The Federal Reserve went all-in yesterday, opening the taps on an unlimited asset purchase programme that will for the first time include corporate bonds as well as US government debt. There were other measures in a broad package of support for companies that goes about as far as it’s possible to go.
So over to Washington, and Congress is yet to agree on a roughly $2 trillion rescue package. Treasury Secretary Steven Mnuchin and Senate Minority Leader Chuck Schumer claim they are ‘very close’ to a deal. House Speaker Nancy Pelosi, the bete noire of President Trump, unveiled a $2.5tn plan in response. Democrats don’t want to be seen to be blocking the rescue deal. For all the posturing a deal is coming – the perfect won’t be the enemy of the good on this occasion.
Mr Trump is looking at scaling back restrictions on people and businesses when a 15-day shutdown ends next week. ‘America will again and soon be open for business,’ he said. There is certainly a fine balance to be struck – he’s right that the cure cannot be worse than the illness.
US equities finished 3% lower despite the Fed’s package/because of the impasse in Congress. On the S&P 500 the 2200 level offered the support. Futures had indicated the index around 2400 after the Fed’s announcement, but quickly handed back gains. There is a serious problem with a lack of liquidity in futures markets, which are not necessarily telling us accurately where the cash markets should be.
European markets were similarly weak. The FTSE 100 again tested the 4900 level, which held and we have seen the 50 and 100-hour moving averages offering support. Futures had traded through this but the cash market held.
Today, European markets are firmer, taking their cue from a bounce in Asia and US futures trading higher. The FTSE 100 opened +4% at 5200 before tapping on the 200-hour line at 5220 and slinking back to 5,135 in short order. This 200-hour SMA around 5220 looks to be the main near-term resistance. Oil & gas was lifted +4% by a rally in oil prices, with WTI crude back to almost $25.
Usual drill – lots of volatility still but just signs perhaps of stabilization creeping in. Maybe. The Vix has come down under 60. VIXX futures today are trading at 45. You cannot keep selling forever.
A raft of PMIs today can be largely ignored – they will be many standard deviations away from the mean. It’s hard data we will need in the coming weeks – US jobless numbers Thursday will be the first real signal of how bad this will be.
Equities
Now that all of its stores across the UK, US and Europe are closed, JD Sports is looking to ‘limit the level of cash burn’ but warns that online sales are proving to be a ‘small mitigation’ in terms of profit contribution.
Rival Sports Direct (LON:FRAS), now under the Frasers Group banner, at first said it was planning to stay open where possible as it’s ‘uniquely placed to help keep the UK as fit and healthy as possible’. Quite what another pair of discount trainers and jogging bottoms will do make you healthier is hard to fathom. Mike Ashley is never one to toe the line. Yesterday, Frasers cancelled the buyback after saying on Friday it would not. Management admitted that the prior announcement ‘substantially underplayed the effect of the COVID-19 virus on retail’. Another u-turn came this morning with a ‘clarification’ from the CFO saying that no shops would be open without a green light from the government.
Dunelm Group PLC (LON:DNLM) is the latest retailer to pull its dividend because of the coronavirus outbreak. Miners are also affected with Rio Tinto PLC (LON:RIO) and Anglo American PLC (LON:AAL) hit by a 21-day nationwide lockdown in South Africa due to take effect on Thursday at midnight.