Conditions are Perfect. It’s Business Time
Feb 18, 2020
–Apparently no one could believe that COVID19 could have an impact on business until AAPL warned that it isn’t likely to meet March sales guidance laid out just three weeks ago. AAPL down nearly 6% and HSBC also lower as it’s set to cut 35000 jobs in a major restructuring. As of this writing ESH down 16 to 3366. Flight to quality in USD with DXY making new highs for 2020, EUR at a new low 1.0829. CNY back above 7. Treasuries have seen inflows with tens falling about 4 bps from Friday’s close. March treasury options expire Friday; TYH 131.25 calls were trading 5 yesterday vs 130-31 with the contract now just above breakeven at 131-11. Precious metals also advancing, with Palladium starring, at a new high nearing $2450/oz.
–Friday featured new lows in red/gold pack spread at 19.125 bps, down 1.125 on the day, and in 2/10 down nearly 3 bps to 14.5. Today’s economic news includes Empire State report, expected 5.0 from 4.8 last. Kashkari to speak at 2:00 EST. The market has already priced the easing he’s sure to espouse, with FFG0/FFG1 spread printing -45 this morning, indicating nearly two cuts this year.
–Last week former Fed Chair Yellen said it would help in a downturn for the Fed to buy corporate bonds and equities (even though it’s not currently allowed to do so). Why even bring it up? Japan has followed that script and just recorded a 6.3% drop in Q4 GDP. Brainard on Thursday is giving a speech titled Monetary Policy for the Next Recession. They’re not talking about monetary policy for the next inflation spike. Firmly Focused on the Downside which ironically supports stocks. I saw a paper gushing about benefits to the bottom line as businesses are able to refinance at today’s rock bottom rates. The assumption is that sales stay constant or improve. Does that occur in ‘the next Recession’?
