“Investors can take heart that we’ve counteracted this existential shock with the greatest fiscal, monetary bazooka”, Paul Tudor Jones told CNBC on Thursday, 48 hours (give or take) after he reportedly participated in a call with Donald Trump, who’s weighing the proper time table on reopening the US economy.
“It’s not even a bazooka”, Jones went on to say. “It’s more like a nuclear bomb”.
I’m not sure that’s the best analogy given the circumstances (now we’re dropping “nuclear bombs” on what Mario Draghi described as a “biblical” pandemic), but you get the point – the Fed and lawmakers are taking this extremely seriously.
“We did in two weeks what it took the Fed eight months to do in 2009”, Jones remarked, in the same interview. “Remember, we didn’t even get quantitative easing until well after the great financial crisis had started, well into the recession”.
As far as equities, Jones said stocks could well retest the recent lows before moving higher. That’s become the kind of go-to, generic narrative (calling it “generic” doesn’t make it wrong, by the way).
On the monetary policy side of things, the ECB’s “PEPP” bazooka (€750 billion in new asset purchases to blunt the impact of the virus) was readily apparent in periphery debt markets on Thursday. The Italian short-end, for example, richened by a ridiculous ~30bps, while 10-year yields fell 25bps.
That’s pretty remarkable, and speaks to the notion that all allusions to the “ammo” being exhausted aside, the benefactors with the printing presses can still have a big impact, even if part of it is simply other market participants incentivized to front-run central bank buying.
“They can push spreads where they want to in the short term”, Nordea reminded folks. In a testament to that, the BTP-bund spread has collapsed since PEPP was unveiled last week.
In the bottom pane is the most laughable chart of all – the Dow was (technically) out of a bear market on Thursday. A lot of that is down to Boeing bailout hopes, and you shouldn’t read anything into it. The broader gauges haven’t recovered nearly that much.
“We expect equity markets to see considerable short covering from here if the impact from the virus turns out to be less long-lasting or that measures taken by policy makers to support demand prove larger in magnitude than the equity market envisages at the moment”, JPMorgan’s Nikolaos Panigirtzoglou wrote earlier this week, adding that “US equity futures positioning by Asset Managers and Leveraged funds… had fallen steeply, propagating equity market declines [and] a result, these spec positions stand at even lower levels than either the end of 2018 or the beginning of 2016”.
And yet, even as stocks stage what many see as a “classic” bear market rally, there is every reason to be cautious.
Caterpillar withdrew its 2020 outlook on Thursday, said it’s temporarily suspending operations at certain facilities and may do the same at other sites depending on how things evolve.
That’s hardly surprising, but it speaks to the severity of the situation and the dour outlook for global growth. Just two weeks ago, the company reported its worst machine sales since 2016.
Meanwhile, in a move that represents a turning of the proverbial tables, China closed its borders to foreigners starting Saturday.
The decision to temporarily ban entry is “necessary”, the Ministry of Foreign Affairs and National Immigration Administration said, but added that “adjustments” will be made depending on the situation.
By Thursday afternoon, the death toll from COVID-19 in New York had risen to 385. The state has 37,000 cases.
The US will almost surely have more confirmed cases than China sooner rather than later.