AMELIA BOURDEAU: Preparing for stock market déjà vu

Amelia Bourdeau

Paul Krake

Q1 was certainly an eventful time in the markets. Macro trading reasserted itself. Hopefully, the volatility worked to your advantage. It is possible, however, that there were Q1 trading days you would rather forget. Whether or not that is the case, it is important to keep impactful news dates and market reactions close at hand.

Have you ever encountered market conditions that felt like a previous time? You think, “Today’s trading reminds me of that time when X happened – what was that exact date and how did markets react?” I find myself doing this frequently. So, after market-moving events, I make “cheat sheets” for quick reference, which I find come in handy at later dates.

Below are a selection of key Q1 dates, news announcements, and market reactions. This is by no means an exhaustive list. I have chosen to concentrate on trade tariff announcements and tech sector news, which, combined, made for some ugly market reactions. As it is likely that headlines and announcements regarding these two issues are not over yet, the table could be useful ahead.

Table 1: Q1 Key Dates, Announcements, and Market Reactions

After the large downward movements in the US equity markets the week of February 5th, US equity markets fell heavily on March 22nd and April 2nd – both dates provided a toxic mix of trade tariff announcements and negative tech sector happenings. (See Table 1)

Volatility, as measured by the VIX index jumped both of those days as well. However, the VIX has not closed above 25, a resistance level, since February 12th – so that level would be key to watch for ahead. (See chart below)

Chart: S&P 500, DJIA and the VIX Index with key announcement dates noted

During most of the headline risk events and equity market declines, JPY, being a safe haven currency, has strengthened against USD. Unsurprisingly then, JPY has been the G10 currency that has strengthened the most against the USD in Q1, rising 6.4% against the USD through April 2nd. This makes further meaningful JPY strength vs. USD unlikely, given the size of the move all ready and the fact that the BOJ likely does not want to see the Yen stronger. USDJPY had a low close in the NY trading session of 104.74 on March 23rd. This was the day after US announced tariffs on $60bn of China imports and Mark Zuckerberg gave the CNN interview and the day the steel and aluminum tariffs went into effect. That was the lowest level of USDJPY since November 2016. Should USDJPY move quickly lower, there is risk of verbal intervention from Japanese government authorities. On a side note, it has been interesting recently to watch the intraday correlation of USDJPY and the DJIA. (See chart below)

Chart: USDJPY vs DJIA Intraday

The G10 currencies that performed the worst against the USD in Q1 were the higher beta, equity sensitive currencies: AUD, SEK and CAD which fell 1.8%, 2.65%, and 2.85% respectively through April 2nd. NZD, though high-beta, has not been as impacted. (See chart below)

Chart: Q1 G10 FX performance vs. USD

The USD Index, DXY, has had mixed reactions to the various headline surprises and events. Since the US has been the source of both the initial trade tariff announcements and the tech sector news, the USD largely has not benefitted as a safe haven currency in terms of market reaction to those events on those days. The DXY index did rise on Mar-22nd, but was recovering a bit from being down on Mar-21st in reaction to the FOMC statement and forecasts. For the quarter as a whole the USD Index was lower.

Ahead, tariff announcements, potential tariff retaliation measures, and negative tech sector headlines are likely not over. For instance, Facebook CEO Mark Zuckerburg will appear before hearings in the Senate and the House respectively on April 10th and 11th and President Trump said on April 5th that “something on NAFTA” is coming soon. So, the table above may serve as a useful quick reference on the days ahead when the headlines hit.

Amelia Bourdeau is the Founder and CEO of Market Compass LLC. Market Compass helps investors at every level learn about financial markets and trading strategy. Market Compass focuses on: macroeconomics, financial market behavior, and actionable trade opportunities.

Bourdeau has 15 years of market experience. She started her career at the Federal Reserve Board in Washington D.C. She worked at Deutsche Bank in New York as a Foreign Exchange strategist and at two global macro hedge funds. Bourdeau was a senior Foreign Exchange strategist and member of the Commodity Research Board at UBS. She has also held senior Foreign Exchange sales positions at Westpac and UniCredit AG. Bourdeau was a contributor on CNBC with her own show, Money In Motion.

Bourdeau has a M.S. degree in Journalism from Columbia University and an undergraduate degree in Economics and Political Science from Amherst College.


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