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Daily Archives: 18th February 2020

18th February 2020

🗞️ Corporate earnings cull will mar Q1

MARKET CLOSE:
iTraxx Main

41.8bp, +0.5bp

iTraxx X-Over

214.0bp, +3.2bp

🇩🇪 10 Yr Bund

-0.41%, -2bp

iBoxx Corp IG

B+100.6bp, unchanged

iBoxx Corp HY

B+329bp, unchanged

🇺🇸 10 Yr US T-Bond

1.54%, -5bp

🇬🇧 FTSE 100

6095.41, (+1.33%)
🇩🇪 DAX

12633.71, (+1.32%)
🇺🇸 S&P 500

3185.04, (+1.01%)

Lemmings? Perhaps…

Now we’re talking. It’s time to sit up and take note. Finally, we have a major company, in Apple, warn on Q1 revenues. Of course, they’re suggesting it’s temporary. Let’s see if this hits home.

This warning, though, is the tip of the iceberg, and others will follow quickly. We’re looking at a glut of warnings as companies dependent on the Chinese supply chain and consumption report revenue and profit culls for Q1.

Markets, however, are managing the crisis quite well. That’s because every time there is a blip, looming event risk or potential for a crisis, a central bank turns on the liquidity taps. It does the trick. There’s little point in trading against the rising markets.

Of course, this week the markets have risen on hopes of some sort of stimulus (rate cut?) from the Chinese as they try to keep valuations propped up amid the ravaging of its economy by the coronavirus.

There’s a race to the bottom in terms of stimulus efforts, and we can go on for a while yet given that there is room in US and China policies for it. The ECB will follow in due course as the Eurozone’s finest corporates struggle from weakness in Asian markets (demand and supply line disruptions), but it’s more than questionable as to what any further easing here might have on the real economy.

Anyway, it’s good for investors – invariably long risk assets and content in clipping their returns while the liquidity-enhanced asset bubble continues to inflate. And with it, the art of investing has been lost.

We’re not calling the endpoint, far from it – that’s a mug’s game. The cabinet still has effective medicines in it to keep it all underpinned, and for a good while yet.

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