Trading with point and figure

Dentalfloss · May 5, 2020

Dentalfloss · May 5, 2020

in a pivot area

Dentalfloss · May 5, 2020

Dentalfloss · May 5, 2020

Dentalfloss · May 5, 2020

Good Morning: The Long & the Short of it and The Bigger Picture - xx May 2020 - ADM ISI

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Ostwald, Marc

08:38 (21 minutes ago)

to Marc

- Data schedule quite busy but unlikely to have more than passing impact:
Indonesia GDP, Spain Unemployment to digest; UK and US Services PMI/ISMs
ahead; plenty of Fed and ECB speakers; German PSPP ruling; UK, Austria
and German debt auctions

- USA: $3.0 Trillion of Treasury issuance in May-July quarter and no
market reaction... wow!

- Germany PSPP ruling set to be complex, but unlikely to torpedo ECB
programmes

- Charts: Bund/BTP 10-yr spread; USD Credit spreads

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** EVENTS PREVIEW **
********************

The day's data schedule is unlikely to offer much inspiration, with final Services in Australia, UK & US accompanied by the overnight Indonesia Q1 GDP (worse than expected) ahead of UK auto sales (preliminary data suggest worst since WW II) and US & Canadian Trade data and tonight's New Zealand trade data. A busier day for Fed and ECB speaker following the unsurprising RBA (hold) and Malaysia BNM (cut by 50 bps) rate decisions overnight. Govt bond supply takes the form of Austrian 10 & 31-yr, a smattering of German inflation-linked Bunds and another double header in the UK of 5 & 8-yr Gilts. Corporate earnings are again plentiful with Europe looking to Adecco, Beiersdorf, BNP Paribas, Eddie Stobart Logistic, Fiat Chrsyler, Infineon, Intesa San Paolo, Repsol, Total & Vestas Wind Systems, while the US awaits DuPont, Illinois Tool Works, Marathon Petroleum, Newmont, Occidental Petroleum and Walt Disney. USD denominated Corporate bond issuance is as flood like as govt bond issuance, though as the various attached charts for IG, HY, EM and Asia HY highlight, it is having almost zero impact on credit spread indices, underlining the impact of the Fed's numerous programmes, as well as the total lack of any risk premium or more importantly solvency assessment. Given that the US Treasury announced that it will be issuing around $3.0 Trln total in bills and coupons in the May-July quarter, the question is whether the Fed (or indeed other central banks) can wind back their programmes, as and when economies start to recover.

The German Verfassungsgericht's (constitutional court) delayed ruling on the legality of the Bundesbank's participation in the ECB's Public Sector Purchase (PSPP, i.e. QE) programme has already garnered plenty of preview inches, but will more than likely not upset the ECB's QE apple cart, as has been the case with prior rulings. The judges may be deemed to be apolitical, but they are more than well aware of delivering a decision that would plunge the Eurozone and indeed EU into what might well be a politically terminal crisis, above all in the wake of the series additional measures undertaken since, most notably obviously the PEPP (Pandemic Emergency Purchase Programme). The ruling will as ever be full of complex legal nuances. One might of course think that this might offer some further reactive relief for the Bund/BTP spread, but the fact remains that the ECB has been skewing its PSPP (and presumably its PEPP purchases, but details have not been published) towards Italy, well beyond anything that could be deemed to be observance of the ECB's Capital Key. Indeed with no agreement thus far on Eurozone pooled issuance of any description, or the actual implementation of the outlined Covid-19 rescue package, Italy will have to raise its already large volume of issuance sharply in coming months, and per se put further pressure on the spread (see attached chart).

========================== ** THE DAY AHEAD ** ===========================