Lights And Long Tunnels.

“Most of those declaring that it is time to start getting optimistic are not public health officials, whose caution seems fortunate for the populace trying to survive this disease”, former trader Richard Breslow writes on Monday, as risk assets bounce globally on signs there may be a light at the end of the proverbial tunnel on the virus front.

The good vibes engendered by the apparent slowing of fatality growth rates in key COVID-19 hotspots on Sunday helped propel equities in a rare instance of Monday robustness. It helps that Japan’s Shinzo Abe is calling for $988 billion in stimulus as Japan prepared to declare a state of emergency in prefectures including Tokyo and Osaka for around a month in order to ensure the country’s own outbreak (which remains comparatively small) doesn’t spiral out of control.

Japan’s coronavirus stimulus package will come in two phases, with the first concentrated on ensuring employment is protected and businesses don’t fail and the second aimed at facilitating a “v-shaped” recovery. Hard-hit businesses will get subsidies, and those who avoid laying off workers will be favored. SMEs will get cash handouts, as will households ($2,750 to lower income households that have suffered outsized hits to their incomes from the virus). Businesses will enjoy a one-year tax deferral, the government will slash property taxes to zero for a selection of firms and a reserve fund will be established for future measures.

The Nikkei had its third-best day of 2020, rising more than 4%. The yen fell as risk aversion abated, while stocks in Europe surged along with US equity futures. Bonds sold off.

Oil is under pressure again, after an acrimonious weekend that found the Saudis expressing palpable irritation at Vladimir Putin who, according to the Kremlin on Monday, still has no plans for talks with Riyadh or Donald Trump. During weekend briefings, the US president repeatedly warned he’d use tariffs if he has to in the oil struggle, but indicated he doesn’t see it as necessary – yet. The Saudis delayed the release of April OSPs, and face a stark economic reality in the face of the virus and plunging crude prices. Kirill Dmitriev, CEO of Russia’s sovereign wealth fund, on Monday claimed Moscow and Riyadh are “very, very close” on a deal.

Crude is coming off its best week on record thanks to mammoth gains on Thursday and Friday on deal hopes.

“There’s no chance of my being an equity daydream-believer but the mood is ‘buy the dip’ at the first sign of the pandemic infection curve flattening”, SocGen’s Kit Juckes wrote Monday. “Never mind the P/E ratios, feel the trend?”, he wondered, before adding that while he “can’t help being skeptical, I do understand how the corporate bond market which in Europe devoured a huge meal of investment-grade supply, can find its feet”.

UniCredit’s chief economist put it simply: “There is light at the end of the tunnel but it’s still a long tunnel”.

As for Breslow (quoted here at the outset), he just doesn’t want the market optimism to spill over to the general public, promoting a relaxation of virus containment measures, because then where would we be? Undermining the very same protocols that are presumably helping to flatten the curve, that’s where.

“To be sure, there is absolutely nothing wrong with trying to buy the dip, getting ahead of much hoped for good news, or more likely, covering shorts, as long as it doesn’t cause anyone not at a keyboard to change their behavior’, he wrote. “Because that is the only way to make the dreams of equity bulls eventually come true”.

Don’t worry, Richard. Main street doesn’t own any stocks, so they’re not paying attention to what analysts behind any “keyboards” are saying.


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