Market Crash Most Since 1987 But What Next?

Okay, very good morning. It is Tuesday, 17th of March. I think before I really kick things off, just a quick word first and foremost. Obviously what we do at Amplify Trading and what we talk about on our briefings is all market related, but that doesn't take away from the fact that, you know, absolutely First and foremost, this is a humanitarian issue, and we'll try to be as sensitive as we can in regards to talking about this topic. Obviously, it is what is driving markets at the moment, so we wouldn't be doing our job if we didn't talk about it. But obviously, we send our sympathy to any of those affected by this issue, and hopefully all of our followers You all stay well, you, your friends, and your family going forward. But let's just push on and let's talk about what is moving markets this morning. And obviously, as I said, um, it is still this kind of screen that people are monitoring very closely, and particularly that, uh, the numbers that are mounting outside of China, a very similar pattern to what we've seen of late where the other location, i.e., the yellow line, is now sharply above the orange line, that being the flatlining we've seen in mainland China. What has that led to? Well, yesterday, as I'm sure you saw, quite unbelievable really, getting down. I did have one of the new traders yesterday talking to me about what happened in 2008, and he was asking me, have we ever hit level 2 in the price limits? And I was— and actually, I can't remember when we ever did. In terms of level 2, level 2 being 13% when stock markets are actually active on the, on the floor. But yesterday we actually did get down to those, those types of levels. The S&P actually plunged about 12%, the biggest one-day fall. Then it outweighed some of the moves we had last week, biggest one-day fall since Black Monday, of course, in October of 1987. The main thing here is not so much the fact that more confirmed cases and deaths are happening around the world, it's now the economic reality, I guess, of countries tightening restrictions on public movement in order to curb the spreading of the virus, which is causing the most reaction, if you like, in markets. And we certainly saw that yesterday. If we look at the actual— this is a heat map of the S&P 500. And as you can see, it's an absolute sea of red. Some of the biggest tech giants, Microsoft, were down about 15%. Some of the big money center banks in the financial sector down about 15% for JP Morgan, Bank of America, Wells Fargo. However, what was I thought quite interesting, there is actually a couple of spots of green on the otherwise completely red heat map. And I think it's quite telling from a, uh, reaction effect to how sectors have been moving in response to the coronavirus. So the companies that actually moved higher yesterday despite one of the biggest down days in history was the world's biggest gold miner, Newmont Corporation, was J.M. Schmucker Company, which is basically processed and packaged food, and then Clorox, which is the bleach company. So basically cleaning companies gold and packaged processed food companies outperforming, as you would probably imagine in these types of times when there's been lots of global stockpiling by consumers fearful of the worst and complete national shutdowns in that respect. So with this, and what has it led to? Well, there's quite a few people now talking about potential short-selling bans, about even the prospects of just shutting the stock exchange for a couple of weeks. You know, the thing about a virus, of course, is that a virus naturally, once enough people have been infected, the virus has no one else then to infect. And so therefore, naturally, you get this kind of bell shape where then once we go over a critical point cases then start to decrease. Hence the thinking of the UK government before, which was quite brash and obviously had a negative public reaction, was that everyone should go about their business and get infected because the quicker that happens, the quicker we can bounce back. That in theory makes sense, but obviously the practicality of that is that we're talking about human loss of life here. so, and this is why someone like Boris Johnson obviously has changed tact quite severely. Yesterday, the UK Prime Minister said that we should avoid offices, pubs, and traveling, particularly if it's non-critical. This kind of idea of not having any mass gatherings. The Trump administration, what did they say yesterday? Well, that they're not going currently considering a national lockdown like what we've had in Italy or in Spain, for example. They are looking at certain regions in terms of where they suggested is the worst areas of the outbreak that they might take specific measures. Remember, we spoke yesterday about New York and LA, for example, shutting down restaurants only for takeaway business. However, he did say something quite interesting. Trump, in that the outbreak could be over by July, August, perhaps even later. And so this, I think, as well is what's providing this continuous kind of downside weight on markets, is this idea that, you know, this is becoming a much more long-term, protracted issue than perhaps a few people were thinking just a week or two ago. You know, this, this idea, as we've mentioned before, about this V-shaped recovery turning to U-shaped to turning to something more kind of akin to the financial crisis, L-shaped if you like, is kind of— we're going through the alphabet slightly in terms of how quickly people think we can return to some degree of normality. And I think what was very important was yesterday, you remember I showed you that graphic of the almost catastrophic drop-off in Chinese economic data. And this is what Goldman Sachs have said. They've revised, and obviously they've become quite bearish. Remember, they were putting out a call for 2,000 in the S&P as their ultimate kind of low in the most bearish scenario. They've said that they've cut their Q1 GDP estimate for China to a contraction of 9%. That's from a revised call where they'd previously brought that down to a still growth of 2.5%. So that's a, that's a meaningful, uh, and sizable in history would be one of the biggest drops ever that we would have seen. And so, yes, these sorts of things, I get, you know, China being that far ahead of the curve in terms of the impact, and the fact that in mainland Europe and basically everywhere else in the globe, things are set to get much worse, would suggest then that this is, this is the reality. And I think certainly what hit home at the weekend, I had a number of calls off a few of my close friends particularly back from my school days, who perhaps I haven't spoken to in a while, but they're obviously aware of what I do as a job, and they were asking me about the likelihood of them losing their jobs and how bad is the recession going to be, you know, and this is the real reality, the tangible impact that this coronavirus is ultimately going to have, and this is why we're seeing such a grave weight in markets in this continuous kind of large-scale market movement. I mean, just to put it into some perspective, this is the S&P 500 and it's looking at the daily percentage price changes. And the S&P 500 has risen or fallen at least 4% for basically 6 days in a row. And the only time I can really remember in my career is back in the kind of depths of 2008 when the market was kind of moving in such a fashion. To give you some idea though of what's been happening and how people have been trying to counteract this in the marketplace, well, for one, we've had central banks. And yes, the Fed and other central banks have taken, taken kind of coordinated action to lower interest rates back to zero. In the case of the US, of course, they've restarted quantitative easing. The other thing that they've been looking at is this, is the the dollar swap lines. This is another form of the Federal Reserve and teaming up with the other world's largest central banks like the Bank of England, the ECB, or the BOJ, is looking to make sure that we don't get what we had in the financial crisis, which is a complete loss of confidence in the system, which led to an ultimate credit crunch. And that's what was kind of— what is at this point at least slightly different. That was a financial crisis. This is more of an economic crisis at the this point. Uh, but last night you had Japanese banks tap the Fed's beefed-up swap lines for $32 billion. Now that actually, um, is a good thing for a case of liquidity if that was a key systemic risk to the system. The fact that these are— and this is what they're meant for— is to counteract any of those potential, um, kind of freezes on liquidity like what we had back in what, September time of last year when we first started to see those episodes of repo rate spikes. And obviously the Fed have been very active there. Now this is happening, and this is quite crucial. And I actually think that this is perhaps— although I don't think we're over the worst in terms of the equity rout, these are positive signs that have been seen on the ground. And if anything, I think the, the bond market perhaps a little less sensitive to what we've been seeing in the equity market, and perhaps that's a reflection of some of these other tools, if you like, kicking in. The other thing then is banning of short selling, and I've had a few questions on this. Now, banning of short selling did happen in the global financial crisis. I think it was in the autumn of 2008 when it was really all kicking off at the time. That led to temporary short selling ban and restrictions in the likes of the US, the UK, Germany, and others. Generally then, what this has led to is Spain, Italy have followed suit. It's not particularly uncommon for countries like Italy and their Consob to ban short selling, just given the volatility that they've experienced in their local market really ever since not just the financial crisis but this European sovereign crisis as well of kind of the 2010 to 2012 era. But this is another, I guess, countermeasure to stop the persistent breakdown in markets that we have been seeing. I mean, they are temporary in nature, are very unusual that they would be long-lasting, given the kind of, the kind of free market nature of movement that we're most used to seeing as a natural ability for people to be able to short. But obviously this is something that gets adopted in the likes of China for a long time, so it's not massively uncommon. I wouldn't say this is the sole reason of why we've bounced this morning. I mean, if we actually look at the actual charts, looking at the DAX center left, the NASDAQ and the S&P, well, US index futures are actually limit up. That means, remember, outside of cash trading hours, you have a 5% kind of circuit breaker either side in Globex electronic trade, where until markets open in New York then it resets to the 7%, 13%, 20% price limits. So we got there pretty quick overnight, in fact, in the Asia-Pacific session. It's quite a case of the NASDAQ, and we got there pretty quick as well in the same case of the other major US indices. But I'd say this is very common when a market overextends by the tune of 12%, maybe 13% in the case of the Dow. A natural bounce back of multiple percentage points is not uncommon Remember, we did see this on Thursday night going into Friday, only then for the market to, to fall over again. And so definitely I wouldn't read too much into it at this point. I still think that overall this, this period of volatility is here to stay for the time being, and I still think that the way these governments have been acting at the moment, uh, further more onerous kind of quarantined measures are somewhat inevitable, and that is only going to amplify the impact of the economic damage that's going to have to be priced into markets. So I do think there is somewhat worse to come for the, for the equity market. However, as I said, we have bounced a little bit from the overnight session. Australia's stock market was up over 5% after plunging nearly 10% a day earlier. It's the biggest rise, in fact, seen in Australian markets since 1997. Australian regulators have also— yesterday they were telling traders in the country's equity markets that they'd have to trade significantly less in order to stop this kind of excessive volatility. So yeah, at the moment it almost feels like we're in a bit of a holding pattern, perhaps slight pause for breath. But I do think it's literally that, and that when we exhale, to use that analogy, I think we're in for another perhaps quite bumpy day ahead. And I don't think this week is going to be without its multiple percentage point moves again. So with that, I'm going to have a quick review of the calendar, and to stress, not that I think that the calendar is particularly important because any economic data now is nigh on useless in terms of what it means really from an economic and monetary policy reaction. It is so dwarfed by now the period and the challenge that world economies face going ahead that, you know, economic data that inherently majority is backward looking in terms of hard data is really of no consequence. So we're going to get things like the average earnings numbers coming out the UK, the unemployment rate coming out. These are January figures. As I said, I would not anticipate these to move the currency market. German ZEW sentiment, that could be interesting. This is economists and analysts kind of current and 6 months forward-looking expectations of the future, and to just, just to get it and quantify the impact of how bearish have they become in their views. That, that soft data certainly is much more telling in this current point in time. US retail sales in February probably not going to capture this latest kind of escalation that what we've seen particularly for US consumers and also the moves that we've seen from the, from the US administration of late. So again, it's probably something to be aware of, but maybe not the, the definitive factor for the session. Same case really goes for the industrial production, cap utilization later on from the US, and business inventories. All more focused then on just a bigger, broader picture at play. All right, um, Sam, come on, and, uh, he can have a chat as well on a few levels. But if there's any comments, of course, just let me know in the chat room. And I'll be happy to address those as we go throughout the day. Otherwise, I'm going to wish you a great day ahead. Thanks very much.