The Brazilian real hits all time low as it’s the worst emerging market currency this year

Hard times in Brazil

The market seems to love the idea of opening up while hating the idea of not closing at all.
USD/BRL hit a record today at 5.50. The Brazilian real is now down 26.7% on the year with hardly a bounce off the bottom.
Hard times in Brazil
What’s even worse is that the Brazilian bovespa is one among the world’s worst performing equity markets — possibly the worst. In BRL terms it’s down 31% and in USD terms it’s down 49.3%.
The latest leg down in the currency comes on increasing bets of rate cuts and proposed amendments to the constitution to allow the central bank to buy government and corporate bonds.

Armageddon in the oil market reportedly cost Bank of China customers $85 million

A painful lesson for retail investors

Margin

The outrage against the Bank of China has been a trending topic on social media this week, as thousands of retail investors saw their life savings vanquished in betting on the oil market via the bank’s wealth management products.

These things were marketed with names like “crude oil treasure” before the Bank of China joined other major institutions to suspend trading and sales of such products after the wipeout in the market saw oil prices turn negative in the May futures contract.
The investors were betting on an increase in prices but were caught out as the front month contract at the time crashed hard and hit negative for the first time ever.
Bloomberg is reporting that the Bank of China settled the May futures contract for the product at the Monday close of around -$37.63 per barrel, resulting in $28 million of initial losses and a further $57 million as prices plunged into negative territory.
It is such a shame that many of the investors involved in this incident will see everything taken away from them in just one day. But it is a reminder to those new in the market that there is a difference between investing/trading and gambling.
If you do not understand the rules and when you are faced with a heap of uncertainty, it creates fear. And fear is the number one enemy of every investor/trader.
When we are fearful, we make bad decisions that we otherwise would not normally make. In this example, perhaps the Bank of China is also partly at fault but when you do not understand the magnitude of the risks involved, you are gambling with your luck.
In this case, these people were caught on the wrong side of the trade as the market did not agree with their view. And by not understanding the risks associated with the product, they were not able to define and limit their risk levels accordingly.
It is an extremely painful lesson for those involved but it is one that we can learn from and apply to other areas in our trading.

This is when the world realizes what’s really happening in oil

This is when the world realizes what’s really happening

I’ve been warning for weeks that oil is a negative-yielding asset. If you have it and don’t want it, it’s a big problem to get rid of it.
This is when the world realizes what's really happening
People just couldn’t comprehend how a commodity could go negative. But natural gas went negative last year at some delivery points. Before bond yields went negative people also couldn’t comprehend it. They said it was impossible. Now it’s normal.
Here’s the bottom line: When there is more oil than people can store, you have to pay someone to get rid of it.
Obviously, negative $33.30 per barrel is when someone get stuck and implodes.
There are some massive margin calls ongoing right now. Some funds have imploded and who knows what they might take down with them.
Crude is down 330% today

European shares close with mostly modest gains

German Dax up 0.5%

The European shares are closing with mostly modest gains as Germany works toward the reopening of the economy.
The provisional closes are showing:
  • German DAX up 0.5%  . The low reached -0.42%
  • France’s CAC up 0.2%.  The low reach -0.80%
  • UK’s FTSE 100 up 0.8%. The low reached -0.35%
  • Spain’s Ibex up 0.3%. The low reached -1.56%
  • Italy’s FTSE MIB up 0.7%. The low reached +0.06%
In the European debt market, the benchmark 10 year yields are ending with declines across the board, with the Italian yields falling the most at -3.9 basis points.
European yields are lower
In other markets as London/European traders look to exit shows:
  • spot gold up $10.28 or 0.60% at $1727.37
  • WTI crude oil futures are trading up $0.22 or 1.11% at $20.10

There is no plan for a ‘dramatic’ US economic plan

The promise is going to be tough to deliver

President Trump helped to reverse market sentiment late yesterday when he promised to unveil “dramatic” and “major” economic policies today.
CNBC’s Eamonn Javers reports:
I’m told that there is no finalized economic plan inside the White House now. As of last night, I was told: “it’s not there right now.” A lot of details to work out.
Trump mentioned a payroll tax cut and that’s a bit of a trap for Democrats. They’re pushing for paid sick leave but Trump and Republicans will try to bundle in more. If/when Democrats reject it, Trump will frame it as Democrats being against a tax cut.
There’s also this from Politico’s Jake Sherman:
The promise is going to be tough to deliver

What’s urgently needed is something on paid sick leave to slow this down, rather than planning for economic impacts. Putting in a tax cut and politiking is going to drag it out and eventually cost more.

Economic data coming up in the European session

Good day, everyone! Hope you’re all doing well as we look to get things going in the session ahead. It’s been a tug of war in the battle of risk since trading yesterday as markets are once again now appearing to shrug off fears concerning the coronavirus outbreak.

Major currencies are trading keeping more calm with the aussie leading gains after a slightly better-than-expected Australian Q4 CPI data earlier. That said, the trimmed mean reading – RBA’s preferred measure – still remains below its target band of 2-3%.
Looking ahead, it is going to be all about the risk mood once again with little notable data releases in the European morning. But with Apple earnings keeping investors hopeful, perhaps the situation will be more calm in the hours ahead.
As such, expect coronavirus headlines to continue to dominate proceedings before we move on to the Fed later today and more key tech earnings in Wall Street.
0700 GMT – Germany December import price index
Prior release can be found here. A proxy indicator of price pressures in the German economy. A minor data point.
0700 GMT – UK January Nationwide house prices
Prior release can be found here. A general overview of housing market conditions in the UK economy. Not a major release by any means.
0700 GMT – Germany February GfK consumer confidence
Prior release can be found here. An indication of consumer morale towards the German economy, which has been keeping more subdued lately. Expectation is for the reading to reflect similar sentiment in the early stages of the year.
0745 GMT – France January consumer confidence
Prior release can be found here. A general read of confidence towards the French economy, which has been holding up decently – but not suggestive of anything stellar; which mirrors the economic performance of the country since last year.
0900 GMT – Eurozone December M3 money supply data
Prior report can be found here. A gauge of credit conditions in the euro area economy, which continues to be holding up well despite economic concerns. A minor data point
0900 GMT – Switzerland January Credit Suisse investor sentiment
Prior release can be found here. The reading measures analysts’ expectations on the Swiss economy and other economic expectations over the next 6 months. Low-tier data.
1200 GMT – US MBA mortgage applications w.e. 24 January
Weekly US housing data, measures the change in number of applications for mortgages backed by the MBA during the week. Not the biggest of data points, but a general indicator of the housing sector sentiment.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!

Expert says coronavirus could be “at least” ten times worse than SARS

Comments after visiting Wuhan

Comments after visiting Wuhan
Guan Yi, director of the State Key Laboratory of Emerging Infectious Diseases at Hong Kong University, traveled to Wuhan on Tuesday and Wednesday and now he’s warning that the disease could be a generational pandemic.
“My conservative estimate is that this epidemic could end up at least 10 times the scale of Sars [severe acute respiratory disease],” he told Caixin today.
There are signs China is planning to lock down a second city. At midnight, all public transport in Huanggang will be halted. It’s a city of 7.5 million located 70km east of Wuhan.
Dr. Guan said he left Wuhan convinced that “the epidemic situation was out of control.”
“I’ve experienced so much and I’ve never felt scared before,” he said. “But this time I’m scared.”
He said that models suggest that due to incubation lags, symptoms may appear more broadly across China beginning on Saturday.
SARS infected 8,089 people globally and killed 774 with China accounting for the vast majority. It curbed Chinese GDP growth in 2003 by 0.8-2.0 percentage points.
If this video of a hospital in Wuhan is authentic, then watch out. The announcement of a plan to build a special hospital in the city in six days suggests there is overwhelming demand.

China – US trade talks update – phase 1 signing coming on January 15 (maybe)

OK, probably rather than maybe but hey, we’ve been hoodwinked on this trade deal business over and over again.

The latest is (good idea to update this after the long break):
  • A Chinese trade delegation is heading to Washington for a January 15 signing
  • plan is to sign the first phase of the trade deal with the US
  • Vice Premier Liu He will lead the delegation
  • Will arrive in Washington on the 13th (thankfully that’s not a Friday, eh?)
So, for the rest of 2020 we can look forward to tension over the next phase (more soybeans?)