Fed Goes Corporate! (read time 1.5 min) Key levels included

We admit that the last few trading days have been a bit challenging! It started with Chairman Powell’s speech on the 10th of June. The key take away for the market was that many Americans would not be getting their jobs back and that he was not enthusiastic that we would see a quick, strong V shaped recovery.  The immediate reaction was risk off and a reasonable correction to an overbought equity market. The negative sentiment carried through the trading session and when news that the Coronavirus was increasing in terms of cases in states that opened up early, the market continued to trade lower. (China also is seeing an uptick) We saw a 9% drop from the level before the Fed announcement.

Yesterday, perhaps Chairman Powell felt bad about being such a downer, and he and his team announced they would start to buy individual corporate bonds, this is in addition to all of the previously announced measures. The market took this as a positive sign that the Fed is definitely willing to do whatever it takes to support the U.S. economy. The combination of an oversold status in the short term, with the news, drove the S&P 500 up 6% from the low point early in the trading session to test 3,125.

Wondering if it is such a good idea to buy corporate bonds with taxpayer money when you see the number of defaults in the graph below!

Source Saxo and Bloomberg

Today we get Chairman Powell and Vice Chairman Clarida speaking. Powell will testify to the Senate today and the House tomorrow.  There are bound to be questions about if he thinks the Fed has done enough and has enough firepower to support the economy. He will most likely say the ball is in their hands and that fiscal stimulus needs to do more of the heavy lifting! Negative rates might come up for discussion!

Market action in S&P 500 since Wednesday:

Key levels:

Gold: We are positive, yesterdays test of the $1,700 and rejection was a good sign

Support $1,720, $1,705, $1,680/90 Key support level

Resistance:  $1,735, $1,745/50 double top, $1,760


Dow Jones Index:  We are neutral

Support:  25,900, 25,500, 25,250

Resistance:  26,500, 26,920, 27,600


Brent Crude: positive above 39.50

Support:  39.65, 39.20, 38.75

Resistance:  41.00, 41.95, 43.25


S&P 500: Neutral

Support:  3,088, 3,030, 2,940

Resistance:  3,125, 3,180, 3,225

We have been chopped around the last few days in NOKSEK FX cross and in gold. We are watching developments and expect the tug of war between the Central banks and the developing pandemic, mixed in with news on China and North Korea, to keep volatility in the 30 to 45 range as measured by VIX.

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