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Comments of the Day
03 March 2020
Video commentary for March 2nd 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics covered include: short covering rally underway based on expectations for synchronised global monetary and fiscal stimulus. Wall Street surges, Euro firm, upside key reversal on oil, gold steady, bonds overbought.
Email of the day on COVID-19 from Dr. David Brown
Coronavirus!
It's been a huge advantage for me as an investor in recent weeks that I also understand viruses very well. At one time in my career I led a viral disease research centre with 320 scientists and support staff. That was BSL3 level containment (HIV, HCV, Influenza etc). BSL4 required for coronavirus is a different game altogether. It worries me that the outbreak of COVID-19 started in Wuhan and only 300 yards from the 1st BSL4 lab in China that opened only 2 years ago. What a coincidence!
I am now doing different research (on rare genetic diseases) through my startup company Healx Ltd. Three weeks ago, I gave a presentation to staff about the virus for their own safety and for continued operation of the company if an outbreak occurs here in Cambridge. They may have thought I was exaggerating at the time. Today, things have escalated even more rapidly than I expected back then. However, we have planned for home working, and stocked up on all necessary supplies in the company. We have done the same at home too, though my wife also thought I was going a bit too far! I hope she is right, but it's better to be prepared for the worst while hoping for the best.
Eoin Treacy's view
Thank you for this informative and cautionary email. Also, congratulations on taking your opportunities in the market. The threat from the coronavirus is concentrated among older individuals with the median mortality age in the region of 75. That is cause for anyone within 25 years of that number taking extraordinary measures to avoid infection and everyone else should also take precautions to avoid passing it along to the most at risk individuals. The number of people who have recovered from the virus continues to rise in China but a serious infection would knock someone out for what could potentially be months, assuming they survive.
Central Banks Promise Stability as OECD Sounds Alarm
This article by Simon Kennedy and Lucy Meakin for Bloomberg may be of interest to subscribers. Here is a section:
Already on Friday, Federal Reserve Chairman Jerome Powell opened the door to cutting interest rates to contain what he called the “evolving risks” to economic growth from the virus. The Paris-based OECD now expects the weakest global growth this year since the 2009 recession, and said a “long lasting” epidemic would risk a worldwide recession.
The prospect of central banks’ action temporarily halted the worst rout in stocks since that crisis. But the selloff resumed on Monday, with U.S. futures falling and Treasuries rallying.
Money markets now see the Fed lowering its main rate by 50 basis points this month, and give a 70% chance the European Central Bank will pare its by 10 basis points.
Economists at Goldman Sachs Group Inc. predicted the Fed will ultimately slash by 100 basis points in the first half of the year. The BOE will cut by 50 basis points and the ECB by 10 basis points, it said.
There is even speculation that the Fed will move before its policy makers gather on March 17-18, and some economists see the potential for international policy makers to coordinate cuts for the first time since 2008. Investors increasingly bet the central banks of Australia, Canada and Malaysia will ease at meetings already scheduled for this week.
“Global central bankers are intensely focused on the downside risks,” Goldman Sachs economists led by Jan Hatzius said in a report on Sunday. “We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move.”
Eoin Treacy's view
Government bonds are very overbought in the short-term, with US-10-year Treasuries testing the 1% level. That’s been possible because investors have rapidly priced in four quarter point cuts this year with the potential for the first two to be announced within the next two weeks. The potential for synchronised action from a number of central banks is rising, with the aim of lending assistance but also boosting confidence.
Email of the day - on palladium:
Thank you for Friday’s big picture video, there were a number of very useful things for me as a journalist.
Can you also give your analysis for palladium? You mentioned on a number of occasions that a $200 reaction represents consistency of a trend. It was about $350 on Friday. Also, reaction has unwound much of the last break-up. What are the prospects?
Eoin Treacy's view
Thank you for your kind words and I am happy to extend subscriptions to journalists of reputable publications on the assumption attribution is cited when ideas are quoted. In fact, that has been about the only marketing this service has ever indulged in.