AG Macro Brief - 02 Mar 2020
I think we all have learned more about viruses than about markets over the last week.
The way the markets are behaving, it seems more invested people will die of the coronavirus than infected people.
Central banks should really act in unison this week but that won’t solve the problem. The need of the hour is a vaccine. Interest rate cuts and other measures won’t solve the problem of panic, fear of travel and supply chain disruptions. Central bank action will be something like providing an air-conditioned room to a dehydrated person. No doubt the AC room will ease his sweating and comfort him a bit, but he’ll still need water.
If it takes 43 countries in 6 continents to source materials for the making of an iPhone, one can only imagine the extent to which the global supply chain has been disrupted.
Last week’s fall in the Dow will rank as the third biggest weekly fall in markets since 1932. As Vladimir Lenin said “there are decades where nothing happens, and there are weeks when decades happen”.
Significant damage has been done to major leading stocks. Take the case of Microsoft. It was on a meteoric rise. As I mentioned before, when something goes parabolic it can continue to rise more than you can fathom, but when they correct it will never be a sideways move.
On the monthly charts, it has made a clear bearish engulfing reversal. As in the case of JP Morgan, it has given up all its gains from its last years reverse S-H-S pattern to the upside and now it is below the neckline.
We have been warning about a market reversal for weeks and comparing probable scenarios to 2018 and 2008 but we never expected something like this will come to arrest the rising tide. Market sentiment was at its extreme and all supporting indicators pointed to a turnaround at any point. Now, the market is heavily oversold in the short term and any central bank action supported with an easing of the virus situation can violently take the market higher.
I am still grappling with what to write for the individual markets but will be back soon with an update.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.