Trading with point and figure

Dentalfloss · May 6, 2020

Unwound our overbought

Dentalfloss · May 6, 2020

Dentalfloss · May 6, 2020

In a pivot area

Dentalfloss · May 6, 2020

Dentalfloss · May 6, 2020

Dentalfloss · May 6, 2020

Dentalfloss · May 6, 2020

Dentalfloss · May 6, 2020

twaz in rez..as we said

Dentalfloss · May 6, 2020

dax followed

Dentalfloss · May 6, 2020

Good Morning: The Long & the Short of it and The Bigger Picture - 6 May 2020 - ADM ISI

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Ostwald, Marc

08:40 (17 minutes ago)

to Marc

- Services PMIs, UK Construction PMI and German Factory Orders to 'warm the
plate' for US ADP Employment; smattering of Fed & ECB speak and Treasury
quarterly refunding details, bond auctions in UK, Germany & Canada;
further deluge of corporate earnings

- Services PMIs: India collapse sets tone for dire readings from Eurozone
as lockdown measures reduce activity to near zero

- German court ruling not fatal for ECB QE programmes, but sharply restrain
future room for manoeuvre; adds even more pressure for deep seated EU
reforms

- US quarterly refunding: new 20 year and clear signal that markets will
have to do much more heavy lifting in May-July quarter than April

- US ADP Employment: historic collapse expected, read across to payrolls
perhaps even more unreliable than usual

- US Treasury Cash Balance at Fed; US Treasury draining liquidity;
Major central bank balance sheets as % of GDP; S&P500 intangible assets
as of book value

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** EVENTS PREVIEW **
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Services PMIs from Asia, Europe and LatAm, the UK Construction PMI along with overnight Australian Retail Sales (panic buying driven surge) and German Factory Orders (worse than expected at -15.6% m/m, paced by Capital Goods Orders sliding 22.6% m/m) accompany the likely highlight of the day, namely US ADP Private Employment on what will be a busier day for statistics, and another busy day for corporate earnings. A quieter day for central bank speakers has ECB's Makhlouf and Atlanta Fed's Bostic, but with the Fed already winding back its May Treasury securities purchase programme to 'just' $200 Bln as against its $993 Bln in April (more than the sum total of QE2, 3 & 4), it is the detailed Treasury quarterly refunding announcement which may garner most attention.

The US Treasury will reintroduce monthly sales of 20-yr T-Bonds (last issued in 1986), and is expected to issue a total net (new cash) of $373 Bln in May, i.e. it is looking for an additional $173 Bln of non-Fed cash in May alone. As a comparison point in January through April 2020 the Treasury sold $1.85 Trln of Treasury debt and the Fed bought $1.623 Trln, leaving markets to 'mop up' a net total of $227 Bln in that four month period; May and indeed June and July will therefore require a lot more market cash. Now consider a point that we have made before about the Fed and Treasury needing to better co-ordinate cash flows (previously made with reference to the Fed's QT programme while the Treasury was rebuilding its Fed cash balance). Take a look at the attached showing a near vertical rise in the Treasury's cash balance at the Fed to $1.1 Trln (in no small part due to disbursement delays to some of the Treasury's emergency programmes), and recall that Treasury cash at the Fed is a drain of liquidity from the US banking and financial system.

Per se markets 'dining out' on central bank liquidity pumping are in for a wake-up call. Similar less market friendly news has been evident elsewhere, be that the UK Chancellor Sunak underlining that the UK govt underwriting 80% of furloughed workers' pay was not sustainable, and more costly than the NHS, and yesterday's German constitutional court ruling on the ECB's PSPP (QE) programme. The latter is far from fatal for the ECB's QE programme, but a) was a very stern rebuke for the ECJ's ruling on the ECB programme, by saying it had acted 'ultra vires' (beyond its powers) in backing it, b) requires the ECB to adopt “a new decision that demonstrates in a comprehensible and substantiated manner” the PSPP's 'proportionality' relative to its economic and fiscal effects within 90 days. c) It also rejected the argument that meeting 'monetary policy objectives' as being sufficient in that respect, and also throws a lot of cold water on the ECB's most recent assertion on its PEPP & PSPP that 'to the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face. The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.' In broader terms, it once again underlines the acute need for structural reforms to the Eurozone and EU's modus operandi, as the lack of banking union or any form of fiscal transferability / mutuality, let alone greater political union are exposed as ever greater existential threats. To be absolutely crystal clear, none of the above are in any shape or form a 'silver bullet', but sustaining the current modus (non? Ed.) operandi is cultivating an unexploded bomb with a very short fuse.

Overall markets are therefore vulnerable to disappointments on the easing of lockdown measures, rolling back emergency fiscal & monetary measures, and indeed on how economies "rebound" from the devastating effects of lockdown, as well as the hopes for vaccines and treatments, but also to the reality that 'whatever is necessary' (fiscally or in monetary policy terms) does actually have limits, and some of these are now coming into view quite rapidly.

** Europe - April Services PMIs **
- Yesterday's UK (13.4 vs. flash 12.0) and US (26.7 vs. flash 27.0) readings were obviously abject, with the French (10.4) and German (15.9) flash readings seen affirmed today, but sadly expected to be surpassed by Italy and Spain plumbing unprecedented depths at 9.0 and 10.0 respectively, though perhaps not as low as India's Services PMI collapse to 5.4. These are obviously extreme, but unsurprising (given lockdowns) supply side shocks. More importantly, the assumption that service providers will be able to regain lost revenues once lockdown measures are eased is both disingenuous and deluded, particularly as the easing process will of needs be tentative. This is therefore is another reminder that governments and central banks may be able to head off the worst of the 'liquidity' shocks, but will not thereby stop insolvencies, nor indeed restore employment to prior levels, and by extension private consumption. This also does not account for the likely very profound structural shifts that will occur both in businesses and at individual / social levels.

** U.S.A. - April ADP Employment **
- Exploring the linguistic limits of superlatives has been the lingua franca of the narrative on the US labour market since mid-March, though the lived reality of so many US citizens suffering as a consequence is the actual (horror) story. The consensus looks for a drop of 21.0 million, with a range of 9.3 to 25.0 million, whereby the pointers from the actual ADP outcome, quite possibly far from the consensus, to Friday's official Payrolls are probably even more tenuous than ever, given that seasonal adjustment processes are both hokum and totally spurious given the scale of the sudden shock to labour demand. The recovery from that shock will be jagged on all fronts, and remains shrouded in a deep fog; attempting to model it would at best be an heroic act of self-indulgent hubris.