Morning Update- Locked Limit Down

12Mar

U.S. equity index futures are down nearly 5% and locked limit down for the second time this week after President Trump suspended travel from Europe for the next 30 days to help prevent the spread of the coronavirus.

Stocks in Asia sold off, although China’s Shanghai Composite declined just 1.5%, while the Europe Stoxx 600 is currently down 5.7%. The restrictions have fueled fears of a global recession caused by widespread economic disruptions.

Part of the response may have been a gaffe in his speech suggesting all trade and cargo would also be halted…

 

Part of the disappointing price action is attributed to the continued uncertainty surrounding a fiscal stimulus package. According to the Washington Post, President Trump angrily demanded that Treasury Secretary Mnuchin push Fed Chair Powell to stimulate the economy amid the slow-footed response from Congress.

The ECB left its main refinancing rate unchanged, announced additional longer-term refinancing operations (LTROs), and will provide immediate liquidity support to the euro area financial system.

  • The Japanese government is reportedly preparing to announce a set of coronavirus-related emergency measures in April.
  • An official from Japan’s ruling LDP suggested that public works spending should be increased, and cash payments should be sent to low income households.
  • Australia will spend AUD22.90 bln on fiscal stimulus, which will include payments to households.
  • China’s vehicle sales plunged 79.1% yr/yr in February.
  • Foxconn reportedly said that its resumption of production in China is going better than expected.
  • Japan’s February PPI -0.4% m/m (expected -0.3%; last 0.1%); 0.8% yr/yr (expected 1.0%; last 1.5%). Q1 BSI Large Manufacturing Conditions -17.2 (last -7.8)
  • Australia’s MI Inflation Expectations 4.0% (expected 4.6%; last 4.0%)
  • Singapore’s Q1 Unemployment Rate 2.3% (last 2.3%)
  • Flights to the U.K. will not be covered by the ban. Italy’s Prime Minister, Giuseppe Conte, ordered the closure of smaller bars, restaurants, and most stores across the country.
  • Eurozone’s January Industrial Production 2.3% m/m (expected 1.4%; last -1.8%); -1.9% yr/yr (expected -3.1%; last -3.6%)
  • Italy’s Q4 Unemployment Rate 9.7% (last 9.8%)

S&P futures are locked limit down -5%. ETFs suggest a 7% decline.

U.S. Treasuries have increased amid the huge losses in equity futures. The 2-year yield is down ten basis points to 0.39%, and the 10-year yield is down 13 basis points to 0.68%.

The U.S. Dollar Index is up 0.35% to 96.84.

WTI crude has dropped -7% to $30.60/bbl as demand expectations continue to weaken with the new travel ban.

Copper futures are down -2.6%

Even gold is down -2% to $1610

Yen futures were bid last night…

USD/JPY – still holding the week’s trend…

The Aussie however plunged from last night’s bear flag…

AUD/USD (15m) and looks set to test the week’s mini flash-crash low.

ETFs are reflecting a 7% drop at the open which triggeres a 15 minute circuit breaker.

  • Level 1: 7% fall to 2549.48 before 15:25EDT/19:25GMT will prompt a 15-minute pause.
  • Level 2: 13% drop to 2385.00 before said time will introduce another 15-minute pause.
  • Level 3: 20% decline to 2193.10 within the time will shut the markets

NOTE: Only the 20% rule applies to the final 35 minutes of trading.

It looks like the Sunday night downside targets will be hit this morning, I did revise them slightly yesterday by less than 1-2%. For instance my S&P target is $2520. Some have asked if I expect a bounce there. It’s way too early to say. Price action as of last week reflected the probability of a second leg decline to this target area, it could exceed, it could hit it on the nose as many targets have. We have to see what price in multiple asset classes and S&P sectors looks like when we get there, but these are the target levels where I will be closing remaining short positions which are fairly small at this point. Price action has said more than any indicator and the measured moves have been pretty good targets, so it’s the best objective evidence I have and I’ll be following it.

On the data front, investors will receive the Producer Price Index for February  and the weekly Initial Claims and Continuing Claims report at 8:30 a.m. ET. The latter might shed some light into any impact to the labor market caused by the coronavirus.