This morning’s market is like driving a car over potholes, it may be bumpy, but you're rarely in danger with the thought of a FED and PBoC policy backstop. But if we hit a significant economic air pocket or a super spreader risk-off vortex, all bets are off
It is brutally impossible to evaluate the COVID-19 impact given the scarcity of data since the outbreak. An election influenced US PMI didn't cut it, and the massive decline in China car sales was expected. And while it's tremendous and risk helpful to see PBOC Vice Gov Chen stating the bank will conduct RRR discounts soon, but for stimulus to work, to put it simplistically, people have to return to work for supply chains to return to full speed. And for this to happen, there seem to be more and more obstacles in the way than many currently appear to assume. And what should be obvious to say that especially the equity markets where the bullishly ingrained mantra of 'stimulus-is-always good' might turn out not to be the case this time around.
Weekend news flows aside. The biggest problem is that the market is still relatively complacent, with investors apparently magnetized to the SPX 3300. For the next week or possibly month or so, it's challenging to visualize the virus transmission outside of China to reverse again. If we get more Asian counties declaring a red travel alert and possibly causing Tokyo to rethink 2020 Olympic plans or even cancel, these shockwaves will crush market sentiment, and the program selling would kick in where 5-10 % drop in global equities is possible as there little policy room for the ECB, BoJ or other NIRP economies central banks to toggle monetary policy lower.