Daily Morning Report

The U.S. Treasury market has made a dramatic rebound in prices (lower yield) after strong selling pressure recently amid a rush for cash that put pressure on most markets–even safe-haven assets like Treasuries and gold. As the panic in the global marketplace as at least stabilized if not receded, buyers are stepping back into safe-haven assets like gold and Treasuries. Don’t be surprised to see U.S. Treasury bond and note futures hit new for-the-move highs in the near term. Stay tuned! Jim

Monday, March 23–Jim Wyckoff’s Morning Markets Report

Global stock markets were lower in overnight trading. U.S. stock index futures are presently pointed toward solidly lower openings when the New York electronic day session begins. The New York Stock Exchange, itself, is now closed. When the markets opened electronically Sunday, U.S. stock indexes were locked limit down. The U.S. Congress over the weekend failed to agree on a financial aid package for U.S. businesses and citizens, which is being blamed for the even more dour marketplace mood to start the trading week.

The Covid-19 outbreak continues to spread worldwide, with the U.S. economy shutting down even further as many states, including New York and California, have been locked down by their governors. Focus in the U.S. is on a shortage of medical supplies. Local health officials are now asking for the public to donate any supplies such as masks and gloves that they have at home. U.S. Senator Rand Paul has been diagnosed with Covid-19. Over the weekend much of the American public came to the stark realization the U.S. is not going to remain on lockdown for just a couple weeks, but instead for a period likely at least twice that long and probably even longer. China-U.S. relations are becoming more strained as President Trump now refers to Covid-19 as the “China virus,” which has angered the Chinese people.

Following is an edited email dispatch from a market analyst Monday morning: “U.S. economic growth estimates from the biggest investment banks are becoming increasingly dire. Last week, J.P. Morgan expected GDP to shrink 14% in the second quarter of this year, Goldman Sachs sees a 24% fall, while the latest forecast by Morgan Stanley is even gloomier, anticipating a 30% drop. However, the worst projections are coming from a well-respected Fed official, James Bullard, who said unemployment may hit 30% and GDP decline 50% in the second quarter. Within the next couple of weeks, we will get to know how severe the upcoming economic crisis will be. The scariest scenario is that it turns into a credit crisis which will break the financial system.”

The important outside markets today see Nymex crude oil prices weaker and trading around $22.25 a barrel. The U.S. dollar index is near steady after hitting a three-year high last week. Gold prices are higher and trading just below $1,500.00 an ounce. The 10-year U.S. Treasury note yield has dropped to 0.813% Monday after trading above 1.0% last week.

U.S. economic data due for release Monday is light and includes the Chicago Fed national activity index.

–Jim

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The Nymex crude oil futures market’s dramatic rebound late this week, after hitting an 18-year low of $20.06 a barrel on Wednesday, suggests this very important market has put in a price bottom. That’s very good news for the beleaguered raw commodity market bulls.

Friday, March 20–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly higher in overnight trading. U.S. stock index futures are presently pointed toward solidly higher openings when the New York day session begins. Trading today will be extra important for the marketplace, from a psychological perspective. After Thursday’s gains, if the U.S. stock indexes can on Friday put together a two-day winning streak for the first time in weeks, then many traders and investors will head into the weekend thinking the markets panic has now passed and most markets have at least stabilized.

Make no mistake, the economic and human toll from the Covid-19 pandemic will continue to rise, and likely dramatically on both counts. California is headed for a complete lockdown of its citizens, and some health officials are predicting the most populous state in the U.S. (and the world’s fifth- largest economy) will see up to half of its population infected by the illness.
Many economists are now saying U.S. GDP will drop by over 10% for at least one quarter—and that could be light, given most U.S. stores are presently shuttered.

Two key markets, U.S. Treasuries and gold, are late this week providing key clues the marketplace panic is over and that markets are stabilizing–even if there is more downside in the stock market and much more downside in the global economy in the coming weeks.

The U.S. Treasury bond futures market has seen prices rebound solidly late this week (yields falling). It appears the U.S. Treasury market has become more liquid as the week has progressed. Treasury buyers are stepping back into the fray with more confidence in the bond market. It seems contradictive that bond yields would be falling while trader and investor fears are easing a bit. However, the rally in the Treasury futures and falling yields in the cash market suggest more economic and stock market damage are expected by bond traders, and thus the safe-haven moves to own U.S. Treasuries. The benchmark U.S. 10-year Treasury note yield was trading around 1.04% Friday morning.

The same goes for gold. Prices are rallying Friday as more confident buyers are stepping in after the yellow metal had been pounded down recently on a “sell what you can” trader mentality that also pervaded many markets earlier this week. The buying in gold late this week is also likely safe-haven demand, along with short covering in the futures market following the recent big losses.

The U.S. dollar index early Friday morning has backed down from its massive gains seen this week that saw the USDX hit a three-year high. It’s likely just a corrective pullback and certainly not signal the USDX has hit a peak. The rush to hold greenbacks has further roiled an already anxious foreign exchange market. This week’s price action in the USDX reaffirms the U.S. dollar’s status as the supreme-quality asset to own when times get really, really tough.

Nymex crude oil futures prices are solidly up again early today and have made a dramatic rebound after hitting an 18-year low of $20.06 a barrel on Wednesday. Crude prices are currently trading around $27.50 a barrel. The huge rebound in crude late this week does suggest that important market has put in a price bottom.

U.S. economic data due for release Friday includes is light and includes existing home sales. In a sign of the times, this week’s Federal Reserve FOMC meeting came and went with nary a mention on the business news channels and completely ignored by the marketplace. The Fed has been actively intervening in the markets all week, including last weekend’s surprise interest rate cut.

–Jim
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Thursday, March 19–Jim Wyckoff’s Morning Markets Report

Global stock markets were mixed in overnight trading, with Asian shares mostly down and European shares mostly up. U.S. stock index futures are presently pointed toward weaker openings when the New York day session begins. The coronavirus pandemic continues its stranglehold on the global marketplace. China did report overnight that there were no new reported cases of the illness in that country Thursday, although many wonder about the outbreak statistics’ veracity coming from the Chinese government.

Look for another volatile day in many markets. Speaking of volatility, the VIX index (called the volatility index) this week hit record highs above 80.0. For perspective, the European Union debt and financial crisis of a few years ago saw the VIX climb to 30.0, which at that time had the marketplace alarmed.

Following is an edited email dispatch from a market analyst, received this morning: “With fears over the spread of coronavirus intensifying, it’s reasonable and justified to see risk assets being sold aggressively. After all, the consequences on the global economy and corporate earnings may be enormous, depending on the duration of the pandemic. But what’s interesting in the current market turmoil is that even the safest assets in financial markets, U.S. government bonds, are being sold-off. In a bear market, traditionally investors have flocked to U.S. Treasury bonds, which historically have been inversely correlated to stock markets. In fact, we did see tremendous inflows into Treasuries at the beginning of the coronavirus outbreak. From mid-February to early March, yields on the 10-year Treasury bond declined by 80% to reach a record low of 0.32%. However, over the last several days this pattern has changed, with the sell-off in US Treasuries intensifying, especially on Tuesday and Wednesday with yields reaching 1.25%. This kind of market behavior is scary. It shows that investors are selling whatever they can to raise cash, and this also explains why the U.S. dollar is soaring to new highs. Investors are clearly being forced to build their cash reserves in order to survive a prolonged period of the current pandemic.”

In overnight news, the European Central Bank stepped in and said it would buy 750 billion Euros in securities to liquify the European financial system. The ECB labeled the effort the “Pandemic Emergency Purchase Program.”

After the markets closed Wednesday the Federal Reserve added still more short-term liquidity to the U.S. financial system. The U.S. government is set to unveil a financial assistance package to American citizens and businesses.

The U.S. dollar index is higher again in early U.S. trading and hit another three-year high. The world marketplace has seen confirmation that the greenback is still king when times get really tough. Nearly everyone who can wants to hold U.S. dollars as a safe-haven store of value. The big grab for greenbacks is perpetuating dislocations in the financial markets but there is a positive element from this week’s reaffirmation of supreme global confidence in the U.S. currency: The U.S. is about to possibly double its already record-large federal deficit due to expected company bailouts and financial assistance packages. At first blush, it appears the world’s investors will be very willing to purchase that big influx of U.S. government debt issuance.

The U.S. Treasury bond futures market has rebounded Thursday morning, from Wednesday’s major sell off. The benchmark U.S. 10-year Treasury note yield was trading around 1.2%–well up from levels well below 1.0% seen last week.

Nymex crude oil futures prices are solidly up after hitting an 18-year low of $20.06 a barrel on Wednesday. Crude prices are currently trading around $22.85 a barrel. One bright spot for the U.S. consumer is that unleaded gasoline futures wholesale price from the refinery is now trading at 68 cents a gallon—suggesting much lower gasoline prices at the pump heading into spring and summer.

U.S. economic data due for release Wednesday includes the weekly jobless claims report, which in the coming weeks will become a major data point—likely showing massive increases from normal numbers. Other reports Thursday include the Philadelphia Fed business survey and leading economic indicators.

–Jim

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Wednesday, March 18–Jim Wyckoff’s Morning Markets Report

Global stock markets were down in overnight trading and U.S. stock index futures are presently pointed toward sharply lower to limit-down openings when the New York day session begins.

A more-than-$1 trillion U.S. aid package for U.S. consumers and businesses is so far not assuaging trader and investor confidence at mid-week. Instead, they are considering the consequences of a North American way of life that has been turned upside down. Most retail businesses, schools and universities are closed and streets are seeing much less traffic. Major corporations such as Boeing and U.S. airlines are teetering on bankruptcy. The U.S. Treasury and commercial paper markets are not functioning well despite massive infusions of funds from the Federal Reserve. U.S. Treasury Secretary Mnuchin on Tuesday warned the U.S. unemployment rate could reach 20%. Considering all of the above and knowing that markets have historically factored into their prices major events’ repercussions before they ever fully play out, veteran market watchers are wondering when the worst of this crisis will come to pass, from a markets perspective. At mid-week it appears the markets are saying, “not yet.”

There was some hope late Tuesday that the sharp rise in the 10-year U.S. Treasury note yield back above 1.0% was indicating the government bond market was reckoning the worst of the coronavirus market damage has passed and that the panic in the marketplace had receded. However, looking at the sharply lower U.S. Treasury bond and Treasury note futures prices overnight it appears the rising bond yields are more a case of serious dislocations in that market as opposed to an easing of trader and investor market fears. Wednesday morning the 10-year Treasury note was yielding 1.13%.

The U.S. dollar index is higher in early U.S. trading and has this week hit a three-year high. Nymex crude oil futures prices are solidly down and hit a 17-year low of $25.08 a barrel overnight.

Reports said one U.S. hedge fund manager, Malachite, Management LLC, has closed down, citing “extreme, adverse market conditions.” Reports said the firm specialized in trading volatility. Apparently in these trying times at least one firm should not get what one asks for.

The Commodity Futures Trading Commission has relaxed some of its rules for brokerages, to help them deal with the extreme markets moves that are occurring daily.

In another sign of the times, this afternoon’s conclusion of the Federal Reserve’s Open Market Committee meeting (FOMC) is nowhere near the front burner of the marketplace today, when normally it’s one of the market highlights of the month.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, new residential construction, the conclusion of the FOMC meeting and the weekly DOE liquid energy stocks report.

–Jim

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