Archives of “January 8, 2020” day

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S&P 500 futures down 50 points as Iran confirms attack

  
  Analysis

Sec Pompeo arrives at White House

The latest reports say top US security officials have arrived at the White House.
Dow futures are down 400 points and S&P e-mins are down 50 points.
In a statement on state TV, Iran’s Revolutionary Guards confirm firing rockets at the US air base in Iraq in revenge for the Soleimani killing. The statement also said they consider Israel as a US ally in the killing.
The statement advised the US to remove its troops from the region to prevent the killing of more soldiers.

Is this it? Are the US and Iran at war?

  
Analysis, Politics

These reports of attacks aren’t fake

The fog of war has descended over twitter and the news media. There is all kinds of fake news out there but there is enough real news from CNN, Fox, the BBC, Reuters and others to convince me that this is actually happening.
Most concerning is some talk that Iran’s Revolutionary Guard has taken responsibility. At best you could argue this was some disconnected militias trying to create chaos. But from the US side I’m not even sure it matters. Trump almost has to respond now, especially if there are casualties.
If it is war (and it certainly looks like it), it’s tough to understate the consequences for global markets. For gold and oil this is a screaming buy and it’s bad news for stock markets. In FX, the trade is to buy the Swiss franc and Japanese yen.
WTI is up to $64.50 and gold is up $14 to $1588.

This was the best chart from Jeff Gundlach’s presentation

  
  Analysis
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It’s impossible to hedge

It's impossible to hedge 
The big risk in the FX market is that there are massive flows of unhedged foreign bond buying in the US.
The problem is that Japanese and European investors can’t get positive yield. A traditional option is to buy foreign bonds and hedge in a classic carry trade. The problem he highlights here is that you can’t do that now because the hedge pushes the return into negative territory.
So instead the theory is that they’re buying Treasuries unhedged. That is a wildly risky trade because you’re getting 1.8% a year for 10 years but the currency could drop 18%. What could happen is that if/when the US dollars falls, it starts a rush to the exits and you get a very quick, very painful drop and overshoot.
That should be a key risk that everyone is watching, especially with a President who wants a weaker currency.

USD/JPY: Intra-day range In 2019 narrowest since 1976; Where next? – MUFG

  
Analysis, Forex
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Can the low volatility continue?

MUFG Research discusses USD/JPY outlook and targets the pair at 107, 106, 105, 104 in Q1, Q2, Q3, and Q4 respectively.

“The intra-day high-to-low trading range for USD/JPY in 2019 was 7.6% – that’s the narrowest trading range since 1976 according to Bloomberg data. Taking the last three years the trading range has been just 13.5% underlining the remarkable stability of USD/JPY. 3mth ATM implied volatility fell to 4.99% in December, a record low underlining the conditions conducive to carry. These conditions helped keep the yen weak but failed to trigger any notable sell-off of the yen,” MUFG notes.

“In our view that is a reflection of underlying positives for the yen that will contribute to yen strength this year, even if financial market conditions remain relatively benign…We see limited upside for USD/JPY from current levels. The factors above will act to limit yen weakness. We do not assume any major risk-off event this year but the assassination of Qassem Soleimani in Baghdad on 3rd January is a clear near-term upside risk for the yen that has emerged as 2020 commences,” MUFG adds.

Stock indices end lower. All S&P sectors close lower on the day

  
Analysis, US Market
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Late day selling hurts major indices

Some late day selling has pushed the major indices into the red.  All the S&P sectors are closing lower on the day.
The final numbers are showing:
  • S&P index -9.13 points or -0.28% to 3237.15. The high reached 3244.91.The low extended to 3232.43
  • NASDAQ index fell -2.883 points or -0.03% to 9068.58. The high reached 9091.93. The low extended to 9042.55
  • Dow fell -119.97 points or -0.42% to 28583.43. The high reached 28685.50. The low extended to 28565.28.
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