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Rabobank: So Silly It Hertz
Michael Every

“Do we get the emergency Fed meeting today or next week?”

I joke, of course. Yet that is what a host of financial market participants new and old will be thinking or hoping as they wake following a trading session which saw the Dow -6.9%, 10-year Treasury yields down 17bp at one point (now up 3bp to 0.70%), and the USD surge the most in two months against many crosses.

After all, if the Fed has just said no rate hikes for at least two and a half years and USD120bn of asset purchases a month for the next 12 months, and that still isn’t enough to prevent the market tumbling nearly 7%, then surely we need something extra done right now,…..right? Because the Fed can’t just sit there and do nothing,…can they? This kind of frightening volatility and potentially ruinous losses are just not fair! That’s not how this game works!

There is a great deal of nonsense on Twitter, now more than ever, but the odd gem too. One of the latter, I believe, describes at least a part of how the market got to the stage where it could fall so precipitously. A parent was complaining that half of their son’s Fortnite gaming companions were no longer joining his squad because they were all day-trading on a certain online platform associated with merry men instead. The boy in question is 10. Now this is entirely anecdotal – but seasoned professionals and journeymen will admit that the general level of market ridiculousness seen around us certainly fits that anecdote. To use Fortnite terminology for anyone reading (“Hi, day-trading 10-year old!”), what just happened is not a bug in our system: it is a feature.

S&P futures are up moderately again this morning following far smaller declines in Asian stock indices. Perhaps grandmothers in the east are buying the dip that crushed children in the West. Perhaps both will want to snap up the USD1bn in a new bankrupt stock offering from a US car rental company whose name tells you everything about how silly this market is: so silly it hertz.

Of course one of the triggers for this market emergency is the virus backdrop. New cases in the US continue to soar in parts of the economy, like Texas, that have re-opened. One wonders what the situation will look like a few weeks from now elsewhere in the States given the large numbers of protestors not able to engage in much social distancing.

This does not keep with the Panglossian market view that we are about to resume business as normal with the benefit of lower rates to boot. Yes, some places seem to have genuinely beaten this particular ‘bug’, most notably New Zealand, but they are still the exception not the rule. The US may indeed not lock down again regardless of what happens virus-wise, as Treasury Secretary Mnuchin underlined yesterday; yet the government can’t force people to stop undertaking a voluntary lockdown if they see virus case numbers spiking. (Indeed, it can’t seem to do lots of things at the moment.)

The UK, for example, where schools won’t now re-open until September and contact tracing won’t be working until the same date, is now talking about moderating the recently-imposed 14-day quarantine rule for new arrivals (that should have been imposed months ago), and perhaps relaxing the 2-metre rule to allow businesses to re-open. Why not make it 20 centimetres to ‘boost the economy’? The virus does not care what the politicians say – it will just do its own thing: and so will the public if case numbers spike again.

Israel, for another example, is counted among those who have tackled the virus better than most. It is also now seeing a spike in new cases. The population had largely decided it was business as usual: the government is threatening that a lockdown will be reimposed if the virus trend continues over the next few days.

Always trying to accentuate the positive, the deeper the virus-induced downturn, the more likely we are to get further stimulus, says the market. Mnuchin was also talking about another USD1 trillion package at some point – a figure that now gets tossed around in the market in pretty nonchalant terms. Yes, that only replaces lost private-sector spending, but don’t expect markets to pay attention to details like that. Moreover, the longer people are locked down, the more grandmothers and 10-year olds there are stuck at home to day-trade all this stimulus as an alternative from Fortnite. It’s the stuff market dreams are made of. Until it isn’t, and you get Candy Crushed like yesterday. Then thoughts turn to the next central-bank intervention.

Meanwhile, on interventions, Larry The-Man-Who-Would-Be-King Summers, who lobbied to repeal Glass-Steagall, perhaps helped lose the Harvard endowment fund as much as USD1.8bn, and is now apparently advising the Biden campaign, has tweeted: “We should have higher corporate tax rates, full taxation of carried interest and capital gains, close loopholes that allow capital gains to escape taxation, tax penalties on leveraged buybacks and limit corporate interest deductibility.”

Far more to chew on there than we have room for in the Daily - but for many players in current markets such a change looming in November would surely be Game Over.



Michael Every is the Head of Financial Markets Research Asia-Pacific. Based in Hong Kong, he analyses the major developments in the Asia-Pacific region and contributes to the bank’s various economic research publications for internal and external customers and to the media.

Michael has nearly two decades of experience working as an Economist and Strategist. Before Rabobank, he was a Director at Silk Road Associates, a strategy consultancy based in Bangkok. Prior to this, he was Senior Economist and Fixed Income Strategist at the Royal Bank of Canada based in both London and Sydney. Michael was formerly also an Economist for Dun & Bradstreet in London, covering ASEAN. 

Michael holds a Masters degree in Economics (with distinction) from University College London and speaks Thai.


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