Tuesday, September 22, 2020

Capital Markets: "Turn Around Tuesday?"

Betteridge's law of headlines says any headline that ends with a question mark can be answered with the word no.
Our usual argument against the practice is that it is mealy-mouthed and borderline passive aggressive:
"You misunderstood, I didn't say it was Turnaround Tuesday"

However, it was brought to my attention that sometimes this clickbaity approach can be genuinely interesting. From the Washington Post, 1885:

September 9, 2019

And on to the headline writer, Marc Chandler of Bannockburn Global Forex:
Overview: The S&P 500 tumbled for its fourth consecutive, the longest losing streak since February. The dollar strengthened broadly. Part of this may be the safe-haven bid the dollar often seems to have, reflecting the unwinding of financial structures when risk assets sell-off hard. Part of it appeared to be foreign investors liquidating stocks and buying back their hedges. The dollar topped, and the stock market bottomed into the European close. The overextended nature of some of the equity markets meant that any spark could start a fire. It is hard to identify the precise spark, but among the likely candidates would be the Fed's apparent reluctance to provide more support despite its own forecasts not showing a full recovery for three years, the new surge of the virus in several European countries, and what seems to be a further deterioration of Sino-American relations. Asia Pacific shares were lower, led by a 2.4% decline in South Korea and around a 1% loss in China and Taiwan. Tokyo markets remain closed today and will re-open tomorrow for the first time this week. European bourses are faring better, and the Dow Jones Stoxx 600 held yesterday's lows and holding on to modest gains near midday. Information technology and communication services are among the better performers, while utilities struggled, and financials lagged. US shares are trading a little changed, and so far holding yesterday's lows. Benchmark bond yields slipped in the Asia Pacific region and in the European periphery, but core bond yields and the US 10-year Treasury are little changed. The greenback remains broadly firmer. It has recovered smartly from the lower end of its range. Although there were rumors of BOJ intervention yesterday when the dollar recovered quickly and sharply off the JPY104 level, we are skeptical. The intervention would have taken place while the US market was open, which protocol requires notifying US officials, which would likely have been a deterrence and seemingly skipping the verbal intervention step in the escalation ladder. Gold held yesterday's low near $1882.50. Last month's low was nearer $1863. It is poking above $1900 in Europe. November WTI slipped below $39 a barrel yesterday but has remained above there today and is testing the $40 area.

Asia Pacific
Cross-strait relations are tense.
After crossing the middle of the Taiwanese Straits with more than a dozen aircraft over the weekend, reports suggest that anti-submarine aircraft were seen doing the same thing today. Although many press reports highlight how China sees Taiwan as a renegade province, the truth of the matter is that so do many other countries, including the US, which for over 40-year has a one-China policy. Beijing often seems willing to "let sleeping dogs lie," confident that its growing strength and power will win out in the long-run. It has demonstrated a resolve to resist efforts that seek to resolve ambiguous situations in the present. The US is pressing hard with arms sales and the most high-ranking visits in a few decades. Beijing will not accept a fait accompli. Both Xi and Trump are to address the UN today.

The Deputy Governor of the Reserve Bank of Australia Debelle laid out a range of policy options if needed though committed to none. Earlier this month, it expanded its Term Funding Facility, which makes loans, which Debelle recognized as similar to QE. Many suspect that the RBA will move again, and some think as early as next month's meeting (October 5). The Australian dollar extended yesterday's losses with Debelle's comments and fell to its lowest level in nearly a month (a little below $0.7180) but recovered back above $0.7200 in Europe. The Reserve Bank of New Zealand will announce its decision first thing tomorrow in Wellington and is widely expected to stand pat....