Oil Is Under Pressure Again As Crude Inventories Build

U.S. And Russia Hold First Talks But Do Not Agree About Any Steps To Support The Oil Market

Yesterday, oil prices got some support on hopes that U.S. and Russia will talk about the current oil market situation. These talks were arranged quickly, and the U.S. Energy Secretary Dan Brouillette talked to the Russian Minister of Energy Alexander Novak.

No exact steps have been taken following these talks. This is not surprising since there is little that Russia or U.S. can do for oil prices in the current environment. The coronavirus pandemic dealt such a major blow to oil demand that only a major worldwide production cut could improve the situation with pricing.

In addition, the virus situation is very fluid and no one knows when the current virus containment measures will end. The world continues to experience major upside in coronavirus cases, and the total number of cases will soon breach the 1 million mark.

In this situation, the U.S. – Russia talks are providing psychological support for the market, but it remains to be seen whether such support will be sufficient enough to keep oil above $20.

Interestingly, Russia failed to enter into a market share war with Saudi Arabia and will not increase oil production in April. The reason for this is simple – there are no clients for this additional oil output.

EIA Weekly Petroleum Status Report Shows A Major Increase In Crude Oil Inventories

First, the API report and then the EIA report have shown a major increase in crude oil inventories. According to EIA, commercial crude inventories have increased by 13.8 million barrels compared to the levels of the previous week.

Analysts have expected a more modest increase, so the crude oil inventories report could serve as an additional bearish catalyst for oil.

Meanwhile, the U.S. is trying to find ways to support domestic oil producers during the current crisis. According to a Reuters report, space in the strategic reserve could be leased out so that oil producers do not have to stop production.

It remains to be seen whether such measure will be implemented and whether it will actually help the domestic oil production as the current virus containment measures in the U.S. are dealing a heavy blow to oil consumption and will last until the end of April.

Some help is certainly better than no help in the current environment, but I doubt that such measures will change the near-term supply/demand balance.

Silver Price Daily Forecast – Silver Is Flat Despite Broad Market Sell-Off

Silver Clings To The $14.00 Level

Silver continues to trade near the $14.00 level despite the sell-off in the world markets and strength of the U.S. dollar.

The world markets are in the red zone today as coronavirus continues to spread actively. To beat the virus, countries could have to implement lengthy containment measures which are very bad for economy.

U.S. dollar, which currently serves as the safe haven asset of last resort, is gaining ground. U.S. Dollar Index is once again trying to get above the psychologically important 100 level.

Gold is mostly flat, just like silver. Silver is definitely showing strength since weak markets and strong U.S. dollar are bearish factors, especially given the fact that silver demand is dependent on industrial demand.

It remains to be seen whether the current downside in the world markets can turn into real panic. In this case, it could be hard for silver to stay at current levels since it has not served as a safe haven asset during the current crisis.

At the same time, the current market action in silver suggests presence of underlying buying interest. In more favorable conditions, such buying interest could lead to further upside in silver prices.

At this point, it looks like the next few trading sessions will be very important for silver since they will decide whether silver can hang on to the $14.00 level or it will lose the upside momentum and start falling towards the previous lows.

Technical Analysis

silver april 1 2020

Silver stays at the key $14.00 level. I’d note that silver has several times experienced increased buyer interest in the $13.80 – $13.90 area, so it looks like a move below $13.80 would be a decisive downside breakout.

If this happens, silver could quickly find itself at the next support level at $13.30. As I’ve written before, many traders have had the time to accumulate their positions near the $14.00 level, and their protective stops are likely placed below $13.80.

Thus, a move below this level could trigger a chain reaction and lead to additional downside in silver.

On the upside, the area near the 20 EMA at $14.60 is the main resistance level. If silver manages to get past this important level, it would be able to head towards the 50 EMA closer to $16.00.

U.S. Stocks Set To Open Sharply Lower On Virus Worries

Focus Shifts From Monetary Stimulus To Coronavirus

S&P 500 futures are losing more than 3% in premarket trading as the situation with coronavirus continues to worsen in the U.S. and elsewhere in the world.

According to data from Johns Hopkins University, 189,633 coronavirus cases have been recorded in the U.S. The U.S. is followed by Italy with 105,792 cases and Spain with 102,136 cases.

The situation in Spain continues to deteriorate in a rapid fashion, and the country is set to have more coronavirus cases than the previous leader Italy in the next few days.

The U.S. President Donald Trump has warned Americans that the next two weeks would be very painful. Currently, U.S. health experts estimate that coronavirus could kill 100,000 – 240,000 Americans. It is not surprising that the market is worried about this potential scenario.

Oil Stocks Have Rebounded But Oil Prices Are Near Lows

Oil failed to produce any meaningful rebound on hopes that U.S. and Russia can initiate talks on potential production cuts. As a result, WTI oil continues to trade near the $20 level.

At the same time, stocks of major oil companies like Exxon Mobil, Chevron, Total, BP, Royal Dutch Shell have experienced major rebounds from lows reached in mid-March.

These stocks can find themselves under increased pressure if the general market fails to show more upside while oil stays near $20.

In addition, the month of April has just began, and most countries have implemented virus containment measures in various forms. April is set to be the worst month for oil demand in recent history, and some analysts project that world oil demand could contract by 25% compared to normal levels.

Is Amazon Bulletproof?

Amazon shares have received plenty of support from investors who believe that lockdown measures will provide a boost to Amazon’s business. As a result, the company’s stock is up about 5% year-to-date while the S&P 500 has lost roughly 20%.

However, it remains to be seen whether Amazon will continue to report solid numbers as the upcoming recession provoked by virus containment measures will put pressure on disposable incomes of most customers.

Also, Amazon shares could be used as a “fear gauge” since they have played the role of a safe haven asset in these unprecedented times. A sharp sell-off in Amazon could indicate a full-blown panic in the markets, while a positive performance may mean that investors still hope for a normal resolution of the current crisis.

The Coronavirus Continues To Impact The Financial Markets. Crude Oil And Equity Markets

The coronavirus continues to impact the financial markets. What data do we have about the pandemic?

We’ve seen the epicenter gradually migrate from East to West, with the U.S becoming the epicenter in recent days.

The total number of cases in the U.S has surged to 187,347. When considering the most affected member states of the EU, however, the total number of cases continues to surpass the U.S. Just factoring in the number of cases in Italy, Spain, Germany, and France, the total number of cases stand at 325,651.

It is grim reading as the global number rapidly approaches 1,000,000.

Demographics have certainly played a part in the mortality rates seen across the different geographies. Continental Europe has suffered the most, with mortality rates sitting as high as 10% in Spain and Italy.

In Germany, the mortality rate sits at just 1%, which is quite a variance.

Across in the U.S, projections are for the mortality rate to accelerate beyond the current 3%. In fact, projections are quite alarming. When considering the Federal and State power structure, however, the spread of the virus was always predicted to be more severe than in China… For the EU, the reintroduction of borders was particularly important, even though it should have occurred sooner.

For now, as the numbers continue to rise, the bigger question will be the relevance of the numbers circulated.

Limited testing kits could see hospitals run out, leading to a marked fall in actual tests. This could ultimately skew the daily updates on the number of new cases.

A more meaningful approach would be for both new cases and total daily tests to be circulated. This would give a better lay of the land for the markets, the WHO and local authorities in each country.

Such transparency, however, is a big ask as governments look to calm citizens and avoid an even bigger market rout…

It appears that the two major economies are handling the virus differently. What about the global equity markets?

The global equity markets appear to have yielded to the fact that the global shutdown will continue until late April.

Of greater concern, however, is that the markets are anticipating a sharp rebound in economic activity at the bell…

In reality, however, an extended shutdown to the end of April would need to lead to an end to the spread of the virus. We would also need to see borders reopen and for supply chains to be rebuilt and quickly.

It is somewhat hard to imagine that all of this is feasible in days or even weeks. Protectionism alone suggests that governments will maintain border controls for far longer. There will be doubts over the numbers being released across many jurisdictions that will make governments all the more cautious…

Quarterly earnings have been written off and companies are being pushed into taken on additional debt burden. Airlines, in particular, are facing a dark future. Assuming a June quarter-end rebound is therefore likely over-optimistic. As we saw in China’s Manufacturing PMI, while production was on the rise in March, global demand continued to slump. That is not a positive, PMI at above 50 or not…

When we throw in the lasting impact of the U.S – China trade war, the volatility is unlikely to abate any time soon. Until we stop seeing marquee stocks swinging by 10-20% in a day, we’re unlikely to have seen an end to the downside.

So there is still data that market participants could watch. Meanwhile, how is Italy handling the situation? It was all over the news throughout the past couple of weeks.

Italy remains in lockdown and the government announced its extension until Easter.

In reality, however, daily infection rates remain high, raising questions over the current strategy.

We have seen self-isolation imposed on those with symptoms and those tested positive but not in need of medical care. Unfortunately, the self-isolation has driven the spread of the virus. The elderly are taking care of the elderly, who have also taken care of the young and vice-versa. It’s for this reason that the numbers in Italy are horrific and Spain is no different.

There should be a slowdown in the spread, however, assuming citizens abide by the self-isolation rules. But to expect the spread to materially slow by Easter is optimistic.

If we continue to see the daily cases rise by 4-6k levels then the shutdown should extend for the 2nd month. That would be more aligned with China, which successfully curtailed the spread to acceptable rates. Even then, Beijing still had to shut down as imported cases began to rise.

Reopening borders would certainly be a big mistake. Tourism and manufacturing may account for a 3rd of GDP, but moving too early could be even more devastating…

In the meantime, the crude oil price benchmarks are also on the headlines. What is the situation?

That was some slide in crude oil prices. Hitting the lowest level in 18 years, sentiment towards supply and demand seems more reflective of the current economic environment.

Governments and companies appear to be eager to get things going but it’s unlikely to happen overnight

The Saudis are ramping up production at a time when the EU and the U.S, in particular, are in shutdown mode.

We have also heard of Trump calling on Russia to discuss restoring price stability. It seems highly questionable, however, that Trump and the U.S would form an oil alliance with Russia. Trump may look to pressure Russia into cutting output, however. The last thing Trump needs is for the administration to have to start bailing out U.S shale producers. At $20 per barrel, it may be hard to avoid…

Looking ahead, OPEC will need to announce a sizeable cut in production. This is also unlikely, however, when considering production costs. For the Saudis alone, production costs sit at sub-$10 per barrel. There’s a long way to go before they need to pull back from flooding the market…

38,2% Fibonacci – That Is the Most Important Resistance on The Market Right Now

Following last night’s overall improvement in prices on a technical basis, our focus today will be on indices. Major indices in the US and Germany managed to bounce from the 38,2% Fibonacci level which is currently considered a crucial resistance level and a major level in the coronacrash rebound.

Let’s start with the Dow Jones which managed to create the head and shoulders pattern after breaking the lower line of the wedge – remember this pattern is considered a bearish indicator. The price has already broken the neckline, which indicates that the sell signal is probably already active. Necklines like to be tested as resistances soon after a breakout, so watch out for a temporary bullish bounce.

The SP500 is in more or less the same situation. The details will determine whether the latest price movements are forming a head and shoulders patter or a double top formation, and this can be interpreted either way by you. The neckline was also broken and the sell signal is also active. The negative sentiment will remain as long as the price stays below the significant 38,2% Fibonacci retracement level.

The DAX is holding up a bit better than its American competitors. Optimists will probably interpret the sideways trend as a consolidation. I see it as a head and shoulders patter which has not broken the neckline yet. As long as the price stays above 9400, buyers can still hold on to hope. However, it’s hard to imagine that Germans will manage to keep the price up while markets on the other side of the pond continue falling.

GBP/USD Daily Forecast – U.S. Dollar Continues Its Attempts To Move Higher

All Eyes On Manufacturing PMI Data

GBP/USD tries to consolidate near 1.2400 after the major upside move which took the pair from 1.1400 to almost 1.2500. Yesterday, the U.S. dollar made an attempt to gain ground against the British pound but this attempt was unsuccessful.

The U.S. Dollar Index tried to settle above the psychologically important 100 level but showed weakness following a better than expected Chicago PMI release and Donald Trump’s tweet about a potential $2 trillion infrastructure bill.

Today, market participants will be watching Manufacturing PMI data for both U.S. and UK. In both countries, Manufacturing PMI is expected to show contraction. However, the size of this contraction remains the key unknown factor.

So far, manufacturing has taken a lesser hit than services which got a heavy blow from coronavirus-related measures. However, the situation in the manufacturing segment will likely continue to deteriorate.

While I do not expect that Manufacturing PMI will show horrific numbers like the Services PMI, traders and investors should prepare themselves for additional portion of disappointing data.

The key question for near-term GBP/USD dynamics is whether the U.S. dollar can maintain its status as the safe haven asset of last resort amidst the worsening coronavirus situation in the U.S.

According to data from Johns Hopkins University, there are more than 189,000 coronavirus cases in the U.S. President Donald Trump has already warned that the upcoming two weeks would be very painful. This is going to be a true test for the U.S. dollar.

Technical Analysis

gbp usd april 1 2020

GBP/USD continues its attempts to move lower but stays in the current upside channel. The major support for the pair is located near the 20 EMA at 1.2270. If this support is breached, the current upside trend will come to an end, and GBP/USD will be able to start another downside move.

On the upside, the pair met resistance at 1.2480, below the 50 EMA at 1.2520. The range between 1.2480 and 1.2520 will be a material obstacle on the way up. At this point, it looks like the pair will need additional catalysts (like a broad-based U.S. dollar weakness) to get through this resistance.

In my opinion, GBP/USD dynamics will heavily depend on whether the markets stay in the risk-on mode or turn to selling of riskier assets due to coronavirus data.

Saudis Flood Oil Markets & Equities Get Wwapped In a Sea of Red

Markets

There so many stories most days on how negative US Q1 GDP is likely to be and how high the jobless rate will be. However, it’s starting to feel like a game of who can come up with the biggest numbers. Undoubtedly this is weighing on sentiment as investors now question themselves whether they have done enough to factor in the freefall in growth likely to be seen in Q2.

Out of the gates, stock markets are reacting to what now seems to be a likely increase in the duration and breadth of coronavirus lockdowns in the US and elsewhere, which is pointing to a potentially deeper and longer-term hit to economic activity than was anticipated even a week ago. It’s merely a case of unprecedented economic devastation that’s hitting the screens this morning where scenes from New York City in full stop are providing the horrific optics.

US President Trump signaled social distancing in the US would remain in place until April 30. The demand shock for oil and for the global economy more broadly will be more significant if mobility and social interaction restrictions stay in place beyond April.

As such, it’s equally challenging to overlook the oil markets this morning as Saudi Arabia is making good on their oil war threats and have already started flooding the market awash with oil as tankers filled to the brim set out from King Abdul Aziz port this morning.

This shock is hugely detrimental for oil prices and perhaps a tipping point for the industry as a whole. The incredible deterioration in oil demand is swamping storage infrastructures to the point that now traders are even questioning whether policy coordination by OPEC+ and also with the US +Canadian oil producers in the mix, can save the day as now anything short of a 20-25 million barrel per day cut my only provide transitory relief as world economies come to a sudden stop.

Suggesting we’re going to be tethered to the risk yo-yo, if not anvil, for some time to come

Economic forecasts 

The problem with making economic forecasts on either side of the spectrum, it depends very much on the spread of the Virus – and even the scientists aren’t sure about that. The real question for investors isn’t how shockingly bad Q1 is going to be, sadly that’s a given; it’s how long the weakness will persist and, as a consequence, how much permanent damage will be done.

As the world comes to crashing stop, not to mention the globe was dealing with stagnancy as it was. The economic devastation as a result of the Virus should be gauged by its prolongation, not the depth of it.

But with so much uncertainly on both sides of the ledger, it is challenging to see how any pension fund is going to make a significant scale asset allocations decisions when there is still so much uncertainty over the outlook. At best, short-termism is likely to continue to dominate the duty list for now. But let us keep fingers crossed that a vaccine is on the way.

Although it doesn’t necessarily feel all that much better, things do seem to be improving. (trying to keep an open mind)

With the introduction of the CPFF, the stress on commercial paper is beginning to decrease. Cross-currency markets are normalizing following the considerable uptake in FX swap lines. As a result, LIBOR has found some stability over the last two days.

VIX back to 50 – we aren’t quite there yet after stocks moved lower midday NY, but the VIX is flirting with 50bps a level that many in the market consider a critical inflection point for risk assessment.

And now that Year-end Japan has passed – it felt like Japan was keeping some pressure on short-end USD funding markets yesterday, most notably by the reaction to the Tokyo fix yesterday. It’s messaged FX prop, trader, to come out of their self imposed 24 hours of hibernation and have immediately taken it upon themselves to sell the US dollar.

Oil markets

The Global economy is experiencing unprecedented disruptions, and while the full effects of these disruptions are not yet evident, it is clear that the economy is experiencing the most abrupt and severe contraction since the Great Depression This is setting the stage for unparalleled Oil demand destruction which is getting exacerbated by Saudi unleashing a torrent of supply to the world right out of the gates this month making good on their oil war promises.

This is yet another signal that Saudi is digging in. The risk remains skewed to the downside for oil until this changes, and/or COVID-19 news flow turns positive.

Ignoring President Trump’s persuasions, Saudi Aramco is expected to offer up oil to any takers at the deepest discounts in decades as the state producer readies to ramp up exports intent on flooding the world with oil when there’s nary a demand.

Gold markets

Gold weakened in late European trading and remained on the defensive throughout US action, falling back below USD1,600/oz. But the fact that gold is not bouncing back as risk tanks suggest that the negative correlation to oil price is taking precedent.

Ignoring the sharp decline in US consumer confidence, with oil prices under pressure, the deflationary impact of low oil, which is harmful to gold, is taking president. Not to mention with oil prices sliding, the drop in foreign exchange petrodollars per barrel could curtail more oil-exporting central banks to cut bullion buys.

Currency Markets

The Federal Reserve has been quarterbacking the supply of US dollars around the world via USD FX Swap facilities. Now they opened up the door even broader US dollar selling overnight by offering up a temporary repo facility with foreign central banks that will start on April 6 and last for six months. This should be another element in easing dollar funding stress, including for countries that so far have not had access to swap lines.

In Asia, this repo facility will be most welcome and should be put to immediate use by Indonesia and Malaysia, who have the smallest reserve adequacy. This could be a potential turning point for the ability of central banks in these countries to address the dollar shortage in their markets.

G-10 View 

The lower implied FX volatility across G10 is especially pronounced in AUD, NZD, and GBP – currencies that have outperformed lately is encouraging. , But the disorderly decline in oil prices is challenging this benign dynamic of lower implied FX volatility and broad-based USD weakness. We missed a pretty chunky dollar sell-off from some extreme levels overnight and if you were unfortunate not to get any USD selling orders triggered, it’s going to be a bit more challenging with oil prices going into the tank today as lower oil prices( commodities) are not necessarily bad for the US dollar versus a laundry list of currencies, Commonwealth currencies notwithstanding.

The Malaysian Ringgit

However, for the Ringgit, it’s near term; fortunes appear to be tied to broader risk sentiment and the plight of the oil market. Of course, a drop on petrodollar per barrel hurts the government coffers at a time when leadership has little option but to abandon fiscal prudence. But with the US dollar trading broadly weaker across the spectrum and factoring in access to more USD via a unique Fed repo market, which could be viewed by traders as a possible game-changer, the Ringgit could trade more favorably.

Month-end addendum 

I fielded so many client questions about month-end rebalancing overnight, so I’ve added a couple of paragraphs to help demystify the process.

The simplest month-end model is: If US equities are down more than 2.5% in a month (they are down about 11% this month), foreign owners of US equities need to buy USD to reduce their FX hedges. If you are long a billion SPX and short a billion USD against it as a hedge, and your SPX is now worth $890m, you need to buy $110m to get back in balance. Hence the term, month-end rebalancing.

The reason why I was worried about this particular month that could have been lethal is that the March 2020 equity move is one of the largest in my trading careers spanning four decades Also, half the risk-takers that might normally provide liquidity offset to yesterday’s moves we’re hiding in the pipes sending everything to the eFX machine which were just churning and burning through what little liquidity was available.

I particularly like GBP as its especially loyal to the simple month-end model. And given the comparative lack of liquidity in Cable compared to the Euro per se, it tends to exhibit some wickedly outsized moves under these conditions.

USD/CAD Daily Forecast – Volatile Trading Action Tests Both Support And Resistance Levels

U.S. President Donald Trump Suggests That Phase 4 Coronavirus Aid Package Should Include Infrastructure Bill Worth $2 Trillion

USD/CAD continues to experience major volatility. The pair managed to settle above the resistance level at 1.4150, which opened the path to the test of the resistance level at 1.4330.

However, a surprisingly good release of the Chicago PMI for March (47.8 vs consensus of 40) led to a decline of the U.S. dollar against a broad basket of currencies. The U.S. Dollar Index, which has previously tried to gain ground above the 100 level, has corrected closer to 99.

Another help for the Canadian dollar came from the oil front as oil gained ground on hopes about possible U.S. – Russia production cut talks. I remain skeptical that any such deal is possible in the near term, but the momentum upside in oil is certainly providing support for the Canadian currency.

Meanwhile, the U.S., which has just passed the $2 trillion coronavirus aid package, is already looking at the fourth part of the economic aid.

U.S. President Donald Trump has recently twitted that it was time to use the zero interest rates to get the long-awaited infrastructure bill and suggested that it could total $2 trillion.

Any additional coronavirus aid package will lead to more money-printing and is theoretically bearish for the U.S. dollar. However, the markets remain shocked by the current crisis, so the U.S. dollar could maintain its position as a safe haven asset of last resort.

Technical Analysis

usd cad march 31 2020

USD/CAD had a volatile trading session and confirmed all major levels. First, the ability to stay above the 1.4150 level has led to the test of the major resistance at 1.4330.

This resistance level remained intact and serves as a major wall for USD/CAD. Clearly, the pair will need significant catalysts to get above 1.4330. One such potential catalyst is an additional collapse of oil prices, but it remains to be seen whether oil could drop even more despite the current low levels.

On the support side, USD/CAD should get increased buyer interest near the 20 EMA at 1.4050. If this level does not hold, the pair could head towards the next support level at 1.3925.

S&P 500 Price Forecast – Stock Markets Choppy

The S&P 500 has shown itself to be somewhat lacking during the trading session as we continue to see a lot of questions being asked of the global economy out there. I believe that the S&P 500 is simply trying to take a bit of a breather before making its next move, which will be based upon whatever headline comes across the lines next. If we can break above the 2650 handle, that would be bullish but on the other hand if we were to turn on a break down below the lows of the trading session on Tuesday, that probably sends this market looking towards the 2500 level. As a general, these big meltdowns don’t necessarily go straight up and there’s normally another attempt to break down lower.

S&P 500 Video 01.04.20

At this point, you should probably be on the sidelines when it comes to indices, because nothing good can come of the news cycle that we are about to have. If you do find yourself being forced to trade this for some reason, use a small position size in the CFD market, and I would certainly say stay out of the futures markets. The futures markets have seen some major players blowup recently, and one look at this chart can give you an idea as to why. I believe that the 2750 level above might be a target given enough time but really at this point I don’t like the idea of putting too much money into a market that is moving on fear and panic more than anything else. Furthermore, none of the economic numbers coming out are going to be very good so really at this point the only numbers you need to be paying attention to our the coronavirus figures, which are getting worse.

Oil Bounces On Hopes For U.S. – Russia Talks But Downside Risks Stay Intact

Donald Trump And Vladimir Putin Will Let Their Officials Talk About The Oil Market

WTI oil briefly visited sub-$20 territory on Monday but then started to rebound following reports that the U.S. President Donald Trump and Russian President Vladimir Putin had agreed to order their top energy officials to discuss the current oil price war between Russia and Saudi Arabia and the general state of the oil market.

Russia is in a challenging position despite the reserves it has accumulated during better times. The recent drop of the Russian ruble provided some support for Russian oil companies and the Russian budget, but it in no way shields the country from the negative impact of the current oil price environment.

In addition, Russia is starting to experience its own problems with the coronavirus, which will put additional pressure on the country’s economy. The latest daily update indicated 500 new coronavirus cases in Russia, a new record. Moscow, which is the absolute center of Russia’s economic life, is already in a lockdown.

In this situation, Russia wants higher oil prices, but the country has little impact on the market right now – just like everyone else.

The problem is that lockdown measures all over the world have eliminated a huge portion of the world oil demand. According to Goldman Sachs, the hit to oil demand in the last week was about 26 million barrels per day.

It is not surprising that oil is trading at levels not seen since 2002 – oil producers continue to pump oil without production cuts, while the demand has been cut by roughly 25%.

Any Deal Is Very Hard To Achieve

Obviously, all market participants want to see oil at higher levels. However, it remains to be seen whether any coordinated action is viable. Even when oil demand starts to rebound, major cuts will be required from all oil producers.

Thus, nobody would tolerate a situation when someone does not cut production but gets the benefits of the coordinated production cut. Major oil producers will have to make sure that everyone does their fair share of production cuts.

This will be especially challenging to achieve in the U.S. which has plenty of private, independent companies.

In this light, it’s hard to expect anything more serious than verbal interventions in the near term. To start the talks, oil producers will need reasonable demand estimates for the rest of 2020.

At this point, the situation is so fluid that demand estimates change on a daily basis. In such environment, it is impossible to come up with a plan and enforce it. If the situation on the coronavirus front continues to get worse, oil will again visit the sub-$20 territory.

Silver Price Daily Forecast – The $14.00 Level Remains The Main Battleground

Silver Shows Strength Despite Stronger Dollar And Weaker Gold

Yesterday, I wrote that the $14.00 support level was very important for silver since a breach of this level could quickly take the precious metal to $13.30. The $14.00 level has been tested several times now, but silver still manages to hold above it.

Interestingly, silver is able to show some strength despite upside in U.S. dollar and downside in gold. The U.S. Dollar Index is currently trying to get above the psychologically important 100 level. Stronger dollar is a bearish factor for commodities since it makes them more expensive for buyers who have other currencies.

Silver’s ability to stay above $14.00 despite the downside in gold is even more surprising. Gold has served as one of the preferred safe haven assets during this crisis, and downside in gold typically caused a corresponding downside in silver.

Meanwhile, the U.S. stock market is showing some weakness at the opening, indicating that it is in the risk-off mode.

It remains to be seen whether silver can withstand a combination of stronger dollar, weaker stocks and weaker gold, and stay above the $14.00 level. At this point, it’s hard to believe that further intensification of the sell-off in various asset classes (if it happens) will not have a negative impact on silver.

Technical Analysis

XAG/USD 31/03/20 Daily Chart

The $14.00 level remains the key battleground for silver. It has already made several attempts to go below this level, but each such attempt was met with healthy buying activity.

In case silver manages to settle below $14.00, the road to the next support level at $13.30 would likely be fast since many traders have had the time to accumulate their positions around the $14.00 level, so those with shorter trading timeframes would be getting out of their bets.

On the upside, silver will have to deal with resistance near the 20 EMA at $14.70. With each day that silver stays close to $14.00, the 20 EMA comes down a bit, and it has already reached the local high point of the current rebound.

Going above the 20 EMA will be crucial for the continuation of the upside trend in silver. In this case, silver will have a chance to move towards the 50 EMA at $16.00.

U.S. Stocks Point To A Lower Open As Optimism Fades

Chinese Economy Starts To Rebound, Providing Hope To Economies That Continue To Suffer From Lockdowns

S&P 500 futures were pointing to a higher open early in the morning but have lost ground since then and now indicate a roughly 1% premarket loss for the index.

According to China’s official data, the country’s manufacturing index rebounded to 52 in March from the record low of 35.7 in February. The widely watched Caixin Manufacturing PMI Index will be reported on April 1, so the markets will be able to check whether the official data is too optimistic or not.

The markets are eagerly watching how the Chinese economy recovers from lockdown. While the rebound of the official manufacturing index is a good development, investors should keep in mind that this rebound comes from a low base.

Coronavirus Numbers Are Alarming And Put Pressure On S&P 500 Futures

According to data from Johns Hopkins University, U.S. has accumulated 164,610 cases. Italy ranks second with 101,739 cases, while Spain comes third with 94,417 cases. The number of cases in Germany and France has also shown steady upside in recent days.

For the market, this means one thing – continuation of lockdown measures is now almost guaranteed in the biggest Western economies. The key question is whether the massive stimulus from central banks and governments can provide enough support for assets during this turbulent phase.

Other risks include the potential necessity to extend lockdowns, high unemployment and the resulting hit to consumption and consumer morale, as well as spread of the virus outside the major economies.

A Bear Market Rally Or A Start Of A New Upside Trend?

S&P 500 rallied roughly 20% from recent lows and many investors and traders question whether it is the start of a new upside trend or a bear market rally.

Historically, bear markets never ended after just one month, but the current market situation involves an unprecedented cause of the sell-off (a virus) and unprecedented measures to shield the market and the economy from the negative impact of the turmoil (an unlimited QE).

Yesterday, premarket indications were mixed but then buyers managed to drive S&P 500 to a gain of more than 3%. It will be very interesting to see whether the market can get out of the red zone today and continue the previous upside trend.

Gold Daily News: Tuesday, March 31

Yellow metal has retraced all of the previous sell-off, as it got back close to March 9 medium-term high of $1,704.30. Since then, gold is trading within the mentioned short-term consolidation.

Gold is down 2.0% this morning, as it retraces some more of the recent rally. What about the other precious metals? Silver lost 2.77% on Monday and today it is 0.7% lower. Platinum lost 2.40% yesterday and today it is trading 1.1% lower. Palladium was unchanged on Monday. Today it is also unchanged. So precious metals are backing down slightly following last week’s rally.

Investors will wait for the Consumer Confidence number release today at 10:00 a.m. The data will likely show virus crisis’ impact on the economy. Last week’s record-breaking weekly U.S. Unemployment Claims number has been quite shocking. And we may see more bad economic data releases in the near future, as they will be revealing coronavirus damage to the economy. Take a look at our Monday’s Market News Report to find out about this week’s economic news releases.

Check more of our free articles on our website – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up for the free newsletter today!

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care


Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

GBP/USD Daily Forecast – British Pound Holds Well Despite U.S. Dollar Attempt To Rebound

UK Q4 GDP Growth Rate Is Flat Quarter-Over-Quarter

The U.S. dollar tried to gain ground against the British pound but GBP/USD received support near the 20 EMA at 1.2250.

The number of coronavirus cases in the U.S. continued to increase and reached 164,603 according to data from Johns Hopkins University. No additional virus containment measures have been announced at this time. In the UK, 22,454 coronavirus cases have been recorded so far.

UK has just reported important data on GDP Growth Rate. Fourth-quarter GDP Growth Rate was flat compared to third-quarter. Year-over-year data showed an increase of 1.1%. Both numbers were in line with analyst consensus.

The UK economy was losing momentum in the fourth quarter of 2019, and has certainly dipped into recession in the first quarter of 2020 due to virus containment measures and disruption elsewhere in the world.

In the U.S., data on S&P/Case-Shiller Home Price Index and Chicago PMI is expected to be released later in the day. Chicago PMI data is especially interesting since it will indicate the size of the blow to economy in March.

The February Chicago PMI came at 49 (numbers below 50 indicate contraction), while the consensus for March Chicago PMI is 40.

The U.S. Dollar Index tries to continue its rebound following days of downside action but has to deal with material resistance near the psychologically important 100 level. If the U.S. Dollar Index stays below 100, GBP/USD will likely receive additional support.

Technical Analysis

gbp usd march 31 2020

GBP/USD stays in the current upside channel so the upside trend is intact. The support level at 20 EMA at 1.2250 was tested and successfully confirmed. If GBP/USD manages to get below the 20 EMA, it could head towards the next support level at 1.2000.

On the upside, the area near the 50 EMA at 1.2500 remains a material resistance level for GBP/USD. This area has already been tested several times, and each time the pair met heavy resistance.

However, if GBP/USD continues its rebound from the low end of the current upside channel, it will once again test the resistance near 1.2500. If this test is successful, the pair will have an opportunity to continue the existent upside trend.

The Selloff Structure Explained – Fibonacci On Deck

Many traders become very emotional when the markets turn Bearish and fail to properly understand that price structure is still driving market price movement.  This morning, I highlighted this structure to my subscribers attempting to alert them to the possibility that the markets could recover moderately over the next 3 to 5+ days attempting to set up the next “waterfall” downside price event.

On January 29, 2020, I posted a research article detailing my belief that a “waterfall” type of event was setting up in the markets.  This article was nearly 30 days prior to the peak in the markets.  It explained how events take place and how markets tend to develop a moderate recovery phase between selloff price declines.

January 29, 2020: ARE WE SETTING UP FOR A WATERFALL SELLOFF?

Skilled traders should notice the size and levels of each selloff event in the chart (above) and pay very close attention to how price initially collapsed from the peak, then recovered nearly 50% in early and late November before finally setting up a deeper waterfall price collapse in early December.

Our research team believes the US stock markets may attempt something similar over the next 3 to 5+ days as the Covid-19 economic outcome continues to process through the global markets.

The US and other Central Banks have taken broad steps to attempt to overcome the negative economic outcomes related to the Covid-19 global shutdown.  Their biggest concern is that consumer activity could diminish and banking/credit firms could come under severe pressures because of a consumer collapse.

There are over 35 million US low-wage jobs that may become at-risk because of the Covid-19 virus event.  We believe the true economic contagion of the global virus event may now be known until well into April or May 2020.  Yet we believe these at-risk, low-wage jobs are prevalent throughout the globe and foreign nations, such as Asia and Europe, may experience a similar consumer economic contagion over the next 6+ months.

We believe the data related to the Covid-19 economic crisis will not fully be known until well into April or May 2020.  Because of this, we believe the US stock markets may recover to levels near the 50% Fibonacci Retracement levels on these charts before attempting a series of further downside price moves.  Skilled traders should not become overly emotional right now and pay attention to the structure of the price action as well as other technical conditions in play at the moment.  Our objective is to execute trades with a highly targets success rate – not to trade on emotions.

SPY Daily Chart

This SPY Daily chart shows the SPY would only need to rally 18.70 points to reach the 50% Fibonacci retracement level on this chart.  This could happen very quickly given how close the price actually is to this key Fibonacci level.  If that were to happen over the next 3 to 5+ trading days, the downward sloping price channels from our TTCharger modeling system would move lower to meet price near 278 – which would set up a new resistance zone and possibly a new wave of selling.

INDU Daily Chart

This INDU Daily chart shows the Dow Jones would have to rally about 2025 points (to levels near 23,886) to reach the 50% Fibonacci Retracement target.  If this were to happen, the sloping price channels on this chart would likely move lower to meet price near this 50% target level – presenting a very clear resistance zone for a new wave of selling to begin.

Remember, it is not about emotions or attempting to try to force the markets to adopt your “belief”.  Skilled traders attempt to identify risks, opportunities and realistic technical setups that allow them to objectively determine where and when the markets are providing a real opportunity for success.

We may be just a few days away from the next major wave of selling, yet any trader who jumped into an emotional trader over the past 5+ days expecting the markets to continue to break down is likely under a fair amount of stress right now.  Learn to read the charts and the structure of price more effectively and you’ll find the answers are already on the charts in front of you.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.

If you are a more active trader and swing trader visit my Active ETF Trading Newsletter. If you are a long-term investor looking for signals when to own equities, bonds, or cash, be sure to look into my Long-Term Investing Signals.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

 

Not so Cynical Today

I must be getting used to lockdown as I don’t feel nearly as cynical today.

US stocks are trading strikingly higher Monday as markets yaw towards month- and quarter-end. Investors are busily assessing progress on containing the virus and the torrent of stimulus all amid the prospects of buying an economic trajectory that is poised to drop sharply in 2Q20.

Stock market price action suggests that investors are comfortable with the “whatever it takes, whatever is necessary” policymakers’ response so far into a deep economic recession.

At a minimum, the massive monetary and fiscal stimulus gives investors some breathing room with fingers crossed for a health care solution. While at the same time, they are pilling into those equal opportunities bidding up shares of health care companies as they report progress on products that could help with the coronavirus outbreak.

The S&P 500 climbed more than 3 percent, adding to a strong showing last week, bolstered by the Fed all in an and Washington 2 trillion spending spree.

Indeed, the outlook would be much worse; was it not for timely and aggressive monetary and fiscal policy easing. While policy injections will buffer the impact of virus shock on economies, “It’s only when the tide goes out that you learn who has been swimming naked.” as risks may be shifting towards a more negative economic outcome.

But with trepidation everywhere, the market still managed to lift staring down the reality of a deep recession while counting on it being a brief one. Still, with investors on the apex of transitioning from the policy response phase to a more data-dependent chapter, the risk here is that the data is going to be a lot less assuredly favorable than the stimulus broadcasts in times of crisis. Still, any positive surprises will be welcomed with open arms.

And while there is a recognition that the coronavirus-linked economic disruption could last some time. However, economies adapt, and technology has ensured us of that while promoting localization.

And at the same time, the focus is starting to shift from the size of fiscal packages to the speed with which they can be implemented. This is positive in its own right as it suggests investors are already getting their shopping list ready for the bounce back when government policy tries to raise GDP.

Party Pooper section ( to remind me not to chase this market higher just yet)

I know equity markets are forward-looking, but at the moment, there isn’t very much to look forward to. It is difficult to see how any pension fund or even mom and pop are going to make a proportionately significant scale asset allocations decisions when there is still so much uncertainty over the outlook. At best, short-termism is likely to continue to dominate the duty list for now. But let us keep fingers crossed that a vaccine is on the way.

Oil Markets 

Given the harmful industry-wide effect that the unmatched oil price decline is having, especially on The US Shale Industry, President Trump called President Putin to discuss oil. Presumably, in an attempt to get Russia to pull up a chair to the negotiating table with Saudi Arabia or maybe even loosening sanction on Russia, as desperate times call for drastic solutions in turning around this wayward tanker.

Any sign of Russia/Saudi making nice will be positive for oil. But at this stage, the market is not entirely buying into it. But it is an evolving story, and oil prices have recovered above WTI $20 after a chaotic session as risk sentiment has revived more broadly with investors busily assessing progress on containing the virus.

But it does seem that Trump has hit a chord as the US Energy Department said energy chiefs from Russia and the US are set to discuss volatility in the oil market.

Running narrative

In 4 weeks, we’ve gone from the physical end was near, to now the physical end is here as oil traders understandably focus on the closing of developed markets in response to the COVID-19 crisis and the unprecedented demand hit to oil – exacerbated by a rising supply side.

The adverse price action was possibly compounded by the expectation of a messy Brent expiry given industry conditions and the heightened level of volatility across all asset at this tricky quarter-end due to US dollar funding pressures.

Trump flexes

While Trump is keen to flex his diplomatic influence, the thought here is that Russia is unlikely to change its stance based on US pressure alone. Whereas Saudi Arabia is more susceptible to change, given the extent to which it relies on the US for military support.

Even if Trump managed to broker an OPEC+ deal in some form, the damage is done, and investors will remain cautious about continued cooperation. So, any truce could be heavily discounted, notwithstanding that at this stage; it appears unlikely that we see significant large-scale cuts come back to the fore.

Also, excess supply was brewing even before the Saudi – Russia falling out & long before the collapse in oil demand. Indeed, this the most significant mismatch between supply and demand in modern history, suggesting that these aggravating factors will limit any price recovery even with a truce.

Gold markets 

Russia Central Bank will stop buying gold tomorrow as petrodollar shortages are weighing on reserves.

Gold prices have remained volatile but are set for its six consecutive quarterly lift with bullion prices during the quarter up ~7% so far.

While USD, yields, and a better equity market performance impacted gold, the slide in oil is also influencing bullion demand. The drop in WTI below $ 20bbl has deflationary implications.

While oil declines are partly due to a price war between Russia and Saudi Arabia, the deflationary impact of lower oil demand is negative for gold.

Also hurting gold, Russia’s central bank announced that it would stop buying gold starting April 1 but did not explain the reasons for its decision. However, it’s not catching institutional traders by surprise as lower oil prices mean fewer petrodollars per barrel for the central bank to buy gold; hence they have been conspicuously absent this year as oil prices have tanked.

If oil prices remain depressed, there will probably be a similar curtailment of bullion purchases across other oil-exporting central banks. These petrol central bankers have been the cornerstone for the market in the last couple of years and should more withdraw from the gold market for an extended period; gold’s upside may be limited.

But the real problem comes for gold if these central banks need to start selling gold in distressed fashion to support their economies if oil prices continue to languish.

Currency markets

It was another squishy USD funding squeeze across the quarter-end curve, and not wholly unexpected but less loud than what it could have been thanks to the Fed Swap lines. But the residual month-end knock-on effect should keep the dollar in demand for a bit.

The most boisterous and most vocal G-10 interbank currency trader the world knows is extremely quiet these days, suggesting to me that I’m not along this month end as many are deferring risk-taking activities while oppressive USD funding costs are still stretched.

(Beyond the month-end)

Singapore Dollar

The Singapore dollar reaction to MAS’s latest maneuvers suggests FX policy is now a mere compliment, with the focus squarely on very aggressive fiscal support and supplying liquidity to ensure the market plumbing doesn’t clog.

With MAS keeping the markets flush, and SGD triple-A bond spreads to US Treasuries at historically wide extremes. With the bulk of SGD FX deprecation premiums likely behind us and Singapore having the luxury of financing their fiscal deficit directly out of government coffers and no need to issue debt, SGD bonds could be in demand.

As bond flow pick up, I would expect the Singapore dollar to benefit even more so from the coronavirus divergence FX trade takes hold, which should help those countries currencies that took proactive and extreme containment measures and see the virus pass quicker.

The Malaysian Ringgit

Local risk sentiment should trade more favorable today, with both US equity markets in oil prices moving higher in lockstep during the US session. But month-end US dollar demand could keep risk-takers sidelined until later in the week.

USD/CAD Daily Forecast – U.S. Dollar Continues To Rebound As Oil Moves Lower

A Combination Of Stronger U.S. Dollar And Weaker Oil Leads To Upside In USD/CAD

There’s an interesting situation in the markets today – the U.S. dollar is showing strength together with the U.S. stock market. Recently, the U.S. dollar and the U.S. stock market had inverse correlation, so positive days for stocks were negative for the U.S. dollar and vice versa.

Another bearish factor for the Canadian dollar is the continued weakness on the oil price front. WTI oil is currently trying to get through the $20.00 support level, while Western Canadian Select, which trades at a substantial discount to WTI, has firmly settled below $10.

It is possible that additional downside moves in WTI will not bring the corresponding hit to the Canadian dollar since there’s little room for further downside in the price of the Canadian oil since it currently trades not far from zero.

However, there are unique situations in the oil market when oil producers have to pay their customers to take delivery of oil since they have no storage for the oil they produce, so theoretically the Canadian oil can get into the negative pricing territory under the most extreme scenario.

The combination of weak oil and stronger dollar helped USD/CAD rebound after a major downside move. In my opinion, coronavirus-related data will continue to heavily impact the trading of the pair. Today, the markets are undecided whether they are in the risk-on mode (buying U.S. equities) or risk-off mode (buying U.S. dollar), but this may quickly change as traders get the new data.

Technical Analysis

usd cad march 30 2020

USD/CAD has found support at 20 EMA near the 1.4050 level. Currently, the pair is trying to settle above the first material resistance level at 1.4150. This level has been tested right after the major downside move, and this test was unsuccessful since the pair met heavy selling in the 1.4150 area.

If USD/CAD manages to gain ground above 1.4150, the next major resistance level is located at 1.4330. This is a very material level for the pair so USD/CAD will likely need strong catalysts to go higher.

On the support side, a move below 1.4050 could take USD/CAD to the next support level at 1.3925. However, I’d expect that the pair will get increased buying interest near the 20 EMA.

Oil Sinks To New Lows As Demand Is Destroyed By Virus Containment Measures

Demand Destruction In Spotlight

It did not take long for oil to turn its previous weakness into new lows. Currently, oil is trading near the $20.00 level after visiting new lows below this psychologically important mark.

The key catalyst for this oil price weakness is the upcoming huge supply/demand imbalance in April. The OPEC+ deal ends, while Russia and Saudi Arabia have previously promised to increase oil production.

Even if both countries do not fullfill their promises and choose not to increase production, the hit to demand will be so big that Saudi Arabia’s or Russia’s failure to boost oil production won’t be noticed.

The U.S. has decided to extend virus containment measures until the end of April, which will lead to a major hit to oil demand in the biggest economy in the world. Also, it is already clear that the hit to demand will be long-lasting even if all virus containment measures are lifted in May.

It is highly unlikely that consumers who have suffered from the double shock of virus threat and the resulting unemployment will immediately start to freely spend money, drive and fly.

Thus, the negative effect of the current coronavirus containment measures will last for months after the acute phase of the crisis is over, which does not bode well for a fast rebound of oil prices.

Crude Oil Stocks Reports Will Increase Their Market-Moving Power

So far, we haven’t seen any dramatic change in U.S. crude oil stocks. The next release is scheduled for April 1, 2020, and it will be interesting to see whether the current virus containment measures have already had a major impact on crude oil stocks.

I’d note that many oil benchmarks have already settled below $20 per barrel, while some benchmarks like the Western Canadian Select is firmly below $10.

This situation is unsustainable, so oil producers will have to cut production to allign it with the current demand. Currently, major oil producing nations want to see others blink while keeping their production levels intact or even increasing them.

In this situation, the crude oil stocks reports will increase their market-moving impact as traders and investors search for any hints regarding the severity of the current supply/demand imbalance. I maintain my view that oil demand will take a huge hit in April, putting additional pressure on oil prices.

Silver Price Daily Forecast – Silver Tests The Key $14.00 Level

Key Support Level Is Tested While U.S. Dollar Rebounds

U.S. dollar is finally rebounding against the broad basket of currencies following days of downside, and this rebound is putting pressure on silver.

The U.S. Dollar Index, which has recently been close to the 104 level, has almost reached 98 before rebounding above 99. Gold prices are resisting this strength in the U.S. dollar and still show gains for the day, but silver is weaker than gold in the current crisis so it is already losing ground.

The U.S. has decided to extend virus containment measures until the end of April, which will put additional pressure on both the U.S. and the world economy. As silver is used in industrial production, such measures will lead to further decrease in demand for physical silver.

It remains to be seen whether any potential increase in investment demand could offset the declines in demand from various industries as the world heads into a material recession.

At this point, gold is the preferred safe haven asset among precious metals, and upside in silver typically requires positive dynamics on the gold price front. This situation will likely stay intact in the near term.

General market upside also plays an important role for silver. Currently, stocks are showing strength despite the alarming coronavirus numbers which have been accumulated over the weekend, but this may quickly change as the market situation is very fluid.

Technical Analysis

XAG/USD 30/03/20 Daily Chart

Silver is currently trying to hold on to the important $14.00 support level. This level has already been tested several times, and so far buyers have managed to provide enough support for silver.

If this level is breached to the downside, silver may quickly find itself at the next support level at $13.30. A move below this level will signal the end of the current upside momentum. However, it’s not going to be easy for silver bears since such a move will likely require strong outside catalysts like a major market sell-off.

On the upside, the first major resistance is still located near the 20 EMA at $14.75. In case silver prices manage to stay above $14.00, this level could soon be tested.

U.S. Stocks Mixed After Turbulent Weekend

U.S. Extends Virus Containment Mesures Until April 30, 2020

S&P 500 futures are swinging between gains and losses ahead of the first trading session of the new week. Over the weekend, the total number of coronavirus cases in the U.S. increased to more than 143,000 according to data from Johns Hopkins University.

This increase has pushed the U.S. President Donald Trump to extend the stay-at-home guidelines until the end of April. Previously, President Trump wanted to reopen the economy by Easter, but coronavirus data showed that things are getting worse, and early reopening of the economy is impossible.

The situation remains challenging in other countries, since Italy has accumulated 97,689 cases, while the spread of the virus in Spain intensified, and the total number of coronavirus cases stands at 85,195.

Will Record Liquidity Injections Help The Market?

On Friday, U.S. stocks dropped following a major rally. As I wrote at that time, traders have likely anticipated that they will read bad news when they come to their desks on Monday and decided to take some profits.

Now that they have seen these bad news about further spread of the coronavirus and an upcoming month of virus containment measures, market participants are undecided on the future direction of the market.

On the one hand, the U.S. is facing recession. A month of virus containment policies will lead to a massive loss of jobs, some of which will not be restored anytime soon.

The multinational companies are also getting a big blow since virus containment measures are implemented everywhere in the world. Put simply, the whole world economy is heading into a material resession.

On the other hand, the Fed and the government are providing an unprecedented amount of liquidity to support the market. Following the financial crisis of 2008-2009, massive liquidity injections have supported stocks and led to a major rally which ended only when coronavirus hit the world.

Stocks To Watch

Trading action in the biggest U.S. stocks by market capitalisation will likely set the tone for the upcoming trading sessions, so it’s worth watching whether Microsoft, Apple, Amazon, Alphabet, Facebook and other big names can hold near their recent levels.

Russell 2000 Index, which contains more companies than the big-ticket S&P 500, has been underperforming the benchmark index during this crisis. If the stocks of the biggest companies cannot hold on to their gains, traders and investors should expect material weakness in smaller stocks.