A Rush Of Stimulus Is Giving Markets Breathing Room, But For How Long?

Markets

Massive monetary and fiscal spending is giving investors just enough breathing room to figure out the extent of the economic damage done. However, that oxygen supply is rapidly depleting with increased US COVID-19, and global case counts. To that end, Asia markets are trading on the back foot today as risk appetite wanes, pointing to more turmoil ahead.

However, it was the fall in oil prices that triggered a more broad-based cross-asset sell-off after the WTI front-month contract fell below the key $20/bbl at the Asia open. Fortunately for risk sentiment, the breach of that psychological level didn't lead to an even deeper dive in prices.

Prices are tentatively stabilizing, and risk is turning back on again as market makers are back replenished their shopping list of go-to equities. But the week is still young as the oil market faces an unprecedented demand-supply shock that is challenging oil storage facilities. At the same time, Saudi Arabia and Russia show no signs of returning to negotiations to cut output.

It's so difficult to gauge these markets as it's taking minimal volume to move the market these days.

FX

The central Bank policy deluge seems to be suppressing FX volatility for now in what was expected to be a raucous quarter-end. But as risk is showing signs of turning back on, as such, the USD is giving back gains in lockstep into the London open.

PBoC

"Nobody ever accuses a firefighter of using too much water" – Stephen Poloz (Bank of Canada Governor)

The PBoC showered markest with liquidity today after surprising when The PBoC conducted a CNY50 bn 7d reverse repo operation at 2.2% today, down from a 2.4% rate in its last operation more than one month ago. The government is attempting to minimize the impact of the coronavirus. But given that the negative shock to the Chinese economy could be unprecedented, however, the amount needed to avoid a severe slowdown and sharp increase in the unemployment rate is far more enormous than what they provided

This did but shouldn't have come as a surprise after the global central banks hosed down the market with liquidity. But the PBoC could have done more from my seat and are still being too conservative with monetary easing relative to their counterparts at the Fed. The world expects them to do much more since everyone else is paying the massive health care bill for a virus that started in China.

This policy move fits into the thanks for showing up category relative to other central bank's efforts and little else, especially with the market in policy fatigue; they needed to shellshock.

Some are reading this; however, as the start of a fresh round of easing and expect the central bank to shift/guide the whole curve Well, the PBoC will have another chance to do what's right as there is CNY200 bn of MLF due April 17, which falls just before the scheduled April 20 Loan Prime Rate fixing and provides the PBoC with an appropriate opportunity to shift the medium and long-term rates lower.

Gold markets

Gold doesn't want to let go of the distressed sales narrative, and this may be getting compounded again this week by the CME increased margin requirements. Which could be accelerating the need to pare positions

Oil markets

Oil prices fell another $ 2.00 in Asia. Still, it remains challenging to call a floor as the horrific news flows are providing inferior optics as storage capacity is expected to fill to the brim with the world in lockdown.

With social distancing impacting over 90% of the global GDP, we're still no less disentangled from trying to quantifying the real demand impact. Nevertheless, estimates are getting worse by the week. As such sell first figure out the math later seems to be the order of things as os oil getting sold indiscriminately with demand projections falling an estimated 26 million barrels this week

Spill in the broader Macro outlook and indeed the markets are mired in the most considerable mismatch between supply and demand in modern history/