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Market’s Pandemic Obsession Grows, As Pestilence, Fiscal Failure Overshadow Biden Bounce

As the yo-yo swings...

US equities tumbled in early trading Wednesday, as the yo-yo swings. You can expect this manic price action to continue, at least for another week or two.

“The coronavirus fears have put an end to the long-lasting equity up/vol suppressed loop”, SocGen wrote Wednesday, in a volatility update. “The sharp drop in equity prices on 24 February sent the dealer positions deep into negative gamma territory, leading to daily amplitudes not seen since 2011”.

Virus concerns are front and center, and very much unlike last week, Joe Biden’s strong showing in the primaries was lost in translation. The current administration’s failure to deliver the details of a promised fiscal response to the expected economic hit from COVID-19 deep-sixed sentiment.

Read more: Promises, Promises

For what it’s worth, Joe is now a lock according to betting markets.

In fact, PredictIt odds show Hillary Clinton overtaking Bernie, whose White House aspirations were effectively crushed after Biden carried Michigan.

Joe knows it’s over for Bernie. “I want to thank Bernie Sanders and his supporters for their tireless energy and their passion”, the former vice president said Tuesday night. “Together we’ll defeat Donald Trump”.

Not exactly “together”, but you get the idea.

In any case, it doesn’t matter right now. The market is anxiously awaiting signs that a coordinated fiscal response is in the works, and although the UK delivered on both the monetary policy and fiscal fronts Wednesday, the Trump administration hasn’t yet said, definitively, what it’s proposing beyond the brushstrokes.

If you’re wondering what the outbreak looks like on a global scale, here’s an updated geo chart:

Confirmed cases globally are now near 120,000, and the death toll sits above 4,300.

The Netherlands and Sweden saw their infection totals leap, and Italy is, of course, in a full-blown crisis.

Turkey reported its first case. Predictably, Recep Tayyip Erdogan skipped the niceties and jumped straight to the thermal cameras. And no, I am not kidding. “Erdogan is using a thermal camera in public to keep people with fevers away [and] stopped shaking hands with the public days ago”, Bloomberg wrote Wednesday.

Australia is planning to unveil a multi-billion-dollar stimulus plan, Canada is leaning towards adopting financial measures, the US Treasury may extend the tax deadline, and Chuck Schumer wants Trump to declare a state of emergency.

Given all of that, you can understand why Joe Biden’s apparent lock on the Democratic nomination (which pretty much rules out any kind of totally market-unfriendly election result) simply doesn’t matter on Wednesday.

“With a combination of precautionary measures and fear leading to major changes in consumer and business spending behaviour, we expect to see a negative GDP print for Q2 [in the US]”, ING warned, in an e-mailed note Wednesday. “Leisure spending, eating out and hotels and travel sectors are obviously feeling the pain while there is also the hit to sentiment from the plunge in equity markets that could translate into broader spending weakness”, the bank added.

Here are Nomura’s updated estimates for the global economy given the hit from the virus:


Angela Merkel said 60% to 70% of the German public is at risk given the lack of natural immunity and no vaccine. “We will do whatever is necessary”, she said, at a news conference in Berlin.

Hopefully, that means loosening the purse strings, but markets have their doubts.

Meanwhile, Trump took to Twitter to defend his administration against – checks notes – Vanity Fair.

“Vanity Fair Magazine, which will soon be out of business, and their third rate Fake reporters, who make up sources which don’t exist, wrote yet another phony & boring hit piece”, the president seethed. “The facts are just the opposite. Our team is doing a great job with CoronaVirus!”


3 comments on “Market’s Pandemic Obsession Grows, As Pestilence, Fiscal Failure Overshadow Biden Bounce

  1. In case you’re interested (or have always secretly wanted to be “just like Recep”), FLIR Systems sells a thermal imaging attachment for the iPhone, buy it online for $399. Not a bad deal for the sufficiently worried. Isn’t that what a box of masks costs these days?

  2. No way to measure future earnings flows and losses while mkt crashes in next 6 months and meanwhile vix/10 yr Treasury ratio over 70 is highest in recorded history. So jumping in and playing day trading cool guy is like jumping off a skyscraper without a chute

  3. One of my good street friends hedges an MBS whole loan conduit portfolio for an originator. He has traded government bonds for 35+ years. He told me that the spread on long bonds this morning was 1/2, normally it is 1/64. He told me for a short time this morning there was no bid for bond futures on the futures bond this morning- he said never saw this in his career. Libor/OIS swaps are widening. Credit spreads are widening. Most ominously stocks and US Treasury bonds are going down together and nothing else is really up- gold and the $ are essentially flat today…. meaning correlations are trending towards 1. In my view, the US government and FRB have until Monday’s open to put out this building market forest fire or we will be in another full blown financial crisis. First liquidity goes then credit follows as a knock on….. The President and Congress need to act pretty quickly…..

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