by Richard Breslow via Bloomberg,
Traders are doing their best to pretend they have a serious handle on how the coronavirus tragedy will play out. They’re racing back and forth anticipating the effects on the global economy, asset prices and central bank policy. It makes for active trading.
But at this point, if anyone is making longer-term investing decisions based on the narrative of the day, they are flipping a coin. Even though they would beg to differ.
It seems to be the case that markets are once again driven by the unshakable belief that the central banks will have their backs if necessary. And sooner rather than later. They are apparently not bothered by the warnings of the limited scope for further monetary policy stimulus. The simple reason is the expectation that the less room there is for more traditional responses, the more the likelihood for more extreme measures, as there won’t be any choice. And risk assets will like that even more. What a world.
S&P and Dow surged to record highs today…
I have my own theories of how, in the bigger picture, to look at this situation. And I’m not going to say what it is. At this point it doesn’t really matter. But there’s no reason to abandon the short-term charts and see what can be made out of whatever is the current theme of the day. Especially, since it’s mid-week and we don’t have the weekend effect to take into consideration. Although, this Friday will be another interesting data-point in seeing just how bulled up the bulls are prepared to be.
Looking at the screens, it’s obvious that this moment’s mood in the market is buoyant. Demonstrating once again the stark reality that financial markets and the real world can diverge with no difficulty. If I didn’t see the prices, all I would have to do is read the titles of the commentaries being circulated.
Although, you can never fool EUR/CHF for very long. It has continued its way lower in almost blatant defiance of the Swiss National Bank. I’m very curious to see if the narrative changes as the currently bid risk assets make their way to their technical resistance levels or we can keep motoring.
Emerging market currencies, not surprisingly, had a rough second half of January after a spectacular run that began last September. After chopping around in a big range so far in February they are trying to regain their composure. A major resistance zone for the MSCI Emerging Market Currency Index is close. Watch how it trades between 1653 and 1655. So far today the high has been 1651.95.
Copper prices melting down was a major story for the markets as this episode developed. The metal is also trying to bounce. Its move down was big and fast enough that it has left behind a few former support zones, that are now resistance. It’s starting to nibble at them. If there are two things that define this market, it’s that when it gets going, it can really motor. And when it fails, it can do so with considerable drama. Whether you are bullish or bearish, it’s in play and bears watching.
It’s not surprising that ECB Chief Economist Philip Lane reiterated yesterday that they hadn’t reached the reversal rate yet. Something for everyone trading this asset class.
I’ll try to resist bonds. The range is well known and agreed upon