05.03.2020 – Daily Report. After the heavy gains on Wall Street, Thursday looks like a day for the DAX bulls. But then the prices crumble. Many brokers are puzzling. Strong demand for New York Fed repo tenders suggests that the American credit market is drying up again – perhaps some major addresses are having liquidity problems after the corona crash and the horrendous volatility.
U-turn in Frankfurt
US futures pulled the DAX down: After a strong start to over 12,200, the leading German index was down 1.3 percent to 11,976 points around noon. The contract on the Dow Jones fell 2 percent, while the futures on the S&P 500 slipped 2.2 percent.
There were no concrete reasons for this in the mainstream media recently – perhaps it was profit-taking. Not surprisingly, German industry warned because of Corona: the danger of a recession had increased considerably. “Economic growth is threatening to almost come to a standstill,” according to the new quarterly report of the Federation of German Industries (BDI). Or the stock market is putting its money in a safe place because California has declared a state of emergency and the infection figures with Covid-19 in South Korea are exploding.
Cash injections against Corona
And the trading day had started so well. The International Monetary Fund (IMF) wants to help poorer countries and emerging markets to cushion the effects of corona. To this end, the IMF wants to make a total of 50 billion US dollars available for emergency loans. In addition, the US House of Representatives has passed a budget of 8.3 billion dollars against Corona – the Senate still has to approve what is considered safe. And Canada lowered the key monetary policy rate by half a point to 1.25 percent.
Profits in Asia
The reaction in Asia: In the People’s Republic of China the CSI-300 rose by 2.2 percent to 4,207 points. In Tokyo, the Nikkei increased by 1.1 percent to 21,329 jobs.
America’s banks pounce on Fed money
But why did US futures reset on Thursday? Perhaps the reason is a new American banking crisis. Because only shortly after the Fed’s interest rate move, the banks rushed into the New York Fed’s overnight repo transactions. Twice in a row, the funds were fully allocated. The blog ZeroHedge reported yesterday: “What is perhaps more notable is that the amount of securities submitted into
today’s repo op was a whopping $111,478 billion, which was not only higher than yesterday’s $108.6 billion, but it was an all time high amount of overnight funding needs expressed by dealers”. The USA had thus recorded an all-time high in the demand for overnight loans. We explain: The banks are not lending to each other and have to run to the Fed. But why all this? Did the rampant volatility on Wall Street cause a malaise among big investors? It looks like it.
Credit Suisse Advises Monster Money Wave
Meanwhile, Credit Suisse repo guru Zoltan Pozsar advised the Federal Reserve to “combine rate cuts with open liquidity lines that include a pledge to use the swap lines, an uncapped repo facility and QE if necessary. In short, the Fed should send a gigantic money tsunami of interest rate cuts plus completely open money taps into the repo market, and a new quantitative easing. If that doesn’t smell like the big crash… Many brokers also expect negative interest rates in the USA within two months. If you trade online stocks or CFDs, you should therefore keep an eye on the prices of the American banks – they are the canaries for a bear market in the US indices.
Profits in New York
All this had left Wall Street cold yesterday. And apparently a short squeeze sent prices up. The Dow Jones Industrial rose by a full 4.5 percent to 27,090 points. This was a nice recovery from the bottom to almost the 200-day line, most recently at 27,248 points. According to the chart analysis, the line is now acting as resistance. The market-wide S&P 500 hissed 4.2 percent up to 3,130 points. And the Nasdaq Composite climbed 3.9 percent to 9,018 points. The Beige Book supported the movement, and the Fed sees the US economy on a growth path despite the corona. For now.
What the day brings
On Thursday there are some very important appointments, you will find the overview as always here: Market Mover
For example, US productivity is reported at 2:30pm.
At the same time, the first US applications for unemployment benefits are received.
And at 4:00pm the industrial order intake for January follows.
In addition, the OPEC meeting in Vienna takes place.
The Bernstein-Bank wishes successful trades!
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