DXY was down Friday night as the Fed piled in:
The Australain dollar was obliterated anyway across the board:
Gold is being liquidated in a rerun of the GFC. This will likely be hedge funds in need of cash for margin calls. I have warned of this many times:
Oil is buggered:
Metals can fall further:
Miners too:
EM stocks were hosed:
The Fed saved junk:
All bonds went nuclear:
Aussie yields cratered nearly 20% on the night:
The Fed saved stocks as well:
The Australian dollar was trading in the low 64s when the Fed rode to the rescue:
“The coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”
Markets are now pricing a 50bps Fed cut in March:
So the cavalry is here. The question is, will it also catch COVID-19? I think so.
We are yet to see any corporate casualties of the crisis. So credit spreads are only showing early stress while VIX is indicating something more akin to the European debt crisis is ahead:
The way these crises usually run is:
- first we get an asset market problem;
- then we get a credit market problem;
- then we get an equity market problem;
- then we get an economic problem;
- rinse and repeat until low prices tempt capital.
This time it is a little different but the end point is the same:
- first we get a virus problem;
- then we get an asset market problem;
- then we get a credit market problem;
- then we get an economic problem;
- rinse and repeat to point two, constantly exacerbated by point one.
The Fed is trying short-circuit this process between stages two and three. It can try to float markets over the virus valley but it is a grand canyon and many will fall off along the way, leaving the Fed carrying too great a load.
In short, ahead lies immense economic damage as China’s stall – which is ongoing and will end only slowly – moves to a European shutdown, then likely to the US as the pandemic peaks. Credit and equity damage are baked in.
Finally, it will all come Downunder at once in the winter. The Australian dollar may end this crisis a long, long way below.
