Last week the markets were a tough place to be! Principally for long-only equity traders, holders of the high beta stock and for commodity traders with long positions. There were a few interesting takeaways. US treasuries were king. So was the dollar.
There were limited yen carry trade unwinding. Bitcoin is arguably not a store of value. And gold suffered too- perhaps not considered the safe-haven it once was at these elevated levels.
Interesting too has been the opinion and commentary! President Trump blamed the market move alternately on Democrat presidential hopefuls and then on the Federal Reserve Bank. He mentioned that Tim Cook, CEO of Apple was optimistic about the future and containment of Coronavirus in China. White House Chief of Staff, Mick Mulvaney suggested not watching TV for 24 hours!
Innumerable pundits spoke of value in the market. The VIX (volatility index) ratcheted up to touch 49 before easing off as US equities indices recovered from Friday’s intra-day lows to close down between 10 and 12% for the week.
But is doubling down the right strategy when volatility is so high? Does the over-leveraged CFD trader go all-in on a martingale strategy? (Remember 12% losses at 5 times leverage is 60% down for the week). It really is double or quits in this situation. Is tech done for the moment? Does anybody really want a new handbag or holiday cruise or dare I say Tesla motorcar when there is so much uncertainty over the spread of Covid-19?
It takes a brave trader to buy into this storm. And personally, I feel there will be more pain before gain. As new cases of Covid-19 mount in Europe and the Middle East and worldwide fatalities rise, I think this week we are going to see rollercoaster equity markets. The major market economic releases will pale into insignificance as we see speculators and hedgers grappling to find a new market equilibrium. I’d be very surprised if the first week of March will see the markets rebound. But then, I may be “fooled by randomness” as so many traders are!
Following on from a disastrous Chinese Manufacturing PMI over the weekend (February’s number dropped to 35.7 from January’s 50), Monday is a day packed with interest. The OECD publishes its interim economic outlook, followed by manufacturing PMIs from both the US and Canada which are both likely to disappoint.
On Tuesday, The Reserve bank of Australia releases its interest rate decision, which is likely to remain unchanged at 0.75%. Swiss GDP out later in the morning is forecast to read 1.3% but could well be affected by the current market disruption. Eurozone CPI is expected to fall to 1.2% for February versus 1.4% for January.
Wednesday again sees Australia and Canada in the limelight. Analysts’ estimates are for a rise in 4th quarter Australian GDP to 2.0%. The Bank of Canada issues it’s interest rate decision. My impression is it will keep interest rates on hold at 1.75% despite a weakening oil price and a pressured global outlook. The US ISM services index is expected to fall to 54.9 for February from 55.5 for January. Watch out for US ADP employment numbers which can be a leading indicator for US Non-Farm payrolls later in the week. ADP employment figures are expected to show 170,000 new jobs created.
On Thursday, there are speeches from Bank of England governor Carney and Bank of Canada governor Poloz. Governor Poloz will report on economic progress and this is likely to be the more interesting of the two speeches.
On Friday, we await employment numbers from the US and Canada. US payrolls are expected to grow by 175,000 new jobs with the unemployment rate remaining at 3.6%. Canadian payrolls are expected to grow by 10,000 new jobs with unemployment creeping up to 5.6%.
“Fortune favours the brave!” But equally remember, “there are some old traders, some bold traders, but very few old bold traders!”
Good Luck and Good Trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
