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Collinson FX: March 26, 2020 - $US2trillion kick-starts market recovery

by Collinson FX 25 Mar 22:46 PDT 20 March 2020
Ariki crosses ahead of Iorangi - Mahurangi Cruising Club Regatta - January 2020 - Mahurangi Harbour © Richard Gladwell / Sail-World.com

Collinson FX: March 26, 2020 - Third Quarter recovery possible

Global equity markets surged, after the US Congress agreed to pass the biggest fiscal bill in US history, of up to $ US 2 Trillion! The massive support/bailout package is designed to go ‘Big and Hard’ to support business and worker alike. The bill supports businesses and workers that have been devastated by the economic shutdown, made to combat the spread of the coronavirus. The bill offers financial support for both business and low and middle income workers, also covering local Government, hospitals and further support for the Federal Reserve. The support/bailout/stimulus package was welcomed by equity markets, which surged another 1000+ points on the Dow. This followed the biggest point gains ever, over 2,100 points, triggered by the Feds ‘QE Infinity’.

These unprecedented fiscal and monetary packages, are an attempt to mitigate the economic shutdown imposed by the Government, in an attempt to combat the biggest medical emergency in at least 100 years. The spread of the virus continues at an alarming rate in both Europe and the US. The Asian experience would hopefully indicate that Europe is peaking and may start to see a decline in deaths proportionately, although rates of infection continue to climb. The US experience will follow this track and perhaps overtake in actual numbers, although the US can employ techniques, that are proven effective in Europe and Asia. Australia and NZ follow the US will the benefit of learned experience.

The massive gains in markets allowed the safe haven Dollar to fall lower, with the EUR rising to 1.0870, while the GBP broke above 1.1900. This also sparked a rally in commodity currencies, as the AUD soared to 0.6070, although settle back to 0.5960 in early trade. The NZD broke back above 0.5900, despite the declaration of a National Emergency by the Government, but will open back around 0.5830.

Markets continue to experience extreme volatility and this will continue. The spread of the virus continues, at a frightening rate and this is wreaking havoc across all markets. The hope is that measures taken by Governments will contain and control the virus and allow markets to return to some form of normalcy, post the apocalypse. If this can be achieved in weeks, then the monetary and fiscal measures taken may ensure a sharp recovery in the third quarter.

Collinson FX: March 25, 2020 - Markets surge on QE Infinity news

Markets surged overnight, with equities rallying strongly along with Gold, while the safe haven USD calmed. The Federal Reserve announced ‘QE Infinity’, which answered monetary questions and opened up purchases of public and private bonds. This provided support for the credit markets and the focus shifted to fiscal support, in the form of support/bailout packages from the Government. This was stalled in the US Senate, but less divided Governments in NZ, Australia, Europe and the UK all announced huge packages to compliment the Central bank actions. All systems are go, except for the US Congress, which need a huge boot up the proverbial.

This triggered massive rallies across global equity markets. Trump has indicated that the lockdowns in the US will come to a end sooner rather than later. The cure could be worse than the illness! Trump has advocated gaining control of the virus transmission, flattening the curve, and returning the economy back to full service. There is light at the end of the tunnel, as it appears European infections have peaked, giving some confidence of the future. Germany has abandoned debt ratio restrictions and launched a massive $800 Billion rescue package and indicated it will support assistance for the embattled Italians. Australian and NZ Governments continue to announce support/bail-out packages to soften the economic blow of various stages of lock-down. The Markets are anticipating a breakthrough from the US Congress, with there latest package rumoured to be up to $2 Trillion!

Economic data is beginning to reflect the massive impact the virus is having on global economies. European, US, Australian and Japanese PMI data reflected the numbers. Services and Composite PMI data collapsed, although the impact on manufacturing was surprisingly resilient. Economic data will continue to reflect the shock to global economies, but markets will be looking forward, rather than acting on the historical economic data.

The US Dollar, as the global safe haven currency, welcomed the surge in market confidence. The GBP rallied to 1.1725, while the EUR regained 1.0750. The trade exposed commodity currencies were major beneficiaries of the softening reserve, as the AUD attempted to regain 0.6000, but settled back to trade around 0.5900. The NZD surged to 0.5840, supported by the market confidence, but drifted back to open around 0.5770. Markets will focus on the US Congress and the velocity of the viral spread.

Collinson FX: March 24, 2020 - Trump pours in resources

The coronavirus continues to spiral out of control, as the global epidemic spreads with New York cases accelerating, as it looks like Europe may be peaking. The plan was to ‘flatten the curve’, so the emergency health services can cope, thus feeding those infected into spare capacity over a longer period. This did not happen in Italy and Spain, as health services were overwhelmed and death rates spiked.

The Trump administration is allocating massive resources in an attempt to control the infection, by supporting the States in their front line actions. We will know this week if they succeed. Putting the economy into an ‘induced coma’ with widespread lockdowns appears to be working in Italy and that is the plan in the US. The balancing act is to revive the economy and send people back to work, while controlling and containing the infected people, isolating and treating them. The spiking cases in the US is seeing the eye of the storm shift to the US.

The Federal Reserve announced ‘QE Infinity’ and added the purchase of corporate debt to the instruments being utilised. This was not even used during the GFC, so it does reveal the extent of the emergency the economy is suffering. This gave some relief to share markets but the failure of the US Senate to pass a massive $2 Trillion ‘bailout bill’, sent markets south once again. The RBNZ announced a QE program of $30 Billion, in an effort to stem the spike in Government Bond yields, as an avalanche of debt engulfs the economy. The Government put the economy on effective lock down yesterday. They announced a four tier alert program, placing NZ at two, with the announcement on the weekend. By Monday the had gone to three and four within 48 hours. The lockdown is for four weeks, with severe conditions, hoping it is enough to halt the spread of the deadly virus.

The Central Bank activity pushed the NZD back below 0.5600 and the AUD to 0.5700, while the Fed’s action allowed a recovery in overnight trade. The AUD rebounded to 0.5800, while the NZD regained 0.5700, despite the shut down. The Australian Government passed emergency legislation for bailout money and even added a $40 Billion slush fund! The time for considered careful actions seems to have passed. ‘Damn the Torpedoes’!

Markets await US legislators and closely monitor the explosion of new cases in the US. The tsunamis is rolling towards us and time will tell how effective the Governments actions are.

Collinson FX: March 23, 2020 - Saudi's ramp up oil production to kill market

Market chaos continues to track the epidemic devastating Europe and spreading to North America and Australasia. This infection, on a massive scale, has infected markets injecting fear and anxiety. The lack of measurable impact of the virus on the economy, has generated severe uncertainty, which is the arch-enemy of markets. Experts have extrapolated the Asian experience, to speculate that the peak infection rate will be hitting Europe, in the next week or so. The roadmap then predicts the US and Australasia to follow, in a similar time frame. The positive are that the USA and Australasia are following and can therefore act on the Asian/European experience and utilize the most effective containment techniques.

Europe is closing its doors, with travel bans, both external and internal, while 'shuttering' non-essential business. Governments are frantically trying to get ahead of the curve, launching unprecedented and massive bailout/support packages. This extreme fiscal stimulus is in combination and coordination with the Central bank emergency actions. Globally Central Banks have cut interest rates to zero effectively, exhausting that monetary tool, leaving only enormous QE measures to buy up debt. Central banks have been monetising public and private debt, in an effort to ensure liquidity does not become an issue, avoiding the dreaded 'credit squeeze'.

Commodity demand has fallen, while Oil has literally collapsed, with a cleverly executed plan by the Saudi's to take advantage of the economic crises. The Saudi's have decided to ramp up production of oil, in the face of demand falling off a cliff, to destroy the competing oil producers and reassert dominance in the market. It is a timely and Machiavellian plan which appears to be working!? This has added to the chaos on global markets, as the energy sector is crushed, reflected in the share price on global bourses. Governments will need to act quickly to support small business and the individual, if they wish to maintain business for the anticipated rebound and consumer demand. Corporate bailouts for Airlines, Hotels etc will be far less popular.

The market turmoil cannot be addressed until the coronavirus is contained. There is massive progress on vaccinations and cures, but we are not there yet, so it is all about control and triage. Markets will calm and roar back, when the expected storm passes through Europe and the US. The US Dollar remains the global safe haven currency and this has been reflected in the currency markets. The GBP has stabilised after a massive onslaught (trading 1.1600), while the EUR has succumbed, after early resilience (to fall back to 1.1650).

The trade exposed commodity currencies have been absolutely smashed, with the AUD falling below 0.5600 during the week, while the NZD plunged below 0.5500. Massive volatility and uncertainty has allowed a rebound, with the AUD back to 0.5800, while the NZD attempts to regain 0.5700. These commodity currencies remain extremely vulnerable to the epidemic crises and are way behind the curve. The problem is the Coronavirus Tsunami is on the horizon and there is no dodging the bullet, but the learned experience from current crises management in Asia and Europe provide, a blueprint to follow.

S-W: Leda was one of the boats that kindled many of the baby-boomers' interest in sailing - her construction was detailed in a series published in the "School Journals" which were handed out in class as reading material - later we switched to reading Sea Spray and any other sailing magazine we could find. Plus my father had started building our first boat when I was eight - so it was interesting to view the yacht building process from another perspective, and realise that the glue didn't have to run everywhere (my father was the world's messiest gluer), and remember the long hours spent in a cold shed with the noise of a saw, hammering, holding a dolly on the inside of the hull, and sanding off excess glue (after it had dried of course). But for me it all began with Leda. RG

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