AG Macro Brief - 27 Feb 2020
The markets are in melt down and it is carnage. Many world leaders are expressing fears of the virus issue turning into a pandemic, while president Trump is in bit of a denial.
The strength of the stock market is very important for Trump to re- elected. He knows that very well.
While one can expect plenty of government and central bank intervention, Trump will take control of the Fed and will force them to throw the kitchen sink at the markets. It is in his psyche that on his watch, all Americans, their grand children and their gold fish should live in a state of permanent paradise.
China has already deployed an arsenal of measures. The HK government stepped in with a stimulus package which included giving each adult resident 10,000 HKD. Germany has signaled the likelihood of a fiscal stimulus.
The 10-year government bond yield continues to hang around record lows. Many things are priced off the 10-year bond yield. Further falls will be very damaging to markets, business and consumer confidence.
During the depths of the Ebola crisis in 2014, the fear for global health were similar to what it is now. Before the peak in those crisis levels, the yields and stocks started to make a V- shaped recovery.
But clearly with the origin of the current virus in China, the world’s manufacturer, it has a different impact than the Ebola crisis .
Historically, major turning points in markets are associated with some sort of intervention.
So one needs to first look for signs of containment. Otherwise, it will be like catching a falling knife.
From that point, tailwinds of global central bank and government stimulus would serve as rocket fuel for markets.
In the current situation, it is pointless to make any technical projections. The moment there is some stability, will draw a plausible picture.
Meanwhile stay nimble and 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.