Posted on by The Daily Shot Editor: Lev Borodovsky

The Federal Reserve Goes All-In

The Daily Shot: 16-Mar-20
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The Fed cut the target rate by 100bps (going back to zero-bound) and initiated a new round of quantitative easing.
 

Source: @WSJ   Read full article  
 
It was the biggest one-time cut in recent decades.
 
Source: Danske Bank  

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2. Treasury yields tumbled, with the 10yr yield declining by most since 2009.
 

 
Yields are heading toward zero.
 
• 5-year Treasury:
 

 
• 3-month Treasury:
 

 
The stock market was spooked by the Fed’s drastic move, with futures and ETFs plummetting in early trading (see the equities section).

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3. Economists are rapidly downgrading their growth forecasts.
 

Source: @WSJ   Read full article  
 
Goldman Sachs is predicting deep contraction in growth.
 
Source: Goldman Sachs  
 
Here is the attribution.
 
Source: Goldman Sachs  

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3. The markets are pricing in a sharp downturn, with manufacturing shrinking by most since 2009.
 
Source: Deutsche Bank Research  
 
This chart compares the NY Fed’s manufacturing index (Empire) to a similar indicator for China.
 
Source: Pantheon Macroeconomics  

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4. The unemployment rate is expected to rise substantially.
 
Source: The Daily Feather  
 
5. Financial stress indicators are flashing red.
 
Source: Deutsche Bank Research  
 
The good news is that the US banking system was well capitalized going into the downturn. The Fed’s stress tests were geared for this type of crisis.
 
Source: Renaissance Research   Read full article  

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6. Restaurant spending has plunged over the past month.
 
Source: TD Securities  
 
And hotel occupancy rates are falling as well.
 
Source: Commerzbank Research  
Source: The Daily Feather  
 
Here are the Airbnb occupancy rates.
 
Source: @WSJ   Read full article  

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7. The US dollar rose sharply last week, which is a headwind for stocks and commodities. The increase will also put further pressure on US manufacturers.
 

 
8. The number of confirmed coronavirus cases keeps climbing.
 
Source: Pantheon Macroeconomics  
Source: @WSJ   Read full article  

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Canada

1. The BoC cut rates by 50 bps.
 

 
2. Bond yields rebounded from the lows.
 

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The United Kingdom

1. It was a rough week for the British pound.
 

 
2. Home price appreciation continues to improve.
 

 
3. Government borrowing is picking up momentum as fiscal easing accelerates.
 
Source: @WSJ   Read full article  
Source: Moody’s Investors Service  

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4. When it comes to sickness benefits, the UK stands out relative to other Europen economies.
 
Source: @samueltombs  

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The Eurozone

1. Financial conditions continue to tighten.
 

 
2. The ECB’s Bund portfolio is expected to be above the self-imposed 33% issuer limit in 2022.
 
Source: Goldman Sachs  
 
3. Industrial production was just starting to rebound going into the crisis.
 
Source: Eurostat   Read full article  
 
4. The coronavirus trajectories in Spain and Italy are outpacing China (for this phase in the epidemic).
 
Source: @financialtimes   Read full article  
 
The number of deaths in Italy continues to rise exponentially.
 

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Europe

1. Elsewhere in Europe, Norway’s central bank cut rates by 50 bps.
 

 
2. Sweden’s unemployment rate surprised to the upside.
 

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Asia – Pacific

1. South Korea’s central bank cut rates by 50bps.
 

 
The South Korean won hit the lowest level in four years.
 

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2. New Zealand’s central bank cut rates by 75 bps.
 

 
3. Australia’s stock market had the worst day on record today.
 

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China

1. Economic indicators registered the worst declines in recent history last month.
 
• Industrial production:
 

 
• Retail sales:
 

 
• Fixed-asset investment:
 

 
• Property investment:
 

 
The unemployment rate jumped.
 

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2. Home price appreciation is slowing.
 

 
3. The stock market is down nearly 4% on Monday.
 

 
4. Short-term rates continue to drift lower.
 

 
5. Some high-frequency indicators show gradual improvements in economic activity.
 
• Traffic:
 
Source: Commerzbank Research  
 
• Coal and steel demand:
 
Source: Goldman Sachs  
Source: Alpine Macro  
 
• Australian iron ore exports (mostly to China):
 
Source: Westpac, @Robert_Rennie  

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6. Some economists expect a rebound in growth in the second quarter. Here is a forecast from Pantheon Macroeconomics.
 
Source: Pantheon Macroeconomics  
 
7. This chart shows the changes in consumer behavior.
 
Source: @WSJ   Read full article  
 
8. Nobody is visiting Hong Kong.
 
Source: @business   Read full article  

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Emerging Markets

1. Some EM currencies remain under pressure.
 
• The Malaysian ringgit:
 

 
• The Brazilian real:
 

 
• The Mexican peso:
 

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2. Banxico has plenty of room to cut rates, but it remains concerned about the peso’s weakness.
 
Source: Goldman Sachs  
 
3. India’s economic indicators were rebounding going into the crisis.
 
• Industrial production:
 

 
• Exports:
 

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4. The risk from capital outflows is the highest in countries where reserves are low relative to financing needs. Turkey and South Africa stand out.
 
Source: @SergiLanauIIF  
 
5. EM credit spreads have widened sharply.
 
Source: BCA Research  

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Cryptocurrency

1. Bitcoing is nearing $5k.
 

 
Here is the year-to-date relative performance.
 

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2. Bitcoin’s correlation with the S&P 500 is at its highest over the past five years.
 
Source: @santimentfeed  

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Commodities

1. The slump in industrial commodities continues.
 

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2. It was a rough week for gold.
 

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Energy

1. Despite the US move to replenish the Strategic Petroleum Reserve (some 77 million barrels of unused capacity), crude oil remains under pressure.
 
Source: CNBC   Read full article  

 
2. The Brent futures curve is deep in contango.
 


 
It’s time for floating storage (cash & carry).
 
Source: @WSJ   Read full article  

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Equities

1. Friday was a good day for US stocks.
 

Source: NBC News   Read full article  

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2. But most of Friday’s rally is getting reversed in early trading on Monday.
 
• Stock futures (limit down):
 

 
• ETFs:
 

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3. VIX futures are approching financial-crisis highs.
 

 
4. Below is a look at bull and bear markets over the past century.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
5. Here is the S&P 500 forward P/E ratio, and …
 
Source: @FactSet   Read full article  
 
… prices implied by different P/E levels.
 
Source: Yardeni Research  
 
• This chart shows the forward P/E ratios by sector.
 
Source: @FactSet   Read full article  
 
• The market is pricing a sharp correction in earnings.
 
Source: Deutsche Bank Research  

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6. Some indicators are now signaling extreme bearishness.
 
Source: BCA Research  
 
7. Liquidity has been poor.
 
Source: Deutsche Bank Research  
 
8. The S&P 500 fell into bear-market territory in the shortest amount of time in history, according to State Street Research.
 
Source: SPDR Americas Research, @mattbartolini  
 
This has been the sharpest S&P 500 momentum shift in history (based on MACD indicator).
 
Source: SPDR Americas Research, @mattbartolini  

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9. The S&P 500 responded well to previous Fed QE programs.
 
Source: Piper Sandler    Read full article  

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Credit

1. Foreign banks are having trouble accessing US dollar financing. Basis swap spreads have widened sharply (charts below). The Fed is activating US dollar swap lines with other central banks to ease the pressure.
 

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2. Non-bank commercial paper spreads have blown out. Short-term financing for corporations has become expensive and sometimes not available at all.
 

 
3. The BofA’s solvency risk index rose sharply in recent days.
 

 
Defaults are coming.
 
Source: Moody’s Analytics  
 
EDF stands for “expected default frequency.”
 
Source: Moody’s Analytics  

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4. Many fixed-income ETFs are trading well below NAV amid poor liquidity and lagging valuations of underlying securities.
 
Source: @WSJ   Read full article  

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Rates

1. MBS spreads have blown out.
 
Source: @WSJ   Read full article  
 
2. This chart shows global flows into government bonds.
 
Source: Goldman Sachs  
 
3. The yield on Treasuries hedged into yen hit a new low.
 

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Global Developments

1. Cumulative coronavirus cases outside of China have now exceeded those in mainland China.
 
Source: JHU CSSE  
 
2. Here is the year-to-date performance across financial markets.
 
Source: Reuters   Read full article  
 
Volatility across asset classes has spiked.
 
Source: Deutsche Bank Research  

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3. According to Pavilion Global Markets, the emerging and developed market currency divergence versus the US dollar was driven by the rapid unwind of carry trades funded by negative-interest rate currencies.
 
Source: Pavilion Global Markets  

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Food for Thought

1. Acute-care hospital beds by country:
 
Source: @WSJ   Read full article  
 
2. Confirmed coronavirus cases in the US:
 
Source: @axios   Read full article  
 
3. Coronavirus testing:
 
Source: Statista  
 
4. Is the coronavirus seasonal (similar to flu)? Major outbreaks appear to be in a narrow temperature range.
 
Source: SSRN, {ht} Pantheon Macroeconomics   Read full article  

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5. Ponzi schemes:
 
Source: @jessefelder, CNBC   Read full article  
 
6. When renters expect to buy a home:
 
Source: LendingTree   Read full article  
 
7. Work stoppages:
 
Source: @WSJ   Read full article  
 
8. US population scenarios:
 
Source: @JedKolko, U.S. Census Bureau   Read full article  
 
9. Greenhouse emissions:
 
Source: @acemaxx, @next_china   Read full article  
 
10. Google search frequency for “toilet paper”:
 
Wyoming?
 
Source: Google Trends  

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