The crisis as it is: Trump, the Fed and the ECB

13 мар. 2020 г.

What happened yesterday in the financial markets is on the one hand (from the position of normal price dynamics), was extremely atypical, and on the other (for markets during the crisis) it was quite natural.

On such days, traders either become rich (rarely) or lost their deposits (as a rule). It is better for beginners and even experienced traders on such days to stand aside, because there is very little logic in what is happening, but there are a lot of strong movements.

Of course, one can try to discern order in this chaos. But observation from the outside without involvement in trading allows you to maintain a more objective perception of reality.

Actually, everything is developing according to the scenario that we have voiced since the fall of last year. A critical mass of prerequisites for the crisis was on the table, and it was only a question of a trigger. The coronavirus epidemic has become this cause and now we are dealing with the consequences.

Now everything comes down to answering one question, whether it will be possible to localize the epidemic and when (judging by the data from China, the time frame will more or less clear - it will take about 2-3 months to solve the problem, if real efforts will be provided to solve it), and how long the crisis will last (if the epidemic will be localized within a month or two, then the first half of the year will be a failure, but recovery will begin in the second part of the year).

Central banks, meanwhile, are going to habitually fill the markets with money. In particular, the Federal Reserve Bank of New York announced its intention to conduct repo market transactions totaling more than $ 4 trillion. The US stock market reacted to this with fall. This is a very bad signal for those who still buy there. Recall that since the fall of 2019 we have warned that the bubble will burst.

The ECB did not lower the rate yesterday, but approved new incentive measures. We are talking about expanding the quantitative easing program: the volume of additional net asset purchases will increase by 120 billion euros. That is, the fire of the crisis will be flooded by money. It is very symptomatic that even in conditions when other central banks emergency reduce rates, the ECB cannot do this even in the midst of a panic in the markets. That is, the current rate is the limit.

Trump announced yesterday a ban on travel to the United States from 26 European countries for a month.

The oil market was relatively calm yesterday. Relatively in terms of price, not in terms of news. The oil war is in full swing. And the object of attack of Saudi Arabia is becoming more apparent. This is not the United States and its shale. It's Russia. Riyadh is ready not only to dramatically increase the volume of oil supplies to Europe, but also to offer customers a good discount. European oil refineries, including Royal Dutch Shell, BP, Total, OMV, Repsol and Cepsa have already reserved supplies of Saudi oil, the volume of which exceeds the usual by 25-200%.

Considering how chaotic and dynamic everything is now, today we plan to trade exclusively actively, but with mandatory stops. We will give preference to purchases of the dollar and gold. But this does not mean that in moments of strong overbought, we will not sell it. That is, today we monitor the oscillators and trade according to their signals.