Macro Digest: Next policy change... when panic goes to angst!

The most difficult thing as a trader is to have the flexibility to change your view – there are hundreds of reasons to be bearish here and fear the next two weeks, but central banks and politicians are thinking the same thing. Being short the market, you want the market to collapse, while they want to stabilize it and will shred the rule book to try to do so. 

Historically policymakers have had very big policy “bazookas” to counter all negative moves in excess of 10% :

1987, 1992, 2000, 2008/9, 2011 – the present situation to this seasoned veteran is a total repeat of 2008 – even the projection of policy rates is following the same play book:

The time line of Federal Reserve moves in 2008 below (Source: St. Lois Fred with my edit)

12/16/08| 0-.25%|0.25-0.50%|SURPRISE |Easing |-.75% | 0.50%|10-0
10/29/08| 1.00%| 1.00%|Expected |Easing |-0.50%| 1.25%|10-0
10/08/08| 1.50% |n/a |Unscheduled|Easing |-0.50%| 1.75%|10-0

10/07/08 conference call to review recent developments
09/29/08 conference call to review recent developments
07/24/08 conference call to discuss liquidity facilities

04/30/08| 2.00%| 2.00%|Expected |Easing |-0.25%| 2.25%| 8-2
03/18/08| 2.25%| 2.25%|Expected |Easing |-0.75%| 2.50%| 8-2

03/10/08 conference call to review financial market development

01/30/08| 3.00%| 3.00%|Expected |Easing |-0.50%| 3.50%| 9-1
01/22/08| 3.50%|n/a      |Unscheduled|Easing |-0.75%| 4.00%| 8-1

• 2008: January 22^nd Fed cuts – unscheduled – 75 bps and then on regular meeting another 50%
• 2020: March 3th – Fed cuts – unscheduled  -50 bps – and now market expects another 50 bps by March 18^th!

But… but...

We think the present markets will force the Fed to cut by 75 bps pre-meeting – Why?

• Fed is now nearing the zero-bound, or limits to how much they can cut rates – going 50 or 25 bps makes no difference, but going 75 bps would have some “shock and awe” with it
• Fed is now close to restarting QE or yield-curve-control
• Fed meets March 18^th – that’s a long time away in conditions like this!
• The US yield curve is now bottoming one-year out @34 bps – Thirty-FOUR basis points!  1 Y rates will fallen 112 bps in ONE MONTH and 10 yrs fallen 87 bps! This is an unprecedented yield curve shift relative to the world pretending everything is fine!
• Credit is blowing up! Airlines collapsing – next bankruptcy is a few weeks away
• High yield is tanking
• Energy is tanking
• The coronavirus spread will accelerate in the US over the next two weeks (minimum) as testing expands, and will do the same in Europe
• We are now in a global recession – set to lose a full quarter of production –  Companies, in particular SME’s and non-listed companies, have on average 1-3 months of cash reserves and we are deep into the second month now.

US Yield Curve today vs. One month ago

VIX spot – now higher than 2015

SPX with retracements levels for reference

Below is a number of stocks you can place in a Watchlist you can create in your platform 

Airlines today and yesterday!

#SaxoCredit basket

SAXO CFD Indices today

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