Flying Blind Into London Open
We are flying blind into the London open with the SPX500 in circuit breaker lockdown mode again.
But with Short-seller restrictions and even market closure getting bandied around one thing, that's for sure, life as we knew it is not about to return to normal anytime soon.
The many restrictions on international travel, social interactions, and intra-country transit seem likely to come, which will eat away and any level of existing economic growth. With equity and especially oil markets at the center of the traders' bearish interests, we should expect those markets to take on much more pain before gain.
Markets
As for the London open, it looks to be more of the same as the UK and EU markets buttress for another down day.
The FOMC has acted early and decisively, following up a 50bp cut in the fed funds rate on Mar. 2 with a 100bp reduction down to the zero-bound overnight.
But the statement perfectly illustrates how assumptions for a V-shaped recovery beyond Q1 have rapidly morphed into now defending against a global recession.
Oil Markets
The enormous and near-simultaneous positive supply and negative demand shock are unparalleled and the risk of downside spike below $30 Brent has increased exponentially. Marginal cash costs range from USD 8-16/bbl for Russia and Saudi Arabia, which are starting to look like prime price targets as new cases outside China continue to rise, especially in the US, Europe, while more sweeping travel restrictions get imposed which will further dent OIl market sentiment.
Asia FX
The expansion in USD swap lines from the Fed did not include EM central banks. The knock-on effect of recent market stresses has been a rush for USD demand, as evidenced by the widening in cross-currency basis. The lesson of 2008 is that this could be the start suggesting that any US dollar weakness against EM Asia post-Fed rate cut could be fleeting as now evidenced by the USD/MYR, which is currently trading above 4.30 as a USD looming credit crunch takes hold.
The BoJ will hold an emergency meeting from midday Tokyo time addressing "monetary control matters" will be on the laundry list according to a statement. That suggests Governor Kuroda could cut the 10Y JGB yield target from around zero currently.