End of week wrap
Another Friday in Paradise
It's another Friday in paradise, and we should probably expect some air so seep out of markets party balloon as it seems to always do on a Friday in a Covid19 world. This is more conjecture than pure science as from any rational perspective; no one thinks people's behavior is going to be "V-shaped" out of the gate when the world reopens.
Just look at the China data, retail sales were lagging, suggesting that consumers are reluctant spenders probably worried not only about the economy but unwilling to hit the shops due to secondary outbreak fears. It will take a long time to get people back to prior behaviors. So, "the economy" is going to take a while to normalize
President Trump outlines plans to reopen the economy.
With President Trump outlining plans for a phased reopening of the US and Gilead (NASDAQ:GILD) reporting positive results for covid-19 sufferers using its drug, equities rallied, The S&P E mini is up 3.4%. After hours, Boeing (NYSE:BA) said it was reopening part of its Seattle plant.
Behind the scenes is the Technology sector. A quarter of the S&P 500 comes under Tech, and more if you add Amazon (NASDAQ:AMZN), which sits in Consumer basket. Hence the Nasdaq is back to flat on the year. Good news on the reopening of the economy managed to overshadow dismal China GDP economic numbers as the US announcing guidelines on reopening sparked Asia higher.
The market vs. reality disconnect, but it only takes a cure.
There's a significant disconnect between markets and economic reality. Still, traders are already pricing in a market recovery since the removal of a single recessionary input (the virus) via a vaccine, herd immunity, or more effective treatment can pave the way for a fast recovery.
America First playbook
Investors are sprinting to their "America First" playbook. The MSCI USA Index is trading near a record two-decade high versus the rest of the world. For the first time, the Nasdaq 100 is more valuable than the European benchmark.
Currency Markets
Based on the "America Fists " playbook I'm starting to rethink my short USD dollar narrative against the euro. USD could grind higher from here in a falling vol environment. The market chatter and media narrative have returned to NFLX and AMZN outperformance, and it all feels like a world of US exceptionalism is back again.
But if truth be told when it comes to calling the currency markets these days, I feel more like a weather forecaster, sure it simple to predict the next few days, but the accuracy falls off significantly after five.
USDCNH had dipped 200 pips before the market open with better risk sentiment but retraced half the move after weaker China GDP. Equities are enjoying another day of strong inflows, and with the broad risk-on likely to continue into the weekend, USDRMB could see more downside in London and New, I'm still confident we veer towards 7.00 USDCNH at the start of Q2.
Confusion reigns supreme in Brazil.
Brazil President Bolsonaro on Thursday fired his health minister, after a series of disagreements on how to manage the coronavirus pandemic.
Brazil is in the relatively early stages of the outbreak, and action taken by most state governors to impose lockdowns seems to be affecting. Still, the confusion in the federal government's response is hurting EM riskies
Gold markets
There was a small gold-selling bias in Asia, though not colossal volume-wise as traders still like to hold on to gold to hedges against possible weekend risks. Despite trading near the top this year range, the yellow metal is being viewed as relatively cheap insurance with the opportunity cost in its favor with interest rate low to none.
Asia Update
China GDP
Not much of a trade to be had the China GDP which printed within the wide but real expectation band
The market response to the China data is fairly nonplussed so far with AUD/USD and USD/CNH barely budging. Although Q1 GDP and retail sales were worse for wares, industrial production rose y/y in March. The production side of the economy is normalizing, and end-consumption will follow. If fixed asset investment remains week in the months ahead, markets will be looking for more government support.
ON the currency front CNH and the associated proxies will likely devolve into a day of position squaring and housekeeping ahead of the weekend.
Secular Discrepancy
A secular discrepancy between financial markets and the real economy is in full effect. The Nasdaq has recovered to flat YTD, while US jobless claims have risen by more than 22 mn over the past month, and the Philadelphia Fed index fell to its lowest level since 1980. That's even before I started trading.
Beyond the policy deluge, a key reason for the strong recovery in risk sentiment is down to a straightforward cure where previous downturns that were multi-branched and on the face of it more difficult to unwind. A vaccine or more effective treatment can pave the way for fast recovery in output. And with the sheer enormity of the policy deluge backing this recovery, it should be explosive at times as employment data normalizes by leaps and bounds. This could go a long way to explain the temporal mismatch between the financial markets and the real economy.
Singapore NODX
Singapore March non-oil exports +17.6% y/y vs -8.9% consensus, after a revised +3.1% in February (was +3.0%). gold, which swelled 242.5 percent, specialized machinery (up 54.2 percent), and pharmaceuticals (up 48.6 percent) have produced a big mover for the Sing dollar even although electronic products also grew by 5.8 percent.
To me, this suggests the market was short Sing dollars into the number as that punchy gold data will fade when physical becomes more readily available out of Switzerland. I don't have a position in SGD, so just guessing by price action. And with NASDAQ lighting suggesting US exceptionalism is back as media narrative has returned to Netflix (NASDAQ:NFLX) and Amazon while comparing the flatlining MSCI Asia x Japan, the US dollar should come back bid ahead of 1.4200
The People's Bank of China omits CNY200 bn MLF maturity in Friday's OMO statement, citing reasonably ample liquidity in the banking system. This suggests that the central bank is not rolling over the other CNY100 bn tranche today.