April is the cruelest month, breeding lilacs out of the dead land, mixing memory and desire, stirring dull roots with spring rain. Your arms full, and your hair wet, I could not speak, and my eyes failed, I was neither living nor dead, and I knew nothing, looking into the heart of light, the silence. Doubled the flames of seven branched candelabra in vials of ivory and coloured glass. And drowned the sense in utopia. We just passed 900,000 cases of the virus worldwide. The numbers strictly present the present in the past. So where is the circuit breaker in this insidious coronavirus? We are moving from a world of hyper-connectedness to a world of quarantine. And life, our daily work routines as we had become accustomed to is unlikely ever going to be the same again. A complete quarantine initially laughable now seems to be the only way to vaccine this 21st century world of ours.
US stocks fell as the second quarter starts with more losses. President Trump on Wednesday issued a stark new warning on the spread of the virus putting hot-moneyed investors on edge about the damage the pandemic could inflict on the world’s largest economy. And true to it, the contemporary buzz word on the trading floor was, sell, sell, sell. The Dow Jones Industrial Average dropped 901 points, 4.1 percent in afternoon trading, only a day after the index closed out its worst quarter since 1987. Boeing is down 54 percent year to date while Chevron and Exxon Mobil sank as well after oil suffered its worst quarterly beat down on record. All three companies are listed on the Dow Jones.
The S&P 500 fell 4.3 percent, a reversal from last week when it rallied more than 10 percent in its best week in years. Fears that the pandemic could worsen especially with the US scaling back on a decision to fully reopen the economy in early April, is driving fund managers to hold cash instead of buying stocks. Here at Mansa-X, we are short S&P 500 as we view the markets will likely slump a further 20 percent down by June. As of writing, there are over 200,000 coronavirus cases in the United States. We are peering through the fog and trying to see how bad things are, but essentially, we are flying blind, though strapped on is our parachute.
The US Federal Reserve will allow foreign central banks to use their US government bonds as collateral for short term dollar borrowing, under its new repo facility. This will begin on April 6th and is widely expected to last six months. This is not a bailout, but augments other facilities like the dollar swap lines that the Fed has already expanded with the central banks of Brazil, Australia, Sweden, Mexico, South Korea and Singapore just to name a few. This will ease funding pressures in international dollar markets especially when central banks are still intensely focused on ensuring that markets around the world remain as liquid and stable as possible. The Federal Reserve, for now, is comfortable expanding its role as the global lender of last resort.
Chinese workers returned to factory floors in March, but operations remained slow due to sluggish demand, countries’ lockdowns and curfews, dampening hopes for a speedy recovery as the coronavirus pandemic continues to paralyze the global economy. Copper prices are on track for their worst start to a year in more than three decades dating back to 1989. Dr. Copper as commonly referred to is the bellwether for global growth. Because copper is used heavily in industrial manufacturing, it tends to respond to shifts of global growth, particularly China, which consumes around half of the world’s supply. Copper is down 22 percent year to date. And investors are cramming at the exit door down in Lusaka, Zambia which is Africa’s second biggest copper and cobalt producer. Everyone knows how the story ends when the music stops, it has not yet done so in Zambia, but the tempo is slowing. On the face of contending with divestment, deteriorating terms of trade and a weakening fiscal position, Zambia’s Kwacha is the world’s worst performer after the Brazilian Real. And that is just the visible part of the iceberg!
The South African Rand is above 18.20 at a record low, behaving like it is on a different planet. Further depreciation of the Rand is now predicted, unpredictable especially after being hit by a sovereign credit rating downgrade. We prefer to go short the rand as a proxy to the emerging and frontier markets. Emirates, the world’s largest long-haul airline will receive a state bailout in the form of new equity from its owner the Dubai government. We will be looking to re-enter our short oil positions, targeting a modest price drop to $15 per barrel. Gold is already non-linear and exponential exhibiting signs of turning parabolic, and will soon turn viral to the upside and we are looking at $2,000. On the technical front, gold found support on a rising price average hence showing the buying momentum has not dissipated.
The US economy might not fully reopen in April. But at the same time, just like at least the fifty-nine central banks that cut interest rates in March, they should not let the global economy go into a recession, but rather put it on ice!
I wish you safety, for you, your family and everyone around you.