I had the privilege to join Ben Lichtenstein at TD Ameritrade (from a remote location) this morning to talk about the global markets.
I make four points. First, the reversal of the S&P 500 yesterday set the tone for Asia and Europe. Volatility throughout the capital markets remains elevated, even if off the peaks.
Second, investors are well aware that countries are taking on more debt and that the rating agencies do not typically like that. S&P’s shift to a negative outlook for Australia’s AAA rating, like the recent downgrade of the UK and some emerging markets, like South Africa, have been mostly shrugged off by investors. The Australian government and the RBA have reacted aggressively. The RBA slashed rates to the zero-bound, introduced an aggressive bond-buying program, and is trying yield-curve control by targeting the three-year yield at 25 bp.
Third, I put the ECB’s emergency bond-buying program in the context of the Fed is doing. I briefly discuss the broadening of the collateral rule announced yesterday. While European governments are taking action, officials are still struggling for a collective response.
Fourth, we talk about oil prices ahead of the OPEC+ meeting and the G20 meeting. The initial demand shock has spurred a supply shock. The increase in US production capacity is a major disruptive force for the traditional producers. The drop in prices and rising inventory costs is reducing US output, and EIA cut its forecast for this year’s production by 10%.