Witching day, Bank of England and jobless claims

19 Jun 2020

The main event of yesterday was the announcement of the Bank of England decision on monetary policy parameters. Rates as expected remain unchanged - the Central Bank is not ready yet for negative rates. No less than expected, Bank of England expanded the quantitative easing program, increasing it by 100 billion pounds to 745 billion.

These moves were expected by the markets, and the pound decided to work out the negative that has accumulated recently and has been actively declining. Accordingly, we see no reason to revise our “sell” recommendation for the pound.

What else is worth selling, in our opinion, is the Australian dollar. Yesterday's data on the Australian labor market did not come out very well. Unemployment is at its highest level in almost two decades, and the reduction in employment turned out to be greater than experts expected.

Today is interesting day first because it is one of the four so-called witching days of the year. The third Friday of the third month is the expiration of all major derivatives in the US market. This day is called "witching day".

This event is fraught with illogical and sharp movements in the US stock market, as players randomly close their positions, as a result trading volumes and volatility can increase significantly.

According to BMO Capital, since 1990 in such weeks the S&P 500 has lost an average of 3.1%.

So, the day is ideally suited for the start of sales on the US stock market that we have been expecting for quite some time.
Moreover, the reasons for this have long accumulated a critical mass: starting from an unprecedented economic crisis in the country, which resulted in a wave of bankruptcies of large companies, ending with a pandemic and mass protests in the United States.

Yesterday's data on jobless claims is a confirmation of this: an increase of 1.5 million new applications, which is higher than forecasts, and the number of actually receiving unemployment benefits remains above 20 million.