UK data, Fed and Saudi Arabia

13 maj 2020

Yesterday turned out to be relatively calm for financial markets. In many respects, the absence of significant macroeconomic data contributed to this.

What can not be said about today for the British pound: GDP for the first quarter, GDP and industrial production for March - this is enough to ensure high volatility in pound pairs. Considering how badly the UK economy is and how much fundamental negative factors have accumulated around the pound (pandemic, forecasts of the Bank of England, problems in the negotiation process with the EU and the ghost of a “hard” Brexit), there are reasons
a) to expect extremely weak data and
b) sell the pound without even waiting for these very weak data.

So sell GBP is the # 1 trading idea for today.

The main news yesterday, which generally explains the runaway growth of the US stock market, was information that the Fed will buy corporate bond exchange funds (ETFs) from Tuesday. What does this decision mean? In principle, this is a revolution in the financial markets. Since now you can safely do what you want - Uncle Sam will insure and if you need to get rid of distressed assets - the Fed will come to the rescue. The Fed also said it would soon begin to buy debts issued directly by companies. That is, if no one gives you a loan, because you are an unreliable borrower - it does not matter - the Fed will take care of you. Of course, we exaggerate the news, but in general, the basic economic linkage “risk-return” is violated. No investors do not have to take into account the risk component in their activities. Not surprisingly, everyone is now buying in the US stock market during deepest crisis in the US economy. After all, the Fed’s next step can be to buy stock market ETFs.

The news from the pandemic fronts is generally rather gloomy. After the outbreak in South Korea, information appeared about a sharp increase in the number of cases in Wuhan. China responded to this with a statement that all (!) 11 million residents will be tested. Sweden, meanwhile, seems to be curtailing its experiment in the natural production of antibodies and is beginning to introduce restrictive measures after a sharp increase in the number of deaths.

And a few words about the oil market in the end. Saudi Arabia has decided to further reduce oil production in the country by another 1 million barrels per day of existing obligations under OPEC + in the amount of 3.8 million b / d. In total, the country will reduce production by 4.8 million b / d, which is more than a serious amount. On the one hand, this suggests that the country has serious problems and the rise in oil prices it needs as an air, and on the other, it is an excellent signal for those who buy oil. One of the largest oil producers, is ready to do anything to raise oil prices.