Markets might be bouncing on stricter US containment measures, central bank policy deluge and the possibility of more fiscal to come, but investors remain in peril’s path.
The lack of early testing for the coronavirus in the US was initially contributing to more deep-seated fears earlier today. But increasingly as local US governments and educational institution bodies curtail activities under their purview, the market has seemed to stabilize due to a more positive response from the US policymakers. Now the markets are awaiting the healthcare/fiscal package that House Speaker Nancy Pelosi and Treasury Secretary Mnuchin are working together on. A vote is likely on Friday and measures could include unemployment benefits, free virus testing and, possibly, more fiscal action.
But with central banks showering the market with liquidity again today, the thought here is that, at some point, the aggressive policy measure to counteract this expected economic downturn will eventually cause the market to rally. When people around the world spring out of their Covid-19 cocoons, they’ll be looking to make up for lost earning and spending with a good head start with all sorts of goodies from their country's version of Uncle Sam.
With investors and funds well under-positioned, or even short SPX500, they’re left playing catch up with the algorithmic machines. Still, investors remain in peril’s path ahead of the US healthcare/fiscal package announcement later today.
As for rolling out more travel ban policies, Singapore says it will cease port calls for all cruise ships due to the coronavirus and bar visitors who have recently traveled to Germany, Italy, Spain and France which, to me, suggests the worst-case economic scenarios continue to play out as this aggressive measure will continue across the globe.
Gold positioning has been caught in a see-saw between safe-haven flows and liquidity needs. De-risking/leveraging sees investors selling bullion to pay for losses in stocks, and that ‘s currently outweighing it as a safe-haven hedge.
Still, there seems to be demand from strong hands just below $1,560, But if stocks continue to slide, more and more traders will consider selling gold rallies, should equities keep making new lows. As such, I think the market will be contained until the healthcare/fiscal package later today.
With gold bouncing higher in tandem with the equity market, perhaps the focus will finally shift to the runways getting paved with dollar bills from the Fed who are expected to cut next week, but gold will again take flight.
Like I said two days ago, throw the correlation matrix out the window this week.
The oil market has traded in lockstep with risk sentiment in Asia, which has been bolstered by more stringent Covid-19 policy containment measures out of the US and expectations of another fiscal deluge.
But likely capping any rally impulse to this week's highs, traders continue to run with the dominant Saudi and Russia supply narrative. News coming out of Saudi Arabia after last week's meeting collapsed has been uniformly bearish for oil, which is getting reflected in the nearest time spreads dropping profoundly into a contango structure.
The oil curve doesn't necessarily reflect the future price of oil – in fact, it hardly ever does. Instead, it's a reflection of storage costs on the whole. With the Middle East oil producer taking on foreign tanker space, floating storage costs are going through the roof which is causing the canton. I realize I'm splitting hairs here, but the need for floating storage is also bearish in an oversupply context.
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Stocks soar, powered by first-rate earnings and a dazzling run of economic data; Gold plays catch as G10 falls flat while oil basks in the afterglow