Market Gradients - Last Week of May 2020
Well, for this year, May turned out to be a not so "Sell in May and Go Away". The liquidity driven bids (bulls) seem strong and are holding their ground against a lot of bad data from an economic and corporate earnings perspective.
Here are the three charts and data points that stood out for me this week:
- The messaging power of the Almighty Fed
Eleven emergency facilities that promised more than $2.6tn were announced in March and April. Of these only five are fully or partially operational. Pay Check Protection Program and Money Market Mutual Fund Liquidity programs saw the most draw downs. Usage stands at $95bn which is less than 4% of the minimum funds available.
The massive promises of the Fed has helped fuel a tsunami of issuance is the US Corporate Bonds space. Till date, US firms have issued a record $1.22tn of investment grade and high yield securities.
2. European Union's march towards unity
Some cheer in the European Bond market as investors were optimistic about the European Union's centrally backed bond issue for the first time in the Union's history. The 750 billion Euro plan will consist of grants and loans to the nations that need the maximum support to come out of the current crises. Italian yields dropped to 1.49% levels, lowest since the beginning of April. Spanish and Greek yields also dropped to their lowest since march.
3. The Kink on VIX
The VIX (so called Fear Index) has fallen of from the 30+ levels to 29 but is interesting to note that the futures curve remains elevated with a kink around the US Elections.
Equities have been pushing higher driven by liquidity but the market is not completely writing off volatility, possibly arising out of the risk from reopening, US- China tension and of course the drama around US Elections.
Current Curve - Orange Line ; Curve 1M Ago - Blue Line
Disclaimer: The views and opinions expressed, if any, are of my own and do not necessarily reflect the official policy or position of the organization I work for.