US equities were weaker Tuesday – S&P500 down 3.1%, similar losses in Europe, and smaller losses through Asia. US10Y treasury yields fell 4bps to 0.57%.

While the first WTI oil contract managed to move back into positive territory, closing at USD10.01 per barrel, broader oil benchmarks remained under pressure, Brent fell 24%, and the June WTI contract fell 43%.

However, oil bounce back renewed price weakness has prompted Saudi Arabia to consider bringing forward production cuts that were scheduled to start in May.

Stocks sold off overnight, but the sell-off is showing signs of petering out as more US states have taken steps to reopen in recent days.

Beyond the direct impact on energy stocks, the crude weakness has negative connotations for other areas of the market, most notably banks, given their high exposure to US shale producers.

Over the past week, the S&P 500 has staged a massive rally off the lows based on the same hopeful timeline as the crude oil prices bounced into the OPEC+ deal. But the oil market disintegration in May delivery provided a wakeup call for the “buys the dip” crowd as a vision of a “V” shaped recovery went slip-sliding away on a giant oil slick.

Gradual ‘unlockdown’

However, some states are starting to relax their stay at home orders – some more than others – but getting back to where we were before the virus shut everything down isn’t just a matter of telling everyone to go back to work. It’s a matter of getting them to re-engage demand in the face of potential secondary spreaders.

But the markets in general, are still enveloping its enormous hivemind around the idea of unlimited fiscal spending financed by unlimited central bank buying of assets along with the still-new concept that the FOMC will fund the world with dollars to infinity.

Far too many inputs to draw any sensible conclusions about stocks. Some Wall Street banks are arguing for new, permanently-higher equity multiples given the volume of central bank asset purchases in the system.

While some of Wall Street’s most exceptional fear there may be some negative backlash on stock prices, S&P earnings come in at $110 this year vs. a January estimate of $178. Ultimately there’s going to be a collision between deflationary forces hitting head-on into whatever it takes reflation policy, and as in forces of nature, the bigger usually wins.

Oil markets

Oil sold off sharply again, with the weakness spreading from WTI to other crude markets. It merely reflects the underlying theme that there is no demand for physical oil, and there is nowhere to store it. Oil ETFs have seen significant inflows over the last few days compounding matters.

Disappointment following the new OPEC+ agreement continues to resonate and responding to that outcry could be the one thing that turns the oil price around in the near term, absent evidence of demand recovery.

State-level regulators in the US are considering whether or not to cut, and similar discussions are taking place in other major producing nations. Neither OPEC alone nor the original OPEC+ can realistically cut enough to offset the expected 2Q demand hit. Still, an expanded OPEC++ might move the needle, at least enough to stem the saturating tide while demand stabilizes and recovers.

It’s a hundred to one shot, but WTI in the negative territory might prove to be the horrific eye candy for oil company executives and policymakers around the world to come up with a solution.

Gold markets

Gold slides as the drop in oil and equities trigger liquidation as a scramble for US dollar ensued compounding matters. With the world’s most actively traded commodity – oil – still in a tailspin, it was impossible for the commodity block, including precious metals complex, to ignore the deflationary implications.

Currency markets

Super contango not super crucial for oil currencies

It’s not the contango that influences commodity currencies; it’s the average price of the curve that affects the currency market. Hence the reason there wasn’t a more pronounced sell-off on the Canadian dollar. With front end at -40, that would correlate USDCAD rocketing to the stratosphere. So, when spot prices go topsy-turvy and track the front-month contract into negative territory, it could be time to fade the move.

Looking further out, the market and energy equities, in particular, do not expect oil to be in the $20 price range for long, hence the relative resilience shown by oil majors.

Low expectations hamper the Euro.

EURUSD price action is still nervous in what seems to be a relatively low volume market, and price action suggests expectations for Thursday’s EU summit are low.

Ringgit still under pressure

For the Ringgit, the song remains the same, absent a bounce in oil prices, and with the organic stabilising effect of petrodollar inflows missing, the Ringgit continues to struggle. This is getting compounded by a somewhat resilient US dollar as global risk appetite wanes.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp