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S&P cut Australia to AAA negative

  
  Analysis
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S&P cut Australia outlook to negative from stable

Rating is AAA still.
This is not wholly unexpected from S&P
AUD down a few pips on the announcement
S&P cite:
  • reflects substantial deterioration of Australia’s fiscal headroom
More:
  • large Australian budget deficits likely to be temporary
  • virus a severe economic c and fiscal shock
  • government deficit to average 7.5% of GDP in 20/21
  • annual growth to fall to 1.3% in FY 2020

BlackRock on ‘unprecedented policy actions to limit the coronavirus shock’

  
  Analysis
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BlackRock is the world’s largest asset manager (circa $7.4 trillion in assets under management)

Given the surging equity markets (more ion this in just a moment) the comments from their latest update might appear stale (ps. these below relate to a credit view, not equities) :
  • Unprecedented policy actions to limit the coronavirus shock and sharply lower valuations have improved the outlook for credit, in our view. 
  • Major central banks are committed to keep rates low and greatly expand their balance sheets. 
More specifically on stocks (bolding mine):
  • We previously downgraded global equities to neutral. The coronavirus outbreak is disrupting economic activity and supply chains. The outbreak also poses risks to corporate earnings, in our view. Accommodative monetary policy is a support. We now favour rebalancing back toward benchmark weights as markets fall.

An Update :US Dollar Index ,USDJPY ,AUDUSD ,USDINR ,EURO ,YEN ,GOLD ,SILVER ,PALLADIUM ,WTI ,BRENT ,SPX 500 -Anirudh Sethi

  
  Analysis
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The dollar rallied strongly from March 9 through March 20 or the start of last week on March 23.  It has subsequently sold off and done so in dramatic fashion.  It is not clear the trigger of the stunning reversal.  Some observers attribute it to the Fed’s currency swap lines, which were offered daily (seven-day operations) to a handful of large central banks.
Others link it to the better risk appetites reflected in meaningful bounces in equity markets, but nothing as striking as the 17% rally in the Nikkei.  Even with a 915-point tumble in the Dow and a 3.3% drop in the S&P 500 before the weekend, both ended with double-digit gains on the week.  Gold’s 8.6% rally will not sit well with those who view it as a safe haven.  The 30- and 60-day rolling correlations on the percent change of gold and the S&P 500 are positive for the first time since the middle of last year and October 2018, respectively.
The technical indicators that we monitor, the MACD and Slow Stochastic, have turned down for the dollar against all the major currencies.  The poor technical condition suggests the dollar’s weakness is more than a function of month- and quarter- and fiscal year-end flows, but was technically over-extended.  We will use Fibonacci retracement and moving averages to identify potential price targets and relative strength.
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European bond yields continue to rise over the past week

  
  Analysis
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10-year German bond yields rise to its highest levels in a month

GDBR10Y
Meanwhile, 10-year French and Spanish bond yields have both climbed to their highest levels since May 2019 to start the day. This comes as we also see Treasury yields rebound higher, with 10-year yields up by 10 bps to 0.82% currently.
It is tough to try and make sense with what is happening in the market because things change so quickly but I would argue that the selloff in European bonds isn’t exactly a good sign for the euro currency in general.
I would say the rise in Treasury yields represents a bit of a disconnect because the move higher there reflects more closely the slightly better risk mood today – which is also helping USD/JPY to stay underpinned, alongside gains in the dollar today that is.

Federal Reserve acts on a Sunday evening to slash rates to near zero

  
  Analysis
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Federal Open Market Committee

  • cut interest rates for the second time in less than two weeks
  • emergency move
  • “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range
  • The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”
Headlines via Reuters:
  • fed cuts interest rates to near zero in response to coronavirus crisis, risks to economic outlook
  • says expects target interest rate will remain in range of 0 and 0.25% until economy has “weathered recent events” and is on track to meet inflation and employment goals
  • says crisis has “harmed communities and disrupted economic activity” in u.s. and other countries, will weigh on activity in the near term
  • says will use “full range of tools” to support economy, will expand holdings of treasury securities by $500 bln and mortgage backed securities by $200 bln in coming months
  • vote on policy action was 9 to 1, with Cleveland fed president Loretta Mester preferring a smaller interest rate cut
  • Fed announces coordinated action with bank of Canada, bank of England, bank of Japan, European central bank and Wwiss national bank
  • Fed says six global central banks have agreed to lower pricing on u.s. dollar liquidity swap arrangements by 25 bps
  • says changes to central bank swap lines will take effect week of march 16
  • Fed and other global central banks will begin offering u.s. dollar liquidity in each jurisdiction with 84-day maturity
  • Fed says it will lower the primary credit rate by 150 basis points to 0.25 percent, effective march 16
  • Fed says it supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner
  • says that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis
  • says reducing reserve requirement ratios to zero percent effective on march 26
  • says encourages depository institutions to utilize intraday credit extended by reserve banks, on both a collateralized and uncollateralized basis

China Securities Journal: PBOC may cut OMO rates this month

  
  Analysis
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People’s Bank of China open market operations are one tool used to manage liquidity

  • rates may be cut this month reports the CSJ
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China Securities Journal is a national securities newspaper – part of official Xinhua News Agency.

Global central bank co-ordinated interest rate cut coming on Wednesday 4 March

  
  Analysis
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A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

  • So says economist for the U.S. bank lobby Bill Nelson, chief economist at the Bank Policy Institute
Nelson, formerly at the Federal Reserve (worked on the Fed’s responses to the 2007-2008 financial crisis):
  • It will happen before the U.S. stock market opens, either 7 a.m. or 8 a.m. ET (1200 or 1300 GMT)
  • It will be half a percentage point at least
  • “The only way to get a positive market reaction is to deliver more than expected”
  • will include “forward guidance”
Here is the link for more: Don’t keep your powder dry
A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

The good news is that the European stock markets are closed

  
Analysis, Global Indices
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German DAX, -3.1%. France’s CAC down -3.8%

The good news for the European stock markets is that they are close for the day.  Each of the major indices had sharp declines. Sometimes closing feels good. The provisional closes are showing:
  • German DAX, -3.1%
  • France’s CAC, -3.2%
  • UK’s FTSE 100, -3.5%
  • Spain’s Ibex, -3.8%
  • Italy’s FTSE MIB, -2.6%
To give an idea of the year to date performance of the major indices :
  • Germany, -6.65%
  • France, -7.6%
  • UK FTSE 100, -9.7%
  • Spain’s Ibex, -5.6%
  • Italy’s FTSE MIB, -2.8%
Comparing to the US market year-to-date:
  • Dow industrial average, -7.6%
  • S&P index, -5.63%
  • NASDAQ index -2.42%
In Asia the year-to-date’s are showing:
  • Japan’s Nikkei, -7.22%
  • Hong Kong’s Hang Seng index, -5.01%
  • Australia S&P/ASX 200 -0.39%
  • China’s Shanghai index -1.93%
In other markets as London/European traders look to exit:
  • gold is trading up $12.80 or 0.78% at $1653.72
  • WTI crude oil futures are trading down $-2.08 or -4.25% of $46.66
In the US stock market the snapshot of the major indices currently shows:
  • S&P index -69.3 points or -2.22% of 3047.44
  • NASDAQ index -221.2 points or -2.46% at 8759.96
  • Dow -578 points or at -2.17% at 26371
In the US debt market yields are sharply lower with the 2 year down -8.9 basis points. The 10 year is down -5.8 basis points.. The 2 – 10 yield spread has widened to 20.42 basis points from 17.24 basis points yesterday on increasing expectations that the FOMC will be forced to lower rates
US yields are lower across the board with a letter yield curve
In the European debt market, yields are mixed with German, France, and UK yields lower while Spain, Italy, Portugal yields are higher (flight to safety and out of the riskier countries):
European yields are mixed
In the forex market, the EUR is the strongest (and got stronger in the session).  Germany did say earlier today that they would contemplate more fiscal stimulus and technicals improved. The EURUSD did run into resistance against the 1.100 level however.
The weakest currency is the CAD as oil continues to get hammered. The GBP and USD are also weaker on the day:

The front end is pining for Fed cuts

  
  Analysis
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The bottom continues to fall out

The bottom continues to fall out
US 2-year yields are now trading more than 40 basis points below Fed funds. The odds of a March 18 cut in the OIS market have risen to 35% from 6% last Thursday.
Many market participants are deciding that they would rather get 1.14% for the next two years than hold stocks. If you believe this is going to be a pandemic, that’s entirely reasonable because the Fed will cut to zero and the dollar is always does well in times of trouble.
It’s incredible how the thinking in markets can go from ‘return on capital’ to ‘return of capital’ in a few days.
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