Morning 2-28

• China PMI data released this weekend

• Ex Fed Governor Warsh said Fed should cut rates to buy time

• Yesterday, in notional terms was largest US day in history near $780bn (above 09 crisis records). Approx $40b in futures traded in the last 10min of the trading session. $42b traded from 4-5pm.(Reuters)

US 2-year yields < 1%@ .97%,5 years yields 1%, Spot Vix printed 47! 30-year yields touched 1.66%- and 10-year yields touched 1.15% unreal. MOVE index, treasury Vol index touched 3-year highs

Per Mizuho Fastest market correction in history. The S&P 500 plunged -4.42% yesterday on continued coronavirus fears (its worst daily performance in over 8 years), and we are now officially in a correction. With one day left of trading this week, it’s possible that we finish with the 3rd worst calendar week in 20 years (after only Lehman Brothers & 9/11 attacks). The S&P 500 has finished down more than 3% for 3 out of 4 days this week. This was the fastest the S&P 500 has erased 4 months of gains, with most of the damage coming just this week. 97% of stocks in the S&P 500 closed lower yesterday, while the VIX (volatility index) spiked to 40 for the first time in years. ◘

@sentimentrader: 62% of the S&P 500’s members are now oversold (RSI under 30), and 80% of its members have crashed below their lower Bollinger Bands in the past, such widespread selling usually led to sharp rallies over the next few weeks/months.

Feb 28 (IFR News) – The moves at the front-end are truly amazing with the market now fully priced for the Fed to ease rates at its next meeting on March 18. The probability of a 25bp cut to the FF target range vs a 50bp cut is now 65% and 35% respectively – and at one point it had been 50:50. A week ago the probability of a 25bps cut was a mere 10%. The odds of the Fed cutting rates by more than three times this year are now at 80% so a lot is priced into the market. Last year the Fed showed a tendency not to want to disappoint expectations and the same might play out this time around.

Besides Corona Virus worries, War drums beating louder in Syria as Russia and turkey escalate their conflict things and approach direct armed conflict (BBG) Adds a little more volatility and worries to the trade.

Markets continue to react to negative news of Corona Virus as there is no peak of Chaos in sight. Until the markets think a peak is reached, they will trade heavy. Plenty of Rumblings of some type of Concerted Worldwide Emergency Central bank cuts is imminent, all eyes on the wire today to see if that Comes to fruition

Buy’em Up

the Old Brad Sullivan favorite graph the NYSE Tick data showing the Biggest Buy program since 10-9-2019 pushing Spoos and risk well off session lows and Treasury’s off session highs. Hard to pinpoint one reason but a few Comments from ECB chief lagarde saying virus not at stage to require an ECB response” (BBG) Further Comments from ECB’s Guindos saying”Do not See specially relevant virus impact on Europe” possibly enough to provide Confidence in the European Economy and Less worries about Virus impact. Dax at one point down almost 4.5% rallied some 2.4% then closed down about 3%. Lean hogs and Cattle aboth touched limit down limit down but they too were pulled off lows as Dax and Spoos rallied. Watching yesterdays pity low in Spoos 3107,If prices can trade into yesterdays range a good sign for the bulls. SPX $80 of lows,NDX $235 off Lows Indices correct 10% a buy Signal???

Treasury’s looking for any reason to sell ,they didn’t want to go up but i bet they can move lower with some aggression.

Charts and A few things

Largest weekly SPX losses since 1970: ( Via Ransquwak)

Oct 05, 2008 -18.20%
Oct 18, 1987 -12.20%
Sep 16, 2001 -11.60%
Apr 09, 2000 -10.54%
Sep 28, 2008 -9.40%
Feb 23, 2020 -9.33% <— you are here
Oct 11, 1987 -9.12%

net Change Today on Some of the More Important Companies

10% Correction of the Highs for main US index’s chart via BBG

Watch 200 D Moving Average in SPX 3046

Another Day of Risk Off this time led by U.S. Worries from the…. NYT “Doctors suspected infection with the virus, but the patient did not fit the federal criteria for testing. A California coronavirus patient had to wait days to be tested because of restrictive federal criteria, despite doctors’ suggestions. The patient, who has tested positive, may be the first person to be infected through community spread in the United States, the Centers for Disease Control and Prevention said Wednesday.
…AND by this Most New Infections Now Outside China, WHO Says: Virus Update- More coronavirus cases were reported in countries other than China in the past 24 hours for the first time since the initial patient was identified on Dec. 8, the World Health Organization said.

Commentary from Central banks around the world:

Mexico central bank cuts 2020 growth forecast, cites coronavirus risk


BoJ’s Kataoka: It’s appropriate for BOJ to lower rates; ready to ease without hesitation if needed; BoJ must deepen –ve rate to make yield curve shape more accommodative; risks to the Japanese economy are tilted to the downside, personally looking at o/l with a cautious eye; Japanese private consumption may weaken further as a trend, the coronavirus outbreak may hurt household sentiment if prolonged; Japan no longer has momentum to push inflation to 2% tgt, hard to see px growth picking up to that lvl; BOJ should strengthen fwd guidance; COVID-19 is a new economic risk with uncertainties high in virus impact

Australian PM Morrison: Ruled out broader & larger fiscal stimulus in response to COVID-19 outbreak

Microsoft tweaks fiscal Q3 guidance on virus-related supply problems- Microsoft Corp. MSFT, shares fell more than 2% late Wednesday after the software giant said it won’t meet some of its guidance for the fiscal 2020 third quarter due to COVID-19.

A surprise from Bank of Korea keeps rates unch at 1.25%, the majority of analyst polled expected a cut; BOK said it’s too early to read overall economic impact of virus outbreak; will provide loan support for virus hit firms

Markets, ugly
Stocks down again Dax -2.7%, Spain -2.7 Spoos -1.45%, Nasdaq -1.79. Yields lower begrudgingly so 54% chance of a March Cut! April at 100% probability of a Cut, June at almost 2 cuts being priced in by then. Vix above 31 for first time since Dec 2018. Euro a bit of Squeeze ongoing due to the possibility of German Fiscal Stimulus, Dollar trading 98.50 ish. Crude oil I believe the over all proxy for the Virus scares to do Impact on travel and Commerce is down again almost 3%. The Dec/Dec calendar spread which gives you a look a t whole oil curve is trading negative for first time in a trading Negative for first time in a year, Demand destruction.

Rate Cut Expectations

have gotten a bit extreme in my Opinion.

this is snapshot from 1-27 52% chance of June cut 24% april cut
Now look at today’s pricing April has 88% chance of Rate cut,June has a 100% chance of 25 bps cut and another 44% of 50 Bps cut! No wonder why Eurodollalr call options are being bought aggressively last 2 days

Now Take a look at the market implied rates today vs 1 month ago. This shows what market is pricing for fed funds rate over 3 year horizon pricing shows more rate cuts expected. More proof of Why Eurodolalrs being bought

Why SPX is trading below yesterdays low’s


BREAKING NEWS: 83 people in Nassau County being monitored for possible #coronavirus exposure

10 year yields @1.30 ish% 30s @1.71% crazy .Gasoline and heating oil -5%,Crude oil 1 year lows -2.5%

Why are Stocks Higher

Chinese local govts have announced more than 11 trillion yuan worth of investment, most in infrastructure projects, in an effort to boost the economy that has been hard hit by the coronavirus outbreak.

Hong Kong talking of a massive fiscal stimulus package and rumors floating around that the New budget will allow cash payments to Every Citizen older then 18 roughly $1000

JPM with a note forecasting a huge jump in china’s GDP in the neighborhood of 14% in Second half of this year.

Goldman Sachs with a note listing 6 reasons why you should be buying stocks now.

New home Sales For January beat consensus by 2 standard deviations a very Strong number.


Dax and Stoxx little changed but SPX+1.3%,INDU +1.4% and NDX +1.7% .Take note that treasury Complex is not falling out of bed as there is a 70% chance of an April Rate cut

Morning 2-26

Risk Bouncing a bit today Spoos and Nasdaq trading in the Green, Bonds heavy and Gold Lower again . South Korea’s Kospi Closed down 1.2%,but the MIB +1% A good sign. German Gov’t will suspend Budget restrictions to provide Financial help to States that are struggling should be a negative for bunds.

Fear of Coronoa Virus spreading and its Impact on everyday life has caused buy the Dip mentality to turn into sell every pop. Could things be Different if markets weren’t at all-time highs? A few facts from Mizuho. “Hedge funds piled into leveraged longs right before this selloff in stocks. “Net leverage, a measure of industry risk appetite that considers long versus short positions, rose by about 5 percentage points, one of the fastest expansions in years, according to data compiled by Morgan Stanley’s prime brokerage unit. At Goldman Sachs Group Inc., clients have also ramped up their leverage after holding it steady since late 2019. At 48.4% on Thursday, the ratio stood at the 95th percentile over the past year, the firm’s data showed.” Sometimes markets just need a nudge or an event to cause the longs to turn tail and run for cover, I’m not saying Stocks wouldn’t have collapsed under weight on corona Virus but maybe loses would not be as extreme if everyone and there brother was not long.Speaking of Overloaded Longs “the long position in U.S. gold futures and options by money managers and other large speculators surged 22% in the week ended Feb. 18 to the largest in records going back to 2006, according to Commodity Futures Trading Commission data released Friday” Gold not following the playbook last few days as I it has been dropping along with spoos two things beh9ing fall One the Bank of International Settlement, The Central bank of Central Banks put out a note saying they are allowed to Sell gold and Rumblings that profitable positions needed to be sold to Cover The losses from losing positions AKA Long Risk.

Negative Virus headlines:
Iran now has the highest coronavirus death toll outside of China, threatening the wider Middle East- Iran’s health ministry on Tuesday confirmed 15 deaths from the new coronavirus amid 95 cases in Iran, the most fatalities of any country outside of China.
South Korea reports 169 new coronavirus cases, pushing total to 1,146: KCDC- South Korea reported 169 new coronavirus cases on Wednesday, pushing the total tally to 1,146, Korea Centers for Disease Control & Prevention (KCDC) said

US soldier based in South Korea tested positive for coronavirus- First US service member to have tested positive (forex live)

Japanese PM Abe: Will ask for cancellation, delay or downsizing of sports & cultural events for the next 2 weeks (BBG)

4 new cases confirmed in the Diamond Princess cruise ship, raising the total to 705 cases inside the ship (BNO news)

Iran Death total now stands at 19 the largest outside of China both South Korea and Italy’s Toll Stands at 12, South Koreas saw an Increase in Case of 284 Italy 51 and Iran 44 over last 24 hours.

Positive News:
Things continue to show improvement in Mainland China