Market News & Analysis


Top Story

Economic Data Will Get Worse. Don’t Wait for it to Get Better.

Markets have recovered slightly off the peak pessimism of this morning, but even the bounce from “sheer, unadulterated panic” levels to mere “violently risk averse” prices may not hold for long in the current environment. Major indices have erased Friday’s rally entirely to hit new multi-year lows, yields on the benchmark 10-year treasury bond have been stuck below 1.00% for the past week, and the safe haven currencies (JPY, CHF, and US dollar) are leading the relative strength charts year-to-date, while growth-sensitive currencies like the Australian and New Zealand dollars have fallen sharply:

Source: Finviz

So why are have markets become so volatile, despite economic data holding up relatively well so far?

Well, at the risk of stating the obvious for some readers, it’s critical to remember that the markets are forward-looking. Traders can’t afford to wait for retail sales to fall, unemployment to rise, and economic growth to grind to a halt to sell risk assets. The market is constantly pricing in its best estimate of the future state of affairs in real time.

What does that mean in practice when it comes to coronavirus?

  • It means that we WILL see infection and the associated death figures rise.
  • It means that we WILL see more extreme efforts to limit the spread of COVID-19.
  • It means that we WILL see some almost unbelievably bad economic figures in the coming weeks (think sub-40 PMIs, 1-2 million in initial unemployment claims, etc).

And that will all be highly unsettling, to put it lightly. It’s worth doing your best to prepare for things to get better before they get worse, on both a societal and economic level.

But the fact that markets are forward-looking also has a silver lining: it means that markets and risk appetite WILL improve before the underlying infection, death, or economic data does. This is the fundamental nature of markets. By aggregating the opinions of millions of smart individuals around the globe and incentivizing them to be as accurate as possible, markets can provide one of the most accurate ways to “predict” the future, even if they are imperfect. That’s the reason that the Chinese stock market is one of the best performing indices across the globe year to date.

If you wait for infection and economic data to improve, you’ll miss the majority (if not all) of the recovery.

As far as actionable information, we’d encourage readers to take their cues from the broader market. Keying in on the major markets, some short-term signs that could signal a shift back toward a more risk-on environment (or at least stabilization) include the following:

  • A recovery to regain 2700 in the S&P 500
  • AUD/JPY, the quintessential risk-on/safe haven pairing, to break back above 69.00
  • A move above 1.00% in the 10-year treasury yield
  • Oil prices (WTI) recovering above 35.00


Source: TradingView, GAIN Capital

Astute observers will note that these levels roughly correspond to the 21-day EMA for each instrument. Obviously, these initial levels will evolve if we see another big leg lower in the coming weeks. If we do fall further, then we’ll check back and update these areas, as well as equivalent levels in other markets.

“If you can keep your head when all about you

    Are losing theirs and blaming it on you…

If you can force your heart and nerve and sinew

    To serve your turn long after they are gone…

Yours is the Earth and everything that’s in it”

- Rudyard Kipling 


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.