Quarter-end flows unwind

The only real change in fundamentals Tuesday was the turn of the calendar, but that was sufficient to spark further risk-off trades. The yen was the top performer while the Canadian dollar lagged. Today, gold, silver and GBP are at the lead. US weekly jobless claims numbers are up next.

Talk of month-end rebalancing and quarter-end flows completely captivated markets in the waning days of March and the turn in the calendar was the signal to sell. It was a classic and much more orderly risk-off day as USD/JPY fell to a three-week low, yield fell and stocks declined.

It's a signal we're entering the second-phase of coronavirus. The Fed stopped it from being a financial crisis and that was some reason for temporary cheer but we're now in the heart of the biological crisis with the economic crisis still to come.

Even in Italy where the crisis has clearly hit some kind of plateau, there's no visibility towards a return to 'normal' and reopening of the economy. In China, a region of 600,000 people was locked down on a sign of the virus' return.

Back in the US, the Fed announced it will allow US banks to use more leverage in order to contain the sharp drop in Treasuries liquidity and escalating deposits amid the coronavirus pandemic.

Looking ahead, the market will once again focus on weekly US initial jobless claims. The consensus is 3.5m up from 3.28m last week but estimates are extremely wide from 1.5m to 6.5m. At this point, the survey is probably overrated and won't be a lasting market mover. We would love to know true measures of job losses but this survey is more of a test of the processing ability of US employment claims than a true measure.

For reference, Canada now says it has processed 2.1m jobless claims benefits in the past two weeks. That's a full 10% of the workforce and would correspond to 21 million job losses in the US in the same period. Is that magnitude priced into US assets? It should be but probably isn't. Frequently during this crisis we see markets reluctant to fully accept the dark reality of this crisis until it's delivered by official sources. With non-farm payrolls also surveyed before March 12, we may have to continue to wait.