Trader Warns “Buying Low May Not Be As Easy As They Say It Is”

Authored by Richard Breslow via Bloomberg,

It’s been an ugly start to the week. Very little talk, so far, about the shape of the eventual recovery, when it will happen or how this is all so similar to the SARS experience. And, banished for the day is any discussion about how these equity markets just refuse to go down. No matter what. Bonds, obviously, are bid and lottery ticket options on euribor calls have been traded in good size. The dollar is up, but less than I would have expected. And it’s tempting to look at gold and wonder what is the price point that starts to bring jewelry out of the drawer to be melted down. As a wild guess, something close to $1,800/oz might start to pique some interest.

What should also be of interest is that, for the most part, equity indexes have yet to make new year-to-date lows. Even Italy’s FTSE MIB Index, down 4.5% on the day as North America starts to arrive at work, hasn’t matched its Jan. 31 nadir. And this despite front-page pictures of a number of highways and towns near Milan on lockdown to prevent the potential further spreading of the disease.

Looking back at the headlines from that last trading day in January, the main thrust of the stories describing why stocks had such a bad day was concerns over global growth and coronavirus. Back then, it was taken as an opportunity to buy the dip. It remains to be seen if that history repeats itself. But, I guarantee that plenty of traders are considering it. And keeping their ears perked up for the go-ahead from their central bankers.

Japan was closed today for a national holiday. That often causes some disjointed trading. Especially when there is as much news as we’ve had. This doesn’t feel like one of those instances. Still, it will be important to see how markets there trade when they reopen. BOJ Governor Haruhiko Kuroda said yesterday that he doesn’t expect a big delay in the economic recovery. He also said that the BOJ is “well-prepared” to act as needed.

The communique from the Group of 20 meeting over the weekend also tried to avoid sounding panicked. Traders will be looking to see how measured they will be in practice. They did make sure we know they are “monitoring” the situation.

I suspect a truer representation of how they feel was in the comments by ECB Governing Council member Ignazio Visco, who said,

“If we don’t see a rapid V-shaped effect there must be some decision to act in a coordinated way.”

The question will be whether these assurances alone are enough to assuage investors. Believing they are willing to act may actually be more powerful than any action on rates. Adequate, let alone coordinated, fiscal policy still sounds like a sound-bite.

Treasury yields at these levels is a worry. But there is too much global interest to buy them for rates to meaningfully back up anytime soon. No matter what economic numbers the U.S. posts. You can’t trade them in isolation and they won’t respond to beats and misses as one would normally expect.

They are now a truly global, not domestic, indicator. And they aren’t saying all is copacetic.