“We Print It Digitally”: Futures, Gold Soar After Powell Vows “Lot More We Can Do”

"We Print It Digitally": Futures, Gold Soar After Powell Vows "Lot More We Can Do"

“We Print It Digitally”: Futures, Gold Soar After Powell Vows “Lot More We Can Do”

Tyler Durden

Mon, 05/18/2020 – 08:09

It took Jerome Powell just two days to confirm what we said late on Friday, namely that with the Fed expected to boost QE by over $3 trillion (assuming Powell doesn’t cut rates negative), the Fed chair said that “there’s a lot more we can do” and just so everyone, including Ben Bernanke understands what the Fed does, he added “We print [money] digitally… we have the ability to create money digitally and we do that by buying Treasury Bills or bonds or other government guaranteed securities.” Of course, traders ignored the “other” part of Powell’s message, namely that the recovery would take at least until the end of 2021, or the implication that stocks first need to crash before the Fed unleashes more QE, and as a result S&P futures surged more than 2% overnight, rising above 2,920, with the last 30 points in that burst coming after news out of biotech company Moderna which reported it may be getting closer to a coronavirus vaccine.

"We Print It Digitally": Futures, Gold Soar After Powell Vows "Lot More We Can Do"

Positive sentiment was boosted by ongoing reopenings with California’s economy is now three-quarters open after virus restrictions were eased, while Apple said it will open more than 25 U.S. stores this week, adding to almost 100 globally, and helping push Apple stock 1.5% higher.

“With the worst of the pandemic likely behind us, central bank supported equity markets are unlikely to re-test their lows,” said Seema Shah, chief strategist at Principal Global Investors. “Yet, while reopening momentum may well carry risk assets a bit higher over the near term, the tepid economic recovery and deep uncertainty over the virus outlook argue against a pivot to more risk-on positioning.”

The Stoxx Europe 600 Index jumped 2.5% on gains in mining, energy and airline shares. The Stoxx Europe 600 Basic Resources Index rose as much as 4.3% as base metals climb following optimistic housing data from China and gains in risk assets, while iron ore extends its surge on supply concerns. Diversified miners jumped: Rio Tinto +4.5%, BHP +4.2%, Glencore +5.5%, Anglo American +5.1%. Several European countries ended bans on short selling, as they continued to report the lowest number of daily deaths from the virus since March.

Asian stocks also gained, led by energy and materials, after rising in the last session. Most markets in the region were up, with Australia’s S&P/ASX 200 gaining 1% and Thailand’s SET rising 1%, while India’s S&P BSE Sensex Index dropped 2.5%. The Topix gained 0.4%, with Optim and Orchestra HD rising the most. The Shanghai Composite Index rose 0.2%, with Kama and Shanghai Phoenix Enterprise Group posting the biggest advances.

Powell vowing to crank up the printing presses helped not just stocks, but also gold which traded at its highest price in seven years, fast approaching all time highs, and while silver jumped it has a way to go to catch up to gold…

"We Print It Digitally": Futures, Gold Soar After Powell Vows "Lot More We Can Do"

… while West Texas oil rose above $30 a barrel for the first time in two months as producers in the U.S. and elsewhere continued to cut activity.

"We Print It Digitally": Futures, Gold Soar After Powell Vows "Lot More We Can Do"

In rates, Treasuries are little changed except at long end where yields are ~2bp cheap vs Friday’s closing levels, with futures volumes slightly below 20-day average levels. Fed Chair Powell, in televised interview Sunday, said U.S. recovery could “stretch through the end of next year.” Supply is in focus with inaugural 20-year bond sale Wednesday and IG credit issuance expected to total $30b to $35b this week. Treasury 10-year yield higher by 2bps at 0.66%; bunds outperform by 1.5bp, gilts by 2.5bp amid focus on upcoming bond redemption in July.  Gilts climbed as traders bet the Bank of England will take its benchmark interest rate below zero in December.

Powell’s comments and the renewed euphoria sent the dollar sharply lower and commodity currencies higher. Norway’s krone and Australian dollar led gains among G-10 currencies as risk sentiment was boosted by oil prices topping $30 a barrel for the first time in two months, and the reopening of some economies. The pound edged higher, after erasing an earlier slide to an almost two-month low on a BOE official’s comment that the institution was examining unconventional policy measures, including negative interest rates. Money markets currently price in the probability that the BOE will take the Bank Rate under zero in December. The euro gave up some modest gains as London came into the market. Italian bonds advanced, extending their outperformance over euro-area peers as equities rose. The yen edged lower on weaker haven demand; Japan’s economy shrank an annualized 3.4% in the three months through March from the previous quarter

No major economic data or earnings are expected.

Market Snapshot

  • S&P 500 futures up 2.1% to 2,910.00
  • STOXX Europe 600 up 2.1% to 334.98
  • MXAP up 0.2% to 145.08
  • MXAPJ up 0.04% to 466.86
  • Nikkei up 0.5% to 20,133.73
  • Topix up 0.4% to 1,459.29
  • Hang Seng Index up 0.6% to 23,934.77
  • Shanghai Composite up 0.2% to 2,875.42
  • Sensex down 2.6% to 30,276.13
  • Australia S&P/ASX 200 up 1% to 5,460.54
  • Kospi up 0.5% to 1,937.11
  • German 10Y yield fell 1.8 bps to -0.549%
  • Euro down 0.07% to $1.0812
  • Italian 10Y yield rose 4.5 bps to 1.688%
  • Spanish 10Y yield fell 4.2 bps to 0.718%
  • Brent futures up 3.7% to $33.71/bbl
  • Gold spot up 1.1% to $1,762.39
  • U.S. Dollar Index little changed at 100.38

Top Overnight News from Bloomberg

  • Investors are now betting the U.K. will join the negative-rates club by the end of December. Spurred by Bank of England Chief Economist Andy Haldane’s comments that the institution is looking at unconventional policies — including negative rates – – more urgently, overnight interest-rate swaps for December’s meeting dropped below 0% for the first time.
  • China said President Xi Jinping was invited to address the opening ceremony of the World Health Organization’s decision-making meeting, shortly after Peter Navarro suggested Beijing sent airline passengers to spread the coronavirus worldwide
  • German Chancellor Angela Merkel and French President Emmanuel Macron on Monday will discuss a range of topics, including a new recovery fund to help the European Union weather the worst recession in living memory, according to an official familiar with the plan
  • Hedge funds, market-making firms and other traders across Europe can resume short-selling of equities this week after regulators lifted bans instituted when markets plunged during March’s coronavirus outbreak
  • Some 108 million people in China’s northeast region are being plunged back under lockdown conditions as a new and growing cluster of infections causes a backslide in the nation’s return to normal

Asia-Pac bourses began the week with modest gains and US equity futures extended on their rebound as participants digested recent comments from Fed Chair Powell who continued to dismiss the prospect of negative rates but suggested the Fed was not out of ammunition and that further action may be required. ASX 200 (+1.0%) outperformed with the advances led by strength across mining names after gold prices rose above USD 1750/oz and WTI crude futures reclaimed the USD 30/bbl level. Nikkei 225 (+0.5%) was also higher but with gains capped following GDP data which was better than expected but still showed Japan’s economy moved into a recession. Hang Seng (+0.6%) and Shanghai Comp. (+0.2%) were kept afloat after Chinese officials pledged further support including PBoC Governor Yi Gang who reiterated that China will implement more powerful monetary policy and China’s Government Work Report draft also stressed the launching of stronger macro policies. However, the gains were limited by ongoing tensions following the US move to prevent Huawei from acquiring semiconductors and chipsets made using US technology, while India’s NIFTY (2.3%) failed to hold on to opening gains with sentiment pressured after India extended the lockdown again to May 31st and surpassed China in the number of coronavirus cases. Finally, 10yr JGBs were initially flat with price action kept lacklustre amid the gains in stocks, weak GDP data from Japan and with participants awaiting the 5yr JGB auction which resulted in firmer accepted prices and in turn spurred JGBs upon return from the lunch break.

Top Asian News

  • Thailand Forecasts Its Economy Will Contract as Much as 6%
  • Japan’s Economy Sinks Into a Recession Set to Deepen Sharply
  • Huawei Crackdown Sends Shockwaves Through Asia Supply Chain
  • Rare Stumble by Listed Firm in Japan Fuels Record Drop in Shares

European bourses post gains across the board [Euro Stoxx 50 +2.4%] and piggy-back on the positive lead APAC lead following supporting comments from Fed Chair Powell that the Central Bank was not out of ammo and can do more if needed in which he suggested there are no limits to what we can do, meanwhile BoE’s Haldane posited the Bank was looking at options beyond and alongside negative rates. That being said, investors need to juggle COVID-19 and the prospect of escalating protectionism between US and China. Earlier source reports via Nikkei noted TSMC has stopped orders from Huawei, albeit this was downplayed by the chip-company as “market rumours”, adding that it cannot disclose order information. If true, this can mark a major blow to the Chinese telecom and could prompt China’s unveiling of “unreliable entity list”. As a reminder, China’s Global Times’ Chief Editor last week said: “if US further blocks key technology supply to Huawei; will restrict or investigate US companies such as Qualcomm (QCOM), Cisco and Apple (AAPL), and suspend the purchase of Boeing (BA) planes.” Back to Europe, sentiment seems more driven by Central Bank comments thus far and as economies continue to ease lockdown restrictions, with broad-based gains seen across major indices; albeit, Italy’s FTSE MIB (+1.3%) is the laggard after Italy’s regulator lifted the short-selling carpet ban ahead of schedule and in synchrony with France, Spain, Greece, Belgium, and Austria. Sectors are all in positive territory with the energy sector the outperformer whilst cyclicals outperform defensives – reflecting risk appetite. The breakdown also shows gains led by oil and mining-related sectors, while Travel & Leisure also resides towards the top. In terms of individual movers, Deutsche Telekom (+1.4%) rises with the market but underperforms the DAX (+2.9%) amid reports SoftBank Group is said to be in discussions to sell a large chunk of its T-Mobile (TMUS) stake to Deutsche Telekom. If the transaction is completed, it would boost Deutsche Telekom’s share to over 50%. according to WSJ citing sources. Note: T-Mobile’s largest shareholders are Deutsche Telekom (42.1% stake) and SoftBank (23.8% Stake). Meanwhile, Diageo (+2%) is underpinned by reports Co. is said to be mulling options to delist United Spirits, according to CNBC-TV18 citing sources. Ryanair (+7%) was bolstered post-FY earnings in which it expects a smaller Q2 loss vs. Q1, Co. also boosted its liquidity. Finally, AstraZeneca (+1.4%) outpaces the broader Pharma sector amid reports it will produce as many as 30mln COVID-19 vaccines available to the UK by September if trials are successful. However, FT’s Elder, on the Co. being the largest FTSE 100 by market cap, suggested that such rises “most commonly, feel like a sell signal”

Top European News

  • Thyssenkrupp in Fresh Talks to Merge Ailing Steel Division
  • How Germany’s Relentless Contact Tracers Helped Beat Virus
  • U.K. Gets Fresh Warnings of Economic Scars Before Sunak Speaks
  • Billionaire Barclay Brother’s Video Shows ‘Bugging’ at The Ritz

In FX, the non-US Dollars are revelling in a risk on start to the new week, or rather clawing back lost ground amidst high flying precious metals (Gold Usd 1760+ per oz at one stage) and the ongoing revival in crude prices (WTI Usd 31+ and Brent almost Usd 34 per barrel). The Aussie is building a firmer base on the 0.6400 handle and Kiwi is pivoting 0.5950, while the Loonie has rebounded from under 1.4100 even though the DXY remains firm above 100.000 within a 100.470-280 range on the back of gains forged vs ‘safer-havens’ and other G10s with a bigger weighting in the index.

  • JPY/CHF/EUR/GBP – Renewed risk appetite has sapped demand for the Yen relative to the Greenback in the low 107.00 area, but Usd/Jpy looks capped ahead of 107.50 where hefty option expiries reside (2.2 bn), while the Franc remains mixed after comments from SNB’s Maechler noting that the currency would be significantly stronger without increased levels of intervention evident in yet another marked rise in Swiss bank sight deposits. Usd/Chf is currently above 0.9700, but Eur/Chf still eyeing 1.0500 as the Board member also refuted that the round number is a line in the sand akin to the old official 1.2000 floor that was pulled in January 2015. Moreover, the Euro still looks top heavy vs the Buck on ventures through 1.0800 following Fitch cutting France’s AA ratings outlook to negative from stable and also downgrading Austria from positive to stable. Elsewhere, dovish guidance from BoE’s Haldane has added to the Pound’s seasonal weakness, though Cable has rebounded from sub-1.2100 and Eur/Gbp is off 0.8950+ peaks ahead of more from the MPC via Tenreyro with specific focus on any further mention of NIRP.
  • SCANDI/EM – No shock to see the Nok, Rub and Mxn welcoming the latest rally in oil, while the Sek is tagging along on broadly bullish risk sentiment and the Try has extended its already impressive recovery to almost 6.8300 vs the Usd after Clearstream and Euroclear both suspended Lira trade on electronic platforms citing a lack of liquidity due to COVID-19 restrictions. On that note, Chinese President Xi will open the World Health Assembly and the Yuan is on a weaker footing in advance of his address and the NPC. Eur/Nok is hovering near 11.0000, Usd/Rub circa 73.0500, Usd/Mxn under 23.9000, Eur/Sek below 10.6400 and Usd/Cnh just shy of 7.1450..
  • SNB’s Maechler acknowledged the CHF’s appreciation, but stated it would have been much more pronounced if we hadn’t been prepared to intervene more heavily; when asked if 1.05 in EUR/CHF was being an informal upper limit responded ‘no, we look at the entire currency situation’. Additionally, rejected the possibility of a special profit payout from the SNB to the Swiss Gov’t given COVID-19. (Newswires/NZZ)

In commodities, oil futures continue on their upwards trajectories, aided by a rosier demand prospect as economies reopen and with supply contained by producers. Furthermore, reports via Energy Intel noted that OPEC+ could reportedly extend current production cuts to year-end. The production cuts are to be eased from July according to the original pact. Sticking with OPEC, Saudi and Kuwait also agreed to suspend output at the Khafji field in the neutral zone in June, expected cuts to total 80mln BPD. Meanwhile, Friday’s Baker Hughes Rig Count continued to show receding US drilling activity. WTI June and July both trade comfortably above USD 30/bbl, with the front-month holding up heading into tomorrow’s June expiry, thus far suggesting subsiding fears of storage scarcity. Despite a lion’s share of open interest and volume in the July contract, participants will be observing the June contract after WTI May fell deep into negative territory heading into its expiration. Brent July also remains on the front-foot, towards the top if a USD 32.69-34.00/bbl intraday band. WTI June had risen over WTI July in early trade. Spot gold extend its post-Powell gains after the Fed Chair noted that stocks and asset prices could suffer a significant hit and the post coronavirus recovery could last through 2021, while he added the Fed is not out of ammunition and can do more if needed in which he suggested there are no limits to what we can do. The yellow metal sits at an over-seven-year high at USD ~1760/oz (vs. range USD 1743.33-1764.46/oz). Copper prices are supported by the overall risk appetite, but the red metal trades within recent ranges. Meanwhile Dalian Iron ore rose over 6% at one point amid higher demand prospects with economies and factories reopening.

US Event Calendar

  • 10am: NAHB Housing Market Index, est. 34, prior 30
  • 2pm: Fed’s Bostic Holds Virtual Discussion About Economy

DB’s Jim Reid concludes the overnight wrap

The weekend wasn’t bursting with new information. It does feel like we’re in the middle of a phoney war at the moment with all of us waiting to see how efficiently the various economies are able to re-open given all the social distancing that will be required. As you’ll see below last week was the worst for most equity markets since the lows in March but there were still a lot of dip buyers about.

Fed Chair Powell’s recorded appearance on CBS’s “Face the Nation” last night was probably one of the highlights over the weekend. Having said that he didn’t really say too much new but continued a recent pattern of being relatively cautious on the timing and strength of the recovery even if he said people should never bet against the American economy. On negative rates, he said “I continue to think, and my colleagues on the Federal Open Market Committee continue to think, that negative interest rates is probably not an appropriate or useful policy for us here in the United States.” He also reiterated that the Fed hadn’t exhausted its options for aiding the economy and noted that the Fed can increase its emergency lending programs and make monetary policy more supportive through forward guidance and by adjusting the Fed’s asset-purchase strategy. Mr Powell will be speaking again before the Senate Banking Committee tomorrow, and then making some opening remarks at a Fed Listens event on Thursday. So plenty of opportunity for him to continue to get this message across this week.

In other news, after markets closed on Friday, the Trump administration said that it is barring any chipmaker using American equipment from supplying China’s Huawei without US government approval. Commerce Secretary Wilbur Ross said in a tweet that “We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.” That’s weighed on Huawei’s Asian suppliers like TSMC (-2.18%), AAC Technologies Holdings Inc (-5.63%), Optical Technology Group Co (-10.45%) and Win Semiconductors (-6.52%) this morning. China’s Ministry of Commerce has said that it opposes the new U.S. rules and will take all necessary measures to defend the rights and interests of Chinese companies and urged Washington to help create conditions for normal trade and cooperation between enterprises.

Despite the weakness in those tech names, most Asian bourses have started the week on the front foot with the Nikkei (+0.68%), Hang Seng (+0.40%), Shanghai Comp (+0.61%) and Kospi (+0.74%) all up. Futures on the S&P 500 are also up +1.15% as we type while WTI crude oil prices are up +3.74% to $30.48. Spot gold prices are trading up +0.95% this morning to $1,760/oz. Meanwhile, Sterling has pared earlier losses after BoE Chief Economist Andrew Haldane hinted over the weekend that the BoE is examining possible unconventional monetary policy measures.

The main data release this week will be the flash PMIs for May from around the world on Thursday and Friday. The consensus is expecting services in Europe to bounce from low teens to the mid-twenties area and manufacturing to go up a few points in the thirties. The PMIs are diffusion indices, with respondents simply saying whether things are better or worse than the previous month so they are a little difficult to calibrate to growth at such extreme levels of activity but they will be a big curiosity nonetheless. For the rest of the week’s data see the day by day week ahead guide at the end.

There’s a raft of central bank events this week, including a number from the Fed. The highlights are likely to be the two sets of remarks from Fed Chair Powell that we mentioned above. Aside from that, there’ll also be remarks to digest from Vice Chair Clarida and New York Fed President Williams on Thursday, as well as other regional Fed Presidents throughout the week. Finally on the Fed, it’ll be worth keeping an eye out for the release of the minutes from April’s meeting on Wednesday. On Friday, the ECB will also be publishing their account of the most recent monetary policy meeting.

Earnings season continues to wind down over the week ahead, with over 90% of the S&P 500 companies having now reported. This week will only see a further 22 companies from the S&P 500 and 30 from the STOXX 600 announce earnings. In terms of the highlights, today we’ll hear from Ryanair, Lufthansa and Panasonic. Then tomorrow we have Walmart and Home Depot, before Wednesday sees Lowe’s, Target and Experian report. On Thursday, there’s Nvidia, Medtronic, Intuit, TJX and Hewlett Packard Enterprise, and finally on Friday there’s Deere & Company and Alibaba.

Finally on Friday, the National People’s Congress will open in China. Our economists expect that the central government will unveil more fiscal measures, aimed at supporting households and encouraging consumption. Another thing that will be interesting to see is whether a numerical GDP target for this year is made, since Bloomberg reported previously that one option that could be done instead is to have a description of the GDP goal.

Recapping last week now and there was a decidedly risk off tone. The S&P 500 fell -2.26% last week (+0.39% Friday), which was the worst weekly loss for the index since the March lows. Technology and Healthcare stocks outperformed slightly, but the NASDAQ still fell -1.17% on the week (+0.79% Friday), the worst weekly loss since the first week in April. The heavily Technology weighted index is still up an impressive +0.47% YTD.

European equities also declined on the week. The Stoxx 600 was down -3.76% (+0.47% Friday) over the five days. The DAX declined -4.03% (+1.24% Friday), while the Italian FTSE MIB fell -3.37% (-0.09% Friday), and the CAC slid -5.98% (+0.11% Friday). Asian indices were down less than their European and American counterparts. The Nikkei fell just -0.70% over the week (+0.62 Friday) and the CSI 300 lost -1.28% (-0.32% Friday), while the Kospi fell -0.95% (+0.12% Friday). One risk asset that did rise on the week was oil. The commodity continued to rally for a third week in a row after WTI futures went negative back on 20 April. Last week WTI futures rose +18.96% (+6.79% Friday) to $29.43/barrel and Brent crude rose +4.94% on the week (+4.40% Friday). Oil pricing continues to recover as suppliers cut production and demand prospects improve.

The VIX rose +3.91 pts to 31.89 last week (-0.72pts Friday). That was the largest weekly increase since 20 March, when the S&P 500 was at its recent lows. Despite oil prices continuing to rise, the pullback in equities and the subsequent rise in volatility saw HY credit spreads mostly wider on the week. US HY cash spreads were +26bps wider (+1bp Friday), while IG was actually -2bps tighter on the week (-1bp Friday). In Europe, HY cash spreads were +22bps wider (+1bp Friday), while IG widened +7bps (flat Friday).

Even with equities falling, sovereign bonds yields were either flat or just slightly down. US 10yr Treasury yields were down -4.0bps (+2.1bps Friday) to finish at 0.643%, 10bps from the March lows. Meanwhile, 10yr Bund yields rose +0.6bps over the course of the week (+1.2bps Friday) to -0.53%. 10yr Gilts were similarly little changed on the week, down -0.4bps (+2.7bps Friday). Peripheral debt went in different directions. Spanish 10yr yields tightened -4.2 bps to Bunds over the 5 days, while Italian BTPs widened +1.1bps. In other havens, gold rose to its highest level since November 2012, rallying +2.41% (+0.77% Friday) to $1743.67/oz.

Economic data last Friday continued to show the fallout of the coronavirus. US industrial production fell by -11.2% in April (slightly above the -12.0% expected), following a -4.5% decline in March. This is the largest monthly decline in the 101 years that the index has run for. Retail sales in the US fell by -16.4% in April (far more than the 12.0% expected), following an -8.3% decline in March. There was a -60.6% fall for electronics and appliance stores, while clothing and clothing accessories stores fell by -78.8%. The preliminary U. Michigan Sentiment Survey for April offered some good news, coming in at 73.1 (vs. 68.0 expected). In Europe, Euro Area employment in the first quarter fell by 0.2%, the first decline since Q2 2013. German GDP contracted by -2.2 % in the first quarter, the largest quarterly contraction since Q1 2009.


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