AG Macro Brief - 06 Mar 2020
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Part 2 (continued from here)
Markets clearly are at the mercy of the latest updates on the coronavirus news. From a human welfare perspective, that is an unknown outcome .
However, from a market perspective, there is a known outcome. Global policy makers will coordinate and throw anything and everything at it to keep the confidence intact. We have already seen early signs of it from all the major economies but there is more to come. Mostly it will be in the form of aid and fiscal measures. More monetary measures are also on the way.
This is what ‘bond king’ Jeffrey Gundlach had to say, “if we look at history once the Fed does a panic, inter-meeting rate cut, particularly when it’s a 50 basis points, they typically cut pretty quickly again”. He even expects further cuts at the next Fed meeting in 10 days. As his comments came out the 10- year treasury note yield hit an all time low below 0.9 %.
In these circumstances, it is very difficult to draw a technical picture but nonetheless I will do my best.
Equities
Of the four major US indices, the Russell 2000 (RTY) is more likely to make a new low. If that happens and the other three indices (ES, YM and NQ) also don’t make a new low in 1-2 days and there is a dramatic reversal, probably an important low could have been seen.
The price action of last two days is indicative of more coiling within a wide range. On the upside, prices up to 28,110 in the Dow and 3185 in the S&P 500 are possible but a move below 25,705 in the Dow and 2975 in the S&P 500 which is more closer now should confirm the counter trend rally is over.
Bonds
The structure of the bond market indicates that prices should top out under 175^05 but it is trading above it now. The daily sentiment index is at 92%. I still believe that it is in the late stages of this advance.
Euro
It is surprising how Euro traded down to the 1.07 handle and in much less time is at 1.12 handle. The perceptions in US interest rates have really changed this in Euro’s favour. I’ll be hesitant to be long Euro at current levels. I’d venture shorts with a tight stop around 1.1270.
Gold
Gold has exceeded our expectations of making a top. I’d look for this week’s close before we can reassess the situation.
Happy Hunting!
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.