Mid-Market Update: Dow pops on Gilead’s news, US economy contracts, Boeing’s job cuts, Oil higher as forced cuts near, Gold down Gilead’s results, Bitcoin pops

The US recession is beginning, but financial markets seem to only care about Gilead’s Remdesivir.  Risk appetite is roaring back on news that positive data came out of the National Institute of Allergy and Infectious Diseases’ (NIAID) study of the investigational antiviral remdesivir for the treatment of Covid-19.  Today’s main event was not the Fed policy decision, nor that the US economy shrank by 4.8%, the sharpest pace since the Great Recession, but news that Gilead’s anti-viral drug Remdesivir met the primary endpoint of a government run study to treat the COVID-19. 

Optimism is growing that Remdesivir will get fast track approval, but traders need to exercise some caution as it has yet to be proven safe nor effective in treating COVID-19.  Dr. Fauci (Dir of National Institute of Allergy and Infectious Diseases) will hold a press conference later today regarding Remdesivir. 

The results showed that a shorter 5-day treatment with the Remdesivir works just as well as a longer 10-day regimen, which will likely support calls for greater testing abilities.  The pressure will grow on the federal government to help the states get testing, but with a possible treatment nearing FDA approval, the Trump administration will likely become more supportive. 

US GDP

The record long US expansion has ended.  The US economy is headed to a recession following the first quarter contraction of 4.8%, which was slightly more than the expected 4% decline.  Consumer spending fell off a cliff and posted its worst drop since 1980, an eye-dropping 7.6% plunge.  Business fixed investment had its worst decline since the Great Recession and consumption of services had its worst fall ever.  Grocery spending rose to a record, a surprise to no one. 

The focus will quickly shift to the second quarter and despite rolling reopening optimism, the economy could still shrink between 30-40%.   Too much needs to go right for US economic activity to recover quickly and a lot of that will depend on the availability of rapid, widespread testing, approval of treatments, and the ability for drug companies to ramp up production domestically and internationally.   Optimism seems warranted, but it might best be place for the third quarter. 

Boeing

About an hour before Gilead’s news and the economic data, the Dow was pushed higher by Boeing, which saw shares rally following a 10% job cut announcement.  Along with mixed earnings results, Boeing announced the reduction of commercial airline production rates.  Boeing’s job cut news is bad for the economy but positive for the stock in the short-term as the company struggles to keep cash. 

Oil

Oil prices are rallying as crude production cut efforts intensify and as hopes for a treatment in battling COVID-19 grow.  Global storage capacity constraints are forcing the big boys, the Saudis and Russians to cut production earlier and deeper.  WTI crude is also benefiting from optimism that economic activity could improve following Gilead’s good news with their Phase 3 trial of Remdesivir. 

Oil volatility will remain high until the production cuts finally balance out coronavirus demand devastation.  Oil prices can very easily spike back towards this week’s low as the outlook for a steady pickup with crude demand remains very uncertain.    

US crude oil inventories are likely to show production continues to decline and refining rates will exemplify that demand is weakening.    

Gold

Gold prices got pummeled after encouraging news from Gilead’s experimental drug to treat COVID-19 and after some better than expected corporate updates from Google and Boeing.  Gold continues to hold onto the $1700 an ounce level ahead of the Fed policy decision, which is expected to provide more clarity with the recent wave stimulus measures that were announced to stabilize the stock market and alleviate strains on the financial system.  The Fed will likely not close any door regarding further action and that should provide support for gold following the meeting.  The US economic is unclear and this meeting is not the time to say that they are almost done supporting the economy and financial system. 

Gold volatility will remain high and a tentative break of $1700 should see buyers emerge around the $1650 area.  Central bank policy makers worldwide are still going to deliver further action over the next couple months at the very least and that should provide much support for gold.  Gold’s path to record high territory is still there, it just might take most of summer to reach it.    

Bitcoin

Bitcoin is slowly recovering from its coronavirus crash as appetite for risky assets improve and as the highly awaited halving event nears.  Bitcoin is also benefitting from a broadly weaker US dollar, which should see steady pressure as demand for safe-havens continue to ease as larger parts of the global economy reopen. 

Practically the entire crypto space is rising and that trend could remain in place in the short-term as both mainstream interest improves and the halving event is just under two weeks away.   The past two prior halving events saw Bitcoin strengthen as shrinking supply was met with rising interest.  Bitcoin will find strong resistance from the $9200 level, which was where it traded before the scramble for cash saw Bitcoin post its third worst 24-hour trading day. 

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