Australian Dollar surging in a coming week? Trend and Momentum 4-Sep-2020

The stock markets have well surged since last April despite Covid-19 having devastated in the world. It is most likely because of the excessive liquidity brought by central banks in major economies. Even though DJIA down more than 800 points yesterday, it is too soon to conclude the upward trend is over.

Back to the topic, the latest Trend and Momentum indicate Australian dollar could surge in a coming week after reaching the bottom. If you want to see the Trend and Momentums for other FX pairs, visit: QROSS X - Trend and Momentums.

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Coronavirus outbreak was just an excuse and the worse will be coming to the market?

Vito Corleone (From Wikipedia)
The son of Antonio Andolini.

Don Ciccio had killed Antonio Andolini, and the Don was revenged by Antonio's son. At least, Don Ciccio was right about his future.

Don Ciccio:

...When he grows, he'll grow strong.  ...When he's a man, he'll come for revenge.

As written on the last post, the oil price digged further its bottom at which WTI crude oil contract for May reached in negative territory. Theoretically, the possibility of negative price is anticipated because of the shortage of oil storage. But I thought OPEC+ or US will prevent from the situation being worse.
Some says that hedge funds or speculators sold their holding contracts as the uncertainty of storage availability and its costs ahead.

The Irish Times: What do negative oil prices mean for the prices you pay at the pump?
... The reasons for this are complicated, but essentially for every barrel of oil consumed in the world, 30 are traded. This means that financial institutions and hedge funds are speculating now on the price of oil that will be delivered in May. Contracts for May had to be settled by April 21st, and with a raft of traders left with oil contracts on their hands in the face of extremely low demand, they were forced to offload their contracts at negative prices.

DJIA recovered since the end of March.

While the oil markets tumbled, the global stock markets have recovered since the end of last month. DJIA (Dow Jones Industrial Average) has recovered about 5,000 points (27.0%) though it is still over 6,000 lower than the record high.
Some big economies, including US and Germany, are trying to reopen their businesses as they have been suffering from the lockdown for a month. It maybe a positive sign for the market but the things are not so simple either.

What was the outlook of the financial markets before Coronavirus outbreak? The major stock indices were climbing to the historic high in recent years to decades. No one was thinking the Tokyo Olympic game would be postponed except for some conspiracy theorists.
But on the other hand, PMI numbers in the largest economies have already been in lower territory in which the outlooks were negative. German manufacturing PMI has been well below 50.0 since the beginning of 2019, and the numbers in Eurozone and Japan have been more or less similar to German one, too. UK has been struggling to get Brexit done for 2019 (since 2016). US economy has been relatively stronger than others while its PMI was also in downward trend.
While the stock markets were bullish, the real economies had started slow down even before Coronavirus outbreak. PMI is utilized as a leading indicator to forecast the economic confidence in coming months. As the PMI numbers were below 50.0 in 2019, the recent market crash could have some senses of the adjustment between the market and real economy. Coronavirus just triggered it, perhaps.
By the way, how about today's PMIs? In Eurozone, the manufacturing PMI is 33.6 as of Apr-2020, the lowest since the financial crisis 2008. The composite PMI, overview of service and manufacturing sectors, is overwhelmingly 13.5, the record low.
Reminding it is a leading indicator, the economy is expected to be worse in coming months as the impact of lockdown will be realized in our economies. When it did, we would see something worse in the financial market than the last one in 2008.

When the bubble grows, the bursting impact will grow stronger. When the time comes, it devastates the market and economy.

Where is the bottom of oil price? This uncertainty could be for months to years.

From Wikipedia

Dominic Greene:

Since 1945, 17% of the planet's vegetated surface has been irreversibly degraded. The Tierra Project is just one small part of a global network of Eco Parks that Greene Planet has created to rejuvenate a world on the verge of collapse.

The crude oil price has plunged as Coronavirus outbreak halted numerous businesses which consume the oils, and OPEC+ failed to agree on cutting oil production last month. Although the latest headline brought some hope as Saudi Arabia and Russia are expected to reach deal, there is still a room that the price is going down further until business is back to normal.

WTI Crude oil price
The lowest roughly in two decades.

According to World Oil: Trump may rent Strategic Petroleum Reserve storage to U.S. drillers,
The U.S. reserve, which was set up after the Arab oil embargo in the 1970s, has a maximum storage capacity of about 713.5 million barrels in salt caverns across the U.S. Gulf Coast. It now contains about 635 million barrels. The string of coastal salt caverns in Louisiana and Texas that comprise the reserve were designed for long-term storage and are not geologically suited for quick withdrawal of crude. For that reason, some industry observes have criticized the idea as ill-advised.

The considerations to make space in the reserve available come after congressional Democrats blocked a request by the administration to appropriate $3 billion in funds to buy as much as 77 million barrels of oil for its emergency stockpile in an effort by President Donald Trump to support the domestic industry and boost reserves at cheap prices.

It says almost 90% of storage capacity for the oil reserve is already filled up, which means the rest of capacity, only 10% can be available for the further reserve. Whoever US or US drillers will purchase the oil for strategic reserve, it cannot be kept without storage space. It is not clear that the oil companies can slash their output quickly. When the oil could go nowhere but consumption, the price would be down further.

Euro area's composite PMI
Hardly seen it less than 30...

According to the Coronavirus projection of United States as of 3-Apr-2020, it suggests number of new death cases can reach at the peak around middle of this April and the number will be zero near the beginning of August. It sounds some sense of relief during such gloomy days under lockdown. But there is another risk ahead as second wave of the virus can devastate again as China is facing.

The latest PMI, GDP forecast or any statistics indicate the worst outlook which is comparable with the last financial crisis in 2008 or even the great depression in 1929.

CITY A.M.: Coronavirus: Eurozone economy suffers record hit in March
The Eurozone economy suffered the biggest blow on record in March, survey data has shown, as coronavirus containment efforts all but stopped activity.

The IHS Markit purchasing managers’ index (PMI) – a closely watched gauge of the health of the euro area economy – crashed to 29.7 in March from 51.6 in February. A score below 50 indicates contraction.

It is still unclear if the current draconian measures enforced in leading countries of global economy are lifted soon. Actually, it is unlikely as risk of the second wave does not allow them to do so. The lockdown will continue, and people's activities will be strictly limited for months to years. Who wants to burn a lot of oil those time?

What can rejuvenate a world on the verge of collapse?

Coronavirus blasting all the goddamn markets

The Underboss (from Wikipedia)

The Godfather's son was so temper as he killed himself consequently.

Sonny Corleone:

... So why don't he just blast whoever's in the goddamn car?

Since the later last month, the global stock markets overwhelmingly plunged as if we are at verge of a new great recession or so. US's DJIA had the record drop yesterday at nearly 3,000 points. The commodity markets were also down.

While Fed finally set their target rate at around zero, the market reaction was pessimistic. First, the financial policy cannot be a breakthrough against the epidemic. Second, the investors woke up, recognizing how serious of the economic damage. Third, the stock markets were overvalued (Bubble) until Coronavirus outbreak.

Coronavirus brought anxious tension among people in the world where no one is virtually away from the threat of Coronavirus. Once it started spreading into the countries outside of China, the economic and social activities have gradually shrunk. Many events were banned. Bars or nightclubs were closed. Tougher boarder controls. Details of such rules are different between countries, but it continues for a month to a few months at least.

As mentioned in the last post, the airline operators are highly likely at risk because of non essential travel bans. The measure has escalated since then.

BBC: Coronavirus: Europe plans full border closure in virus battle
The European Commission is planning to ban all non-essential travel throughout Europe's Schengen free-travel zone as more countries close their borders to try to limit the spread of coronavirus.

Commission President Ursula von der Leyen said she would ask leaders to implement the measures on Tuesday.

"The less travel, the more we can contain the virus," she said.

FTSE 100
Financial crisis (2007 - 08), down 40% from peak

People are cashing out rather than holding shares, and some goes for panic buying. Even if shelfs in supermarkets become empty, you will see new stocks arrived there next day as far as supply chain works and production of goods continues. In other words, if the supply chain or production were limited or halted as the tougher measure, it could be disastrous. People rush to buy limited stock of foods, hygiene sprays or toilet rolls. Hyperinflation or stagflation could be possible in such situation.

FTSE 100
Last 2 years, down 33% from peak.
Another 10% brings larger dip than financial crisis 2007-08

When it comes to the financial markets, FTSE 100 was at 6,580 on 1-Mar and now marked at 5,217, about 33% down from the peak in last 2 years. During the last financial crisis in 2007-08, FTSE 100 was down by 40% from the peak. Today's market, the index has dropped 33% from the peak in less than a month. It looks just a matter of time until the latest crisis surpasses the one in 2007-08.


In the future when the world finally defeat the Coronavirus threat, financial markets and people's activities would be back in normal manners. But by that time, all the goddamn markets might be blasted in unprecedented scale.

Caporegime says: These things gotta happen every five years or so, ten years.

The Caporegime (from Wikipedia)

The Godfather had many friends with loyalty.

Peter Clemenza:

These things gotta happen every five years or so,... ten years. Helps to get rid of the bad blood. Been ten years since the last one.

In contrast with the consecutive downfalls of global stock prices in last week, it has been on a bumpy ride this week in US market particularly, partially because of Fed rate cut which was unexpected and little explained and Super Tuesday's outcome.

Meanwhile, it is a time to back in reality, isn't it?  After Fed rate cut and Mr.Biden's revival on Super Tuesday, there is no pragmatic solution combating Coronavirus. What is a kind of solution is a vaccine development whose production is expected after months to more than a year. So far, it looks good news are lasting and shadow of bad news ahead.

Flybe, one of the largest regional airlines in Europe, is dragged into administration. Even before the Coronavirus outbreak, Flybe has 40 years of its history and had expected to have a rescue deal to manage the difficult situation. Its employees' jobs are at risk.

China is pushing their business back to normal as much as possible, but the recovery is not enough for global economy. Outbreaks in other parts of the world are spreading faster and faster.
After all, consumers' demands are fading day after day as Coronavirus spread, except for panic buying at some supermarkets. The new James Bond film, which was planned to be released on April, was postponed until November.

The atmosphere surrounding the world is becoming reminiscent of the financial crisis in 2007-2008. The financial crisis 2007-2008 stemmed from credit crunch. The recent financial uncertainty is caused by the fear of epidemic and its economic effects. But the epidemic could not only lead travel industries including Airline companies like Flybe into the dark, but also cause domino effects in other industries, including financial industries.
Airline operators are financed through Structured finance, so called Aviation finance or Aircraft finance. They rise funds in both equity and debt for multi-billion dollars to purchase their Aircrafts to operate. The expected revenue is a source of the repayment and is supposed stable without such pandemics or wars. Reduction of the scheduled flights leads to their revenue cuts. Apart from the basic measures, business insurance or collaterals to avoid delinquency, they may have to cut labor costs. It has started already. (See below)

Sky News: Virus turbulence could give airlines cover to make cuts
Lufthansa, Germany's largest airline and the third-largest in Europe by stock market value, unveiled a cost-saving programme in which it will suspend new hires and offer employees unpaid leave in an attempt to mitigate the financial impact of coronavirus.
...
And it was revealed that KLM, which is the Dutch arm of Air France-KLM, Europe's fifth-largest carrier by market value, is to delay all IT and property projects that have not yet got underway and will be suspending hiring in certain departments.

Even such big names like Lufthansa and KLM struggle due to the Coronavirus outbreak, needless to say that the smaller operators suffer badly. In case that cost cutting is not sufficient, the subordinated debt repayments are first affected and the operator maybe forced into insolvent when senior debt repayments are failed. The insurance companies have to recover the loss, but the pandemic bring such unfortunes for virtually all the airline operators and travel related industries as chain effects. It can be a global credit crunch that we don't know the exact figure yet.

The financial markets have experienced some sharp up and downs for the last 10 years, but they are nothing more than the financial crisis 2007-2008, aren't they?  The Caporegime knows what happens now, perhaps.

Fed emergency rate cut. Coronavirus or Shadow of Mr.Sanders? 3-Mar-2020

Fed overwhelmingly announced 50bps rate cut today soon after the US stock market opened.
DJIA once jumped, reacting to the rate cut, though it stays nearly flat since the market opened. It seems be about the response to the market turmoil due to the Coronavirus crisis. But this sudden announcement is a little weird as such rate cut without anticipation tends to surprise the market, which should be avoided.

While today's news are dominated with Coronavirus, this is the Super Tuesday in US. The latest polls suggest that Mr.Sanders has the best chance to win, who is known of Social Democratic ideology. It can be a weigh on the stock prices shortly even though the likelihood is already priced in.

We'll know it.

Comment on 4-Mar-2020 Morning:

Regarding the current outcome of Super Tuesday, Mr.Biden earning votes remarkably, leaving Mr.Sanders behind. Meanwhile, DJIA future is also gaining, which implies today's opening values will be higher.

Godfather says: I spent my whole life trying not to be careless.

Godfather's discipline is worth not only for mafia nor yakuza but also for investors and traders.

Don Vito Corleone:

I spent my whole life trying not to be careless. Women and children can be careless. But not men.

Since the worst week for global stock markets, investors and traders should have been pessimistic under the market turmoil due to the fear of Covid-19 so called Coronavirus.
As the share price plunged overwhelmingly plunged last week, modest bounce back could have been expected at the beginning of this week. But how many of them could confidently foresee today's market swing, particularly in US markets where DJIA (Dow Jones Industrial Average) shot up above 5.0% in a single day?  There were some positive signs in the markets today, as Bank of Japan and Bank of England ensured their help for the Coronavirus crisis, and Mr.Trump slammed Fed "slow to act". Meanwhile, RBA (Reserve Bank of Australia) will be the first to have the rate decision at 2:30PM on 3-Mar (Local time). Some says that RBA will be forced to cut the rate because of the market turmoil, but US markets closed with huge recovery today and it became unclearer if RBA will cut or keep the rate.

While the markets turned positive today, we didn't get any breakthrough against Coronavirus. For a last few days, we were talking about supply chain problem, travel restriction and economic damage by them. Some says the global GDP could lose a quarter of the forecast even in "mild" scenario whose other scenarios are "modest" and "severe" respectively. The number of cases are now increasing outside of China, including Europe and US as concerned.

As more analysis results came out over the weekend, those mitigated uncertainty of the impact of Coronavirus. But negative outlook looms for coming months possibly beyond 2020. During the financial crisis in 2008, the markets had been down to the bottom on a bumpy ride. It is still likely to see the second round of massive sell-off near future, perhaps in this month again. Who knows?
That's why we have to learn from Godfather's discipline.