Equities to shakedown beyond December 2018?


This post is also available in: فارسی (Persian)


By: Stuart Cowell

USA500, Daily

Risk-off positioning has returned to dominance in global markets, which in currency markets has meant Yen and Swiss franc gains juxtaposed to underperformance in the dollar bloc, other commodity currencies and many developing world currencies, with the Dollar in the middle of these groups, losing group to its major peers while gaining versus currencies with higher beta characteristics. The Yen and most other safe haven currencies and assets remained off recent highs, including the US 10-year T-note, which according to some market narratives reflects recent profit taking in safe haven positioning to offset losses elsewhere.

Regarding the Dollar, the CME FedWatch Tool is showing that market positioning is implying a near 90% probability for the Fed to cut by 100 bps at the upcoming March 17th-18th FOMC meeting, which would bring in zero interest rates to the US. It looks just a matter of time before Treasuries join the negative-yielding club. The prevailing wave of risk aversion follows the WHO yesterday labelling the coronavirus outbreak as a pandemic for the first time.


Markets were also underwhelmed by US President Trump’s address yesterday, which has seen S&P 500 futures hit 5% limit-down, which followed the cash version of the index closing on Wall Street yesterday with a hefty 4.9% loss. Trump’s 30-day travel ban between the US and Europe (UK & Ireland excluded) has been a particular concern, along with the still low level of testing for Covid-19 in the US and absence of targeted stimulus measures to offset a likely fall in consumption. More generally, the impact of the increasingly widespread restrictions on daily life, whether forced or voluntary, across the world is clearly disrupting economic activity significantly.

The slump in US equity markets, which has been led by the US500, is likely to continue at the cash open later with Futures currently trading just north of 2,600, some 790 points and 23% below the February high at 3397.

Technically, the USA500 breached the 20 and 50-day moving averages February 24 and paused and found some respite at the 200-day average for six-seven trading days before moving lower again this week.  Today, the 61.8 Fibonacci level (2726) from the December 2018 low (2313) has been breached. Additionally, the move lower this week has also breached the 200-Week moving average at 2640, a close below here tomorrow would bring in the December 2018 low into range once again.

Risk Warning: Trading-Leveraged Products such as Forex and Derivatives may not be suitable for all investors as they carry a high degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investment objectives and level of experience, before trading, and if necessary, seek independent advice.


Please enter your comment!
Please enter your name here