dow and S&P posted their worst day since February 2018 as the three major indices dipped into correction territory. This performance reverberated into APAC markets as ASX 200 (-3.3%) opened sharply lower and held onto the losses, and again with mining and financials posting heavy losses. Nikkei 225 (-3.6%) fell deeper into correction territory and also saw another day of underperformance in manufacturing, autos and financials, whilst also being weighed on by a firmer JPY. KOSPI (-3.3%) bore the brunt of yesterday’s BoK surprise hold coupled with total virus cases in South Korea topping 2k as the index gave up its 2k handle, and with heavyweights Samsung Electronics and Hyundai Motors lower to the tune of 2-5% amid supply chain woes, and with the latter suspending production at its No2 plant in South Korea after a worker tested positive for the virus. Elsewhere, Hang Seng (-2.4%) and Shanghai Comp. (-3.7%) conform to the global stock rout, with the former also in correction zone and again pressured by the usual suspects – oil giants, entertainment and financials stocks, whilst the latter initially scraped off lows before extending losses, as the total deaths in the country showed an increase vs. yesterday, although the rate of new cases continues its recent downtrend. US equity futures extended losses with the E-Mini Mar’20 contract falling below 2950.
Top Asian News
Mahathir Loses Party Support for Malaysian Prime Minister Job
ING Alleges Father-Son Fraud After Commodity Firm Collapses
Another grim session thus far for European equities (Eurostoxx 50 -4.2%) as the selling pressure facing global stocks shows no signs of letting up. Since yesterday’s close there hasn’t been much in the way of a notable pickup in coronavirus-related outbreaks with the newsflow running largely at the same clip as it has done for the past few sessions as various nations such as New Zealand, Lithuania, Nigeria and Belarus all report their first cases. The current market narrative is having to contend with many of the same issues it has throughout the week, with the uncertainty surrounding coronavirus clearly top of the list of investor concerns, whilst a lack of meaningful policy response from either fiscal or monetary authorities has only added to the current apprehension. Additionally, geopolitical unrest between Turkey and Russia as well as focus on who US President Trump’s opponent in the 2020 White House race could be (Sanders would naturally be seen as a negative) have added to the bearish impulses. All of this has triggered a serious re-reassessment of valuations (mainly US) that many had questioned on the way up in recent months, however, it remains to be seen how far the current slump will extend as the ongoing drip-feed of disappointing corporate updates continues to suppress investor appetite. In terms of the breakdown for Europe this morning, selling across the 10 key sectors has been relatively broad-based once again, with travel names continuing to be a prime target for selling pressure after IAG (-2.5%) warned that, amid COVID-19 the Co. could not forecast 2020 profits. Furthermore, for the sector, easyJet (U/C) shares are also seen lower after warning of softening demand amid the virus outbreak. Elsewhere to the downside, Lagardere (-10.1%) sit at the foot of the Stoxx 600 post-earnings, Commerzbank (-4.1%) are seen lower in a disappointing yield-environment for the financial sector whilst also being urged to make deep cuts and overhaul its business model. Such is the extent of the selling, despite opening with gains of 3.3%, shares in Thyssenkrupp (-4.7%) eventually fell victim to the bloodbath in Europe. One of the few success stories thus far is Rolls-Royce (+6.1%) after announcing it will be incurring no further costs from the Trent 10000 issues.
Top European News
German Unemployment Falls Again as Economy Shows Resilience
ECB’s Weidmann Says Virus Puts German Growth Forecast at Risk
Swedish Economy Loses Steam as Focus Shifts to Virus Fallout
Commerzbank Urged to Step Up Cuts, Overhaul Model in Review
In FX, It’s seems when push really comes to shove and risk aversion intensifies to the point of full blown mass exodus levels, the Yen becomes the default destination and accordingly Usd/Jpy alongside crosses are collapsing at pace. The headline pair is now probing bids near 108.50 and a break could expose the 200 DMA (circa 108.42) with inverse bearish repercussions for the DXY that is already looking increasingly precarious a fraction above the 98.000 handle having already breached a 50% retracement level on the charts at 98.134. Meanwhile, the Franc is also attracting capital fleeing from high beta, activity and cyclical counterparts, as Usd/Chf hovers closer to the bottom of a 0.9695-10 range and Eur/Chf retreats through 1.0650 even though the single currency continues to proffer from the Dollar’s demise amidst ever declining US Treasury yields and curve flattening. However, Eur/Usd has run in to some resistance around 1.1050 where option expiry interest in 1.4 bn resides and extends to 1.1060. Elsewhere, Gold has not benefited from the safety-flight perhaps oddly or perversely, as Xau/Usd consolidates below Usd1650/oz and holdings are liquidated to free up cash over month end and for other funding needs.
GBP – The Pound is not renowned for any safe-haven properties and still has residual RHS month end Eur/Gbp demand to contend with as the cross straddles 0.8550, but Cable is clinging to 1.2900 due to Buck underperformance and braced for the UK-EU trade off to begin.
CAD/AUD/NZD/NOK/SEK – Having displayed varying degrees of resilience in the face of an escalating FTQ, the Loonie, Aussie and Kiwi have all succumbed to the inevitable or reality, with Usd/Cad topping 1.3450 ahead of Canadian GDP and PPI, Aud/Usd struggling above Fib support circa 0.6513 protecting 0.6500 and Nzd/Usd now south of 0.6350 amidst renewed calls for RBA and RBNZ easing in response to nCoV. Similarly, the Scandi Crowns are sinking as sentiment sours and local data is shrugged off, such as Swedish Q4 GDP that was bang in line with consensus anyway, and Norwegian Krona falls additionally in sympathy with crude. Eur/Nok hit fresh record highs over 10.4300 and Eur/Sek almost touched 10.7000 before some paring back.
EM – Deeper declines and depreciation de rigour, but the Rouble and Lira are still prone to inverse moves on oil prices while anxiously eyeing events in Syria’s Idlib where attempts to mediate between Turkey and Russia are ongoing following a further escalation in military strikes. Elsewhere, intervention is becoming more commonplace in an effort to stop runs on various currencies that have plunged to all-time lows
In commodities, WTI and Brent prices are once again experiencing a significant sell-off this morning with WTI having breached the USD 45/bbl mark and crude well below USD 50/bbl at worst, with losses just shy of USD 2/bbl at present. Focus does, as has been the case all week, remain almost exclusively on the coronavirus with multiple new cases being reported as well as the implementation of emergency or lockdown procedures in some regions. Overnight, prices did briefly see support of reports that Saudi Arabia are looking for a 1mln BPD production cut, and they would be responsible for the majority of such a reduction; while the price support was fleeting, these comments are notable given that such a level would be almost double the figure recommended by the JTC (600k BPD) (Note, similar reports were echoed ahead of the US entrance to market). Next week sees the OPEC meeting where all eyes will be on firstly if production cuts are announced and then, assuming they are announced, the magnitude of reductions; ING posit that 600k would likely be sufficient to maintain market balance at present into Q2 but, in the event that Libyan supply returns earlier than expected cuts of the 1mln magnitude would be required. Elsewhere, geopolitical tensions over Syrian between Russia and Turkey have significantly flared up during the session, with Russia sending frigates to the area and the UN to host an emergency meeting, at Turkey’s request, on this later. While not currently appearing to have an impact on commodity prices, it could well become a focus point if the situation deteriorates further. Moving to metals, where spot gold isn’t able to benefit from the continued sell-off markets are seeing, as such the yellow metal is down by circa USD 10/oz at present; however, it is worth caveating that spot gold prices are still well-elevated vs. recent levels and it does appear that today’s lack of support for the metal is at the expense of a significantly bolstered JPY.
8:30am: Retail Inventories MoM, est. 0.2%, prior 0.0%, revised 0.0%
8:30am: Wholesale Inventories MoM, est. 0.1%, prior -0.2%
8:30am: Personal Income, est. 0.4%, prior 0.2%
8:30am: Personal Spending, est. 0.3%, prior 0.3%
8:30am: Real Personal Spending, est. 0.2%, prior 0.1%
8:30am: PCE Core Deflator MoM, est. 0.2%, prior 0.2%; PCE Core Deflator YoY, est. 1.7%, prior 1.6%
8:30am: PCE Deflator MoM, est. 0.2%, prior 0.3%; PCE Deflator YoY, est. 1.8%, prior 1.6%
9:45am: MNI Chicago PMI, est. 46, prior 42.9
10am: U. of Mich. Sentiment, est. 100.7, prior 100.9; Current Conditions, prior 113.8; Expectations, prior 92.6
DB’s Jim Reid concludes the overnight wrap
It was the thirteenth anniversary of the EMR yesterday and obviously an unlucky one for markets. Ahead of ‘leap day’ tomorrow, markets bounced around in a wild fashion in what ended up being one of the worst days for markets since the GFC. It reminded me of the days writing this during the crisis where I would just watch Bloomberg TV all evening in awe and try to work out what Fannie Mae going into conservatorship actually meant. Now I go home and have to watch “In The Night Garden” which is only just a little bit easier to understand. Anyway, for the second day in a row, markets did try to rally as the S&P 500 recovering from -3.5% to just -0.62% before selling off hard into the NY close to finish at -4.42%, in the worst day since 2011 as more covid-19 cases were found in the US and Europe. It was a substantial risk off day for most markets which has carried on into the Asian session where the Nikkei (-4.28%), Hang Seng (-2.54%), Shanghai Comp (-3.14%) and Kospi (-3.24%) are all seeing heavy losses. As for fx, the Japanese yen is up +0.60% while in commodities Brent crude oil prices are down a further c. -2.53% this morning to $50.86, the lowest level since June 2017. Elsewhere, futures on the S&P 500 are down another -1.37% this morning while 10y UST yields are down another -1bps to 1.252%.
New Zealand, Lithuania and Nigeria all reported their first cases overnight bringing the total number of countries with reported cases to at least 48 across the globe. The reported case in Nigeria is also the first case in sub-Saharan Africa and it would be concerning if the virus spreads across the region due to a relative lack of medical facilities. South Korea also confirmed another 256 infections (182 in Daegu) overnight bringing the total number in the country to 2,022. South Korea’s Vice Health Minister Kim Ganglip also said at a briefing that the country has completed tests for 1,299 members of the Church at the centre of outbreak (among its 9,334 members) and the results of the tests will be available over the weekend. He further added that so far the ratio of confirmed cases to suspected cases is “very high.” So one to keep an eye on. In not so encouraging news, the US FDA confirmed the first drug shortage relating to the coronavirus overnight saying the shortage is due to an active ingredient used to make the drug.
On the flipside China’s return to work continues with the count of new cases remaining relatively low there. China reported 327 new cases overnight. Also, the Ministry of Transport said in a statement that China will resume buses, subways and taxis in urban and rural areas with lower coronavirus risks, adding that the move is aimed at supporting factory resumptions and stabilizing the economy.
In other news, the South Korean government announced a slew of subsidies and consumer incentives to support the economy. The measures include rent subsidies for small businesses along with temporary tax breaks on car purchases with the government adding that it will seek parliamentary approval for an extra budget before the end of March. Elsewhere, Etsuro Honda, an adviser to Japanese PM Shinzo Abe and one of the key architects of Abenomics, said Japan should compile another economic package with fresh spending of at least JPY 5tn ($45 bn) to respond to a severe hit from the coronavirus outbreak. Business continues to grapple with the impact with Anheuser-Busch InBev (the world’s largest brewer) yesterday forecasting the steepest decline in quarterly profits in at least a decade due to the virus.
Over the last two or three years at least, the circuit breaker to risk off moments have usually been a Donald Trump tweet or a central bank u-turn. There is very little the former can do to control the global spread of the virus though and little central banks can do either. Once we talked to our expert epidemiologist on Monday there has been an inevitability about the rolling newsflow this week. However any signs that central banks are heavily leaning towards imminent cuts will be a chance for risk to have some more two way tension. More so if governments spend big. On central banks, as you’ll see later Lagarde didn’t suggest this was particularly imminent in Europe and recent Fed speakers (eg Clarida on Wednesday) also don’t appear in a hurry to cut. The most likely way risk bounces for a sustainable period is if the spread of the virus just peters out and never really accelerates outside of China as it did within Hubei province at least. This doesn’t feel likely in the near term. Italy now has 655 cases which is up from 3 this time last week. On a more positive note the spread isn’t as aggressive everywhere as countries like Japan still ‘only’ have 214 reported cases so far (93 cases last Friday) despite being nearer to the epicentre of the virus for longer. However as a measure of how risk adverse governments are Japan announced that all schools will close 3 weeks early from Monday and stay closed until after the spring holidays. Expect this sort of announcement to build around the world. As a note of caution to the above though, Masahiro Kami, chair of the Medical Governance Research Institute in Tokyo, has said this morning that the country’s official infection tally is suspected to be just the tip of the iceberg of a much wider outbreak as “those with mild symptoms are not being tested.” He added that, “for every one who tests positive there are probably hundreds with mild symptoms.”
Yesterday saw the first cases announced in Estonia, Ireland, Northern Ireland, Georgia and the Netherlands. The German state of North Rhine-Westphalia’s announced 14 new cases and there were 38 new confirmed cases in France. Saudi Arabia has suspended visas for religious pilgrimages as we discussed yesterday and also tourist visas from countries with reported infections. The Middle East also reported a jump in cases yesterday with Kuwait moving from 26 to 43 while Iran has 270 cases now including 26 deaths (up from 19 yesterday) and the UAE has 19 cases.
The mid-day rally back in the US yesterday seemed to go back into fast reverse when California announced 33 positive tests with the state monitoring 8,400 people after they recently traveled to Asia. The NASDAQ followed the S&P, finishing down -4.61%, its worst day in more than 8 years. The VIX index finished the day at 42.23, its highest levels Since August 2015, even higher than the “Volmeggedon” closing levels back in February 2018. As my colleague Torsten Slok pointed out the market correction over the past six trading sessions (-12.03%) is the fastest 10%+ decline in the S&P 500 from a record high in the last several decades of data. As another colleague Brett Ryan pointed out only 4 other incidents have seen larger 6-day moves than this. These are: Aug 2011 (-13.4%), Oct 2008 (-21.6%), July 2002 (-13.1%) and Oct 1987 (-27.7%).
Earlier Europe had a torrid time with the STOXX 600 closing down 3.75% but closing during a period where the US was starting to rally back. As investors poured into safe assets, 10yr Treasuries closed at 1.261% yesterday to breach the 1.3% mark for the first-time ever (going down as far as 1.24% intraday), while 2yr Treasury yields are actually on track for their biggest weekly decline (-36.0bps so far) since October 2008, so some truly astonishing moves. Given this, it won’t surprise you to know that investors are increasingly pricing in the chances of a monetary policy response even if central bankers are reticent currently. In fact, the market has now fully priced in 3 rate cuts from the Fed by year-end, with the first fully priced by the April meeting. Even for the March meeting in less than 3 weeks’ time, there’s been a massive shift in market expectations since last Friday, with the market pricing in a 92.8% chance of a cut, compared to just 8.1% last Friday.
Elsewhere Brent crude fell for a 5th successive session (-2.34%) to close beneath $52/barrel for the first time since December 2018. Peripheral European debt also suffered, with the spread on Italian and Spanish 10yr debt over bunds rising by +11.9bps and +9.8bps respectively yesterday. 10yr bunds fell -3.8bps. Credit had a challenging day with Euro and US HY spreads +18bps and +34bps wider.
In terms of newsflow, ECB President Lagarde said to the Financial Times yesterday that the coronavirus hadn’t yet reached the point where it’d have a long-term impact on inflation and require a monetary policy response, saying “we are certainly not at that point yet”. Her comments came against the backdrop of what were some pretty resilient data from Europe yesterday, with the European Commission’s economic sentiment indicator rising for a 4th consecutive month in February to 103.5 (vs. 102.8 expected), which put the index at its highest level since last May. That said, don’t get too overexcited by this as the data was collected from Feb 3rd-20th, before the recent market selloff sparked by the upsurge in European cases, and when the coronavirus was still fairly contained in Asia. Nevertheless, the Euro outperformed other major currencies yesterday, strengthening by 1.10% against the US dollar in its best daily performance since May 2018.
Chicago Fed President Charles Evans also signalled that he thought monetary action on the virus was premature and that it may take months to understand the economic impact, possibly worrying investors that the central bank was going to be too late to act.
Here in the UK, sterling fell after the release of the government’s Brexit negotiating mandate to close down -0.12% against the US dollar and -1.21% against the euro. It comes ahead of the start of the formal negotiations on the future relationship next week, with the document making clear that the UK would not agree to the EU’s demands for a level-playing field. In the text, it said that “we will not agree to any obligations for our laws to be aligned with the EU’s, or for the EU’s institutions, including the Court of Justice, to have any jurisdiction in the UK.” The document also said that if there wasn’t the hope of reaching an agreement by the June meeting, the government would decide whether to move over to preparation for leaving without a deal. So something to keep an eye on as we move through the year.
US Q4 GDP came in at 2.1%, which was in line with expectations and unrevised. Durable goods orders, especially the core, were much stronger than expected – down -0.2% (vs. -1.4% expected) and core PCE inflation was revised down further. The durable goods numbers likely gets discounted given the backward looking nature and the coming impact of coronavirus.
Ahead of tomorrow’s Democratic primary in South Carolina, a Monmouth University poll showed former Vice President Joe Biden with a commanding lead ahead of the vote. The poll had Biden on 36%, followed by Bernie Sanders on 16% and Tom Steyer on 15%, with all the other candidates including Elizabeth Warren, Amy Klobuchar and Pete Buttigieg on single digits (Bloomberg won’t be on the ballot tomorrow). Biden is very much the favourite to win the primary there, with FiveThirtyEight’s model giving him a 94% chance of winning the most votes, while he’s far ahead on both PredictIt and Betfair as well. He’ll be hoping that a victory there can power him forward to Super Tuesday next week, which is the most important day of the entire primary season with the largest number of delegates up for grabs in a single day. With Sanders ahead in the national polls, success for Biden in South Carolina would set him up as Sanders’ main challenger from the more centrist/moderate wing of the party, particularly after Mike Bloomberg underwhelmed in the TV debates.
Looking at the day ahead, we have a raft of data releases out. Highlights include the preliminary CPI reading for February for Germany, France and Italy, as well as France’s final GDP reading for Q4 and Germany’s unemployment change for February. On the other side of the Atlantic, the US will be releasing preliminary wholesale inventories for January, as well as January’s personal income, personal spending and the PCE deflator. In addition to this, we’ll get the February MNI Chicago PMI, the final February University of Michigan consumer sentiment index, and Canada’s GDP for December. From central banks, we’ll hear from Bundesbank President Weidmann, the Fed’s Bullard, and the BoE’s Haldane and Cunliffe.
Democrat Michael Bloomberg has been caught saying he will drone those who disagree with him and protect the big banks. The hypocritical guy who backs and funds his own anti-gun campaign now wants the power to drone his critics.
Billionaire Democratic hopeful Michael Bloomberg vowed to “defend the banks” and jokingly suggested that he may hunt down his political rivals with Predator drones if elected, a leaked 2016 audio clip has revealed. While some may take it as a joke, giving power to a person who thinks killing people who disagree with him is a laughing matter is simply disturbing.
The Bloomberg campaign has confirmed the authenticity of the recording, which captured a speech he gave at a closed-door Goldman Sachs event at Yankee Stadium in June 2016. The clip was posted online by a self-styled disgruntled former Goldman executive several days ago and has since made the rounds.
Bloomberg’s opening remarks can only help to fuel concerns within the progressive wing of his own Democratic party that the billionaire is indeed in bed with big banks. When asked why he did not run in 2016, Bloomberg responded: “Well, to start, my first campaign platform would be to defend the banks, and you know how well that’s gonna sell in this country.”
While his campaign brushed off the remark as a joke, custom-tailored to the audience of corporate executives, Bloomberg seemed to be quite serious about his support for the banking industry at the time, arguing further that a strong banking system would boost job growth.
“But seriously… somebody’s gotta stand up and do what we need. A healthy banking system that’s going to take risks because that’s what creates the jobs for everybody.And nobody’s willing to say that. The trouble is, these campaigns in this day and age, really are about slogans and not about issues anymore,” he went on, lamenting that voters cast ballots based on the candidate they “hate the least.”
And that’s not the only concern, especially if you are critical of Bloomberg’s proposed policies. According to RT, in another excerpt from the nearly hour-long speech, which was uploaded last week by the user ‘cancelgoldman’ to SoundCloud, an audio-sharing platform, Bloomberg suggested that one of the benefits of being president is that as commander-in-chief can do away with inconvenient critics by taking them out with killer drones.
“It would have been a great job. No, I mean, you think about it, you have Predators, and the Predators have missiles, and I have a list of everybody that’s annoyed me or screwed me for the last 74 years, and bang-bang-bang-bang.” -Michael Bloomberg
Bloomberg has spent over $500 million out of his own pocket to promote his presidential bid, but so far his campaign is struggling to gain momentum. Hopefully, the release of this audio clip will see him out of the race and out the money he spent promoting his idiotic and sociopathic policies.
Coronavirus Cases Surge Across Europe As Hong Kong Dog Becomes First Pet To Test Positive: Live Updates
On Wednesday, the coronavirus outbreak reached a new milestone when the number of new cases confirmed in the world ex-China finally surpassed the number being confirmed on the mainland. Two days later, and we’re almost at the point where the number of Thursday new cases confirmed by Iran was roughly half the total coming out of Wuhan.
As of Friday morning, the number of confirmed cases worldwide had passed 83,000, while the number of deaths topped 2,800.
Since yesterday, we we first noted this chart, the number of cases outside China has soared, particularly in South Korea and across Europe, as the number of new cases in mainland China (but outside Wuhan) dropped into the single digits.
Of course, China still had nearly two months of lead time over the rest of the world, and it has been home to the bulk of cases so far.
Every Brooklyn hipster who’s been living in blissful ignorance of the pandemic unfolding all around them – dismissing every new warning as ‘racist right-wing alarmism’ – is about to start paying attention: The dog of a coronavirus patient in Hong Kong has been found to carry a “low level” of the deadly virus, according to a statement from the region’s government.
According to the New York Post, researchers tested the dog’s nasal cavities and swabbed its mouth on Wednesday, and soon discovered that a test returned a “weak positive” for the samples.
“At present, the [Agriculture, Fisheries and Conservation Department] does not have evidence that pet animals can be infected with COVID-19 virus or can be a source of infection to people,” Hong Kong’s government said in a press release.
Don’t worry, dog lovers: The animal is being quarantined in a animal shelter holding no other animals. The pooch will remain under quarantine until it tests negative. Fortunately, it doesn’t appear to be showing symptoms.
South Korea has confirmed an additional 571 cases of the novel coronavirus so far on Friday, bringing its total to 2,337, making it the largest outbreak outside of mainland China.
Nigeria, Africa’s most populous country with more than 200 million people, reported the first case in Sub-Saharan Africa late Thursday night (ET). On Friday, Nigerian Health Minister Osagie Ehanire told reporters in Lagos that his government has contacted the airline on which the country’s ‘patient zero’ traveled to try and trace people he came in contact with. Lagos Health Commissioner Akin Abayomi said the patient traveled to Nigeria on Turkish Airlines flight.
“We are not panicking,” Ehanire says. “We are not banning airlines. We have not seen the need. We are also not profiling and stigmatizing.”
Perhaps the most shocking development overnight was the surge of new cases in Germany, confirming the dire warnings of health officials. Europe’s largest economy has now quarantined about 1,000 people and affirmed “about 60” cases of coronavirus across the country.
Mexico’s streak of being the only country in North America to have rebuffed the coronavirus is about to end: The country just reported its first preliminary positive test on Friday morning, according to Bloomberg.
as the number of confirmed cases in Switzerland slowly grows, one of the most important events for the global auto industry, the Geneva International Motor Show, has been canceled now that Swiss authorities have banned major public events.
In Iran, authorities have nearly caught up to a lawmaker’s warning about 50 deaths in the city of Qom earlier this week: The Islamic Republic reported 143 new cases overnight, raising the countrywide total to 388. It also reported 8 more deaths, bringing the death toll to 34.
“Iran expects an upward trajectory in confirmed coronavirus cases in the next few days,” the health minister said.
Singapore has become the latest country to crack down on the South Korean Christian cult at the center of that country’s outbreak.
German Bundesbank President Jens Weidmann said on Friday that the central bank’s official forecasts for 2020 growth were probably a little too optimistic, given the supply-side shock rocking Europe’s export powerhouse. Authorities in Germany’s Heinsberg, which is situated near the Dutch border, asked people who came into contact with a married couple with the disease to stay at home.
An update on the hotel in Tenerife where an Italian doctor was diagnosed with the virus and hundreds of guests have been quarantined: The first 9 guests of about 700 who have been isolated since Tuesday have been allowed to leave.
In Italy, cases soared to 650 on Thursday from 400 a day earlier, bringing the European total to more than 700. France has confirmed another 20 cases, according to the Washington Post, while Charles de Gaulle airport is suspected as a source.
Offering a picture of political unity to millions of terrified South Koreans, President Moon Jae-in joined with the leaders of rival parties to speak about the necessity for “bold and swift extraordinary measures,” including some deficit-widening fiscal stimulus, to combat the outbreak and revitalize economy, Yonhap News reported, citing a joint statement from South Korea’s parties. Meanwhile, in Japan, the Northern Island of Hokkaido has declared a “State of Emergency” following an outbreak.
Following the confirmation of the 60th case on US soil, the New York Times blasted the White House Task Force on Thursday for reportedly requiring that all statements and public appearances be coordinated through the office of the VP, a move that the NYT fretted might ‘rob’ Americans of sober, scientific advice. We suspect this isn’t really that major of a violation of norms (otherwise, what’s the point of having someone like Pence in charge of coordinating everything), and the NYT is joining its Democratic partners in slinging mud at the Trump Administration.
While PM Shinzo Abe tries to quell speculation about the possible cancellation of the Olympics, Japanese Foreign Minister Toshimitsu Motegi and top Chinese diplomat Yang Jiechi said Friday that President Xi Jinping’s scheduled visit to Tokyo would go ahead as planned.
Heading into the weekend, stock futures in the US are in the red once again as virtually nobody seems to want to be caught holding risk moving into the weekend.
Dear reader, if you’re wondering why global equities are once again in the red on Friday, CNBC’s Eunice Yoon has got you covered:
Why are stock markets jittery? Because investors worry global business will look like this: Beijing tonight. More people out than in past weeks but still so quiet esp. on a Friday night #coronavirus fears. Overhead screen blasts message to hearten public: 中国加油 or “Go, China!” pic.twitter.com/eepBXoosAQ
$5 Trillion Wiped Out From World Stocks Amid Fastest Collapse In History
MSCI World Stocks collapsed from a record high into ‘correction’ in just five days.
The plunge in global equities has wiped out more than $5 trillion in value, or equivalent to nearly Japan’s annual GDP.
On Thursday afternoon, Guggenheim’s Scott Minerd said, “this is possibly the worst thing I have seen in my career… it’s hard to imagine a scenario in which you can contain the virus threat,” adding that “Europe and China are probably already in recession and US GDP will take a 1.5-2.0% hit.”
“The stock market could be down 15-20%… and would likely force The Fed’s hand.”
Guggenheim’s Scott Minerd says the coronavirus crisis is possibly the worst thing he’s ever seen in his career: “This has the potential to reel into something extremely serious” pic.twitter.com/xLhhNm3u7t
MSCI ACWI is a market capitalization-weighted index with broad equity market exposure across the world, plunged 10% in the last five days, its biggest drop since August 2011…
The Dow Jones just saw its fastest collapse from an all-time peak since 1928, just ahead of The Great Depression.
Perhaps record high valuations are unsustainable after all…
As for the Federal Reserve’s ‘Not QE’ last-ditch effort to prop the stock market up last fall, all equity gains have been erased.
As we noted yesterday, the worsening global threat from the virus prompted Goldman Sachs to revise its earnings growth story for 2020:
“US companies will generate no earnings growth in 2020. We have updated our earnings model to incorporate the likelihood that the virus becomes widespread. Our revised baseline EPS estimates are $165 in 2020 (previously $174) and $175 in 2021 (previously $183), representing 0% and 6% growth. Our reduced forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, supply chain disruption, a slowdown in US economic activity, and elevated uncertainty. Consensus forecasts imply EPS will climb 7% in 2020 and 11% in 2021.”
The drop in stocks shouldn’t be a total surprised given the plunge in EPS expectations…
…the real message will likely get lost in all this. Most likely the popular narrative will be to blame the coronavirus as the unforeseen event, nobody could have seen this coming, this was not something anyone could have prepared for.
While that’s true on the surface it completely misses the larger point: The Fed, with it liquidity operations masked all the underlying issues in the markets over the past year. We had no earnings growth in 2019, we had multiple expansion. The bond market never confirmed the reflation trade, Gold had been rallying for months signaling something was amiss. And now the Fed left itself vulnerable to not being able to deal with a real crisis and basically openly invited people to TINA chase stocks into high valuations.
The Fed gave no warning to investors, instead it cheerlead investors off the cliff. Even last week Fed officials defended valuations and saw nothing wrong with anything adding to the atmosphere of complacency.
And now everyone will blame the virus, but not the reckless chase into stocks into historic valuations to begin with.
Which is unfortunate, because that’s the real lesson, a lesson that was already learned the hard way in 2000, but many participants are now at risk of learning again…
Global investors aren’t waiting for economic data to hit to see how bad things have gotten since the virus has sent China into economic paralysis. They are selling first and asking questions later.
