It doesn’t take much effort to find bearish sentiment about stocks or the economy right now. All bear markets throw up things that are “different this time,” and some that make investors linger over the buy button. In this environment, the Covid-19 curve flattening scenario is one of these critical signals the keep investors not only hovering over but pressing the buy button continuously.
Indeed, the market appears to be putting its weight behind comments from the Governor of New York, State Andrew Cuomo, who suggested that the number of daily deaths in NY from the virus had been “effectively flat” for the past two days,
The dichotomy of market sentiment is that while the majority of investors are bearish, still, there is a loud and boisterous perma bull contingent that views the market though a 10-20-year crystal ball horizon ready to buy at the slightest hint that the virus is peaking.
So, if “stay at home” ultimately proves the Covid-19 cure-all bridging the gap for a medical or therapeutic breakthrough and people return to work quickly. Forget a 10-year horizon as in less than one year; the world will face the most massive wave of asset price inflation in recorded history.
Once the economy starts to show signs of returning to pre-pandemic form, then it’s all systems go, the unfathomably -massive global stimulus will find its way into every nook and cranny of virtually every asset class.
Here we can most certainly draw parallels to 2008/09 as due to the wave of government and central bank interventions, we did get a massive lift-off despite failed bounce and numerous wobbles.
The market is looking for a lockdown exit strategy, and with some signs of life emerging, Austria has become the market poster boy as the first country to lay out its plans to start reopening the economy.
Two points will be crucial:
firstly, can it keep new cases under control
secondly, how quickly can things return to something approaching normality?
According to its timetable, small shops will be permitted to open again from April 14, as well as large DIY stores and garden centres. Other businesses deemed slightly higher risk will begin from May 1, such as hair salons.
The government said there were possibilities restaurants and cafés would be allowed to start operating again in mid-May but declined to give an exact date. Public events will not be permitted to take place until July. No date has been set for schools to reopen.
Beautiful light at the end of the tunnel, indeed.
Oil prices plunged
Crude future toppled overnight after traders took a peek into the future devoid of a swift and immediate production compromise. Genscape Inc reported a 5.8 million-barrel rise in oil inventories in Cushing Oklahoma storage complex, WTI primary storage facility. But of course, this build should act as a stark reminder to producers that a voluntary production cut should be the order of the day.
Oil prices fell 8% Monday’s doubts around the Russia/Saudi deal as oil traders were initially unable to sniff out any hint of an agreement; instead, all they could sense was bad blood an animosity.
However, losses were pared later in the US session after the US energy secretary indicated that Saudi Arabia was attempting to set a G20 meeting for Friday to discuss production cuts.
And prices are getting a further lift from buoyant risk sentiment getting bolstered by the flattening of the Covid19 curve, which is also economically favourable for oil prices as it suggests people could start driving to work sooner than expected.
Put prices could remain capped until a deal is done with is already formidable nature given the problematic material arrangement and the re-emerging of disputes between Saudi Arabia and Russia around responsibility for the first breakdown of OPEC+, which makes the route towards securing and delivering this deal very fragile. Insert the US producers into the debate, and the and discussions become flat out unwieldy.
Ultimately there is hope that cooler heads will prevail, and producers will reconcile and formulate a response that puts a floor under oil price as the recent prices in the $20s reflect the dual demand and supplies shock and is not sustainable for any of the primary producers. Still, the challenge remains to the extent which producers are willing to cut as 2Q looks over-supplied by 20mb/d on a 17.5mb/d demand decline, and filling storage in 2Q remains likely.
Gold put in an impressive rally, especially in light of recent gains. Gold has rallied USD90/oz in five trading days. Gold investors are revelling in the level of central bank stimulus and fiscal spending, especially when it raises government debt levels.
There were steady buyers of gold throughout the day Monday. The level of inflows into the ETF was stunning, with another 500k on Friday, while COTR reporting showed a 10% reduction in longs. But it was the EFP that was a driver again out of the gates at yesterday’s London bullion market open as banks continued to cover shorts. Implied EFP hit 65 this morning up from 20/30 yesterday despite three refiners came back online today but may only be operating at 25 % compacity, so physical remains scarce.
But with lights turning back on in the refineries, EFP premium could burn out as the day wears on.
Currency markets: AUD rises
The Aussie dollar is off to the races this morning as risk sentiment bolster globally as Covid-19 case count curves flatten while catching an updraft from China’s economy, which is expected to emerge from the Covid19 coshes much quicker than the western world.
The Covid-19 case count for Australia and New Zealand. As of April 6, Australia’s daily growth rate of new confirmed infections has fallen below 2%, and below 5% in New Zealand.
By contrast, daily case growth in confirmed infections in the US stood at a little over 12% on April 6. Evidence continues to show that aggressive lockdown measures, imposed by AUS and NZ earlier on the epidemic curve than elsewhere, appear to be working, for now at least.
So as opposed to focussing on Yield curve flatting, FX traders are focusing on the Corona19 divergence trade and possibly buying into countries’ currencies that are expected to see the virus pass quicker.
We should see the dollar trading softer against the Ringgit today on the improving global risk sentiment even more so as oil prices are showing signs of stabilizing ahead of the OPEC+ meeting. But all eyes and ears are trained on this week’s OPEC meeting.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp