Pictet North America Advisors

2020 Weekly Views — March 23

Pictet North America Advisors 2020 Weekly Views — March 23
Pictet North America Advisors

2020 Weekly Views — March 23

Pictet North America Advisors 2020 Weekly Views — March 23

Market update

Extreme volatility

The S&P 500 closed the week at 2,304.92, -14.98% lower. The Dow Jones closed at 19,173.98, -17.30%, and the Nasdaq slipped -12.64%. The volatility index VIX closed the week at 66.04 from 57.83. The Euro Stoxx 600 dropped -2.05%.

The 10-year UST closed at 0.84% from 0.76% a week before. The yield curve steepened with the yield spread between the  3-month and 10-year UST at +78.34bps. US Corporate Bond spreads: Investment Grade widened 106bps to 353bps; High Yield widened 226bps to 1,040bps. German 10-year Bunds yield closed at -0.32% vs. -0.54% a week ago. European Corporate Investment Grade spreads widened 61bps to 247bps, High Yield spreads widened 234bps to 895bps.

The US Dollar Index (DXY) appreciated +3.53% during the week and closed at 102.23. The Euro closed at 1.0695 (-3.71% weekly); the Yen depreciated at 110.89 (+3.04% weekly) and so did the Swiss Franc at 0.9861 (+3.61% weekly). Gold closed at 1,498.65, depreciating -2.04%. Oil ended lower: Brent closed at 27.21 (-19.62%) and WTI at 19.84 (-37.47%).

Macroeconomy

COVID-19 update
As per data from Johns Hopkins University - https://coronavirus.jhu.edu/map.html, there are 340k confirmed cases globally with 14.7k deaths and almost 99k people recovered. In Italy, the number of new daily cases has decreased to 5.6k for the first time in a week. In the US, California issued state wide "stay at home" order. NY ordered 100% of workforce to stay at home. Illinois issued a "shelter in place" order starting Saturday. New Jersey also issued a shutdown of all non-essential businesses. A lockdown now affects approximately one third of all Americans. China announced for the first time since December no new domestically transmitted cases.

Central bank measures    
The European Central Bank (ECB) announced a €750Bn Pandemic Emergency Purchase Program (PEPP) targeting the private and public sector until end of 2020. This will take planned purchases for 2020 to over €1Tr. Eligible assets are Greek debt and commercial paper not included in previous programs. The 33% country issuer limit could be lifted if necessary. The Fed launched a program to support money market funds called the Money Market Mutual Fund Liquidity. It will assist money market funds in meeting demands for redemptions. The Fed also announced new swap lines with more central banks to provide USD liquidity. The Bank of England cut rates from 0.25% to 0.1% and increased its bond purchases by GBP200Bn. In Canada, the Central bank cut rates by full percentage point and loosened capital requirements to boost lending.

Government measures    
U.S.: advised people not to congregate in groups of more than 10 and suggests states close schools; on Sunday, the $1.3Tr fiscal package (6.3% of GDP) negotiated by Treasury Secretary Mnuchin and spearheaded by Senator Mitch McConnell (Senate majority leader) was rejected after a 47-47 vote, versus the 60 votes needed to advance the motion.
GERMANY: most public and private venues closed; non-essential services shut; supermarkets open; all people with unexplained respiratory symptoms to be tested; EUR 550Bn available in lending for businesses from German state bank KfW.
ITALY: shut down non-essential industrial lines; non-essential services, schools closed; unnecessary movement banned in a lockdown; testing and tracking only for patients showing symptoms; EUR 25Bn package, including loan guarantees, takeover of Alitalia and funds for businesses and individuals; bans short-selling for 90 days.
SPAIN: national emergency declared; unnecessary movement barred; schools, non-essential services closed; land borders closed, and flights to and from Italy suspended; emergency helpline for people with symptoms; testing for people with serious symptoms; package of EUR200Bn euros to provide loan guarantees to companies, especially smaller businesses, plus a moratorium on tax obligations; delayed mortgage payments for families; EUR 400Bn aid package for tourism industry.
SWITZERLAND: restrictions on travel from high-risk countries; schools, restaurants, bars, entertainment and leisure venues closed; grocery stores, pharmacies and banks open; all public and private events banned; conducting about 2,000 tests a day; pledged CHF 32Bn ($31.4 billion) in support, including funds to prevent layoffs, and emergency loan assistance especially for small- and medium-sized firms.
U.K.: public advised to avoid all non-essential travel overseas, as well as use of public transport, gatherings with friends and family; limiting interaction with others by people over 70; testing to be increased and those with symptoms asked to self-isolate at home for seven days; a pledge of GBP 330Bn ($398Bn) worth of government-backed loans was made for struggling companies; help was announced with home loan costs, airlines and the hospitality industry.

Economic data    
China reported y-o-y drops of -20.5% in retail sales, -13.5% in industrial production and -24.5% in fixed-asset investments in January-February. In the US, initial jobless claims raised 70k to 281k in the week ended 13 March, while there was a big plunge in the Philadelphia Fed’s manufacturing index.

Highlights

Market volatility    
Last week markets saw unprecedented levels of volatility, in absolute terms and also in terms of intraweek moves with swings as wide as +/- 10% over several trading sessions. This exacerbated volatility has been triggered initially by systematic strategies reducing equity risk and amplified by investors in need of liquidity. Global equities have seen $20.68Bn in outflows. More significant have seen the outflows in Global Bonds. Last year, between $400 and $500Bn went into bond funds; last week, the outflows amounted to more than $100Bn. Credit which includes investment grade, high yield and emerging markets, registered the largest outflows on record. Investors also sold an estimated $1.70Bn. On the contrary, Money Markets saw $95.70Bn inflows, second largest weekly inflow on record.

What to watch

Monday: Chicago Fed Activity (Feb.); Eurozone Consumer Confidence (Feb.)

Tuesday: Japan BoJ PMI (Mar.); Markit US PMI (Mar); Markit EU PMIs (Mar.)

Wednesday: Germany IFO (Mar.); UK RPI (Feb.); US Durable Goods Orders (Feb.)

Thursday: France Confidence (Mar.); UK Retail Sales (Feb.); US Wholesale Invent (Feb.)

Friday: Tokyo CPI (Mar.); Italy Consumer Confidence (Mar.); US Personal Income & Spending (Feb.)


Investment team ― Pictet North America Advisors