Thursday, May 14, 2020

Capital Markets: "Risk Appetites Wane" (plus a quick look at Germany's DAX)

Before we visit Mr. Chandler a quick note on German equities, which ended up being a little hedge for us and may prove to do so again.
Back on February 25 we posted "Is This The End For German Stocks?", republished after the jump.
See if you can spot what intrigues us about the charts a couple months later.

From Marc to Market:
Overview: Risk appetites have been gradually waning this week. US equity losses mounted yesterday after Tuesday's late sell-off. Asia Pacific equities were off, with many seeing at least 1.5% drops. Europe's Dow Jones Stoxx 600 is off a little more to double this week's decline and leaves it in a position to be the biggest drop since panicked days in mid-March. US shares are narrowly mixed, but coming into today, the S&P 500 is off 3.7% for the week, which, if sustained, would also be the largest decline in nearly two months. Bond markets are better bid, and the US 10-year benchmark is off four basis points to 61 bp, the lowest in three and half weeks, despite the deluge of supply. European yields are off 1-3 bp. The dollar is firm against nearly all the world's currencies. The yen, among the majors, and the Turkish lira and Russian rouble in the emerging market space, are the notable exceptions. Oil and gold are near five-day highs (~$1720 and $27 basis July WTI)

Asia Pacific
Australia reported a massive 594k job loss in April.
While it was slightly more than most economists expected, given the magnitude, the median forecast of the Bloomberg survey for a loss of 575k proved fairly accurate. About 220k were full-time positions. The unemployment rate rose from 5.2% to 6.2%. Economists had projected a jump to 8.2%. Australia's 10-year yield is dipping below 90 bp for the first time this week. Wednesday saw record demand at the 10-year sale while the central bank has stepped back from its purchase program.

The Bank of Japan has also reduced its buying of equity ETFs and REITs. Its JGB buying had been tapered under its yield curve control initiative. Back in the particularly dark days in March, the BOJ bought a little more than JPY200 bln of the ETFs on four different occasions. In the first five sessions of May, it purchased a total of JPY126.5 bln. Separately, a BOJ lending initiative in April that pays banks 10 bp on reserves associated with lending under the program is off to a successful start, and BOJ Kuroda hinted at an emergency meeting before the next formal meeting (June 16) to unveil a new facility to lend to small businesses.

Following the Reserve Bank of New Zealand's move to put negative rates on the table, the government approved an NZD$50 bln (~$30 bln) stimulus package.
It projects that the country's debt will rise over 53% of GDP from less than 20% last year. The 10-year benchmark bond rose six basis points today from the record low hit yesterday below 60 bp. Year-to-date, the Kiwi is the second worse performing major currency, off a little more than 11% (behind the Norwegian krone that has depreciated by nearly 13.7%)....

And from Feb. 25 (TL;dr the rebound from the lows halted at the huge gap-down from early March):

Is This The End For German Stocks?
Here's the chart for the futures on the Deutsche Boerse AG German Stock Index (DAX):

Declines have stopped just below the 13,000 level a half-dozen times but contra the appearance of support, old-timey chartmeisters believe each revisit of a level actually weakens said support by absorbing any willing buying so that on one of the "tests" the buyers have spent all their money and the line on the chart drops vertically until the ancient tribe of volk known as the "knife-catchers" step up to purchase.

Here's a longer-term view of the DAX with an example of the 13,000 level not really being support:

If I were a betting man I would bet support doesn't support.
Futures 12,992 down 41.00. 

Currently 10357.5 down 182.50 (1.73%)