US Open – Possibly another buying opportunity is upon us, UK Chancellor quits, Oil’s tentative bottom, Metals diverge on virus spike, LATAM declines

Wall Street seems to be buying the dip again.  Last night, risk aversion returned on news that China reported a sizable jump in new coronavirus cases.  The shock re-acceleration in number of cases delivered a blow to many optimistic outlooks that were targeting the virus to peak in a couple more weeks. 

Investors still want to buy any weakness as hopes are high China will have a strong rebound once this virus has peaked. Global central bank stimulus is still going to power these markets, but if China’s slowdown extends into the second quarter, stocks will struggle as the Chinese V-shaped recovery will likely turn into a U-shaped one.

Treasuries

Treasury yields are dropping as the flight to safety has money come into the backend of the curve.  The Treasury 10-year yield came off its lows after mixed inflation data confirms Wall Street’s belief that the Fed is not making moves anytime soon.  The annual pace came in hotter than expected at 2.5%, up from the prior 2.3%, but we will probably need to see a 3.0% print before we see inflation come into the PCE Core reading, which is Fed’s preferred reading on prices. 

FX

PM Boris Johnson’s reshuffle seems to be going as well as the current trade negotiations with the EU.  Johnson was dealt a blow after Sajid Javid quit as Chancellor of the Exchequer.  The last time a Chancellor quit the job was back in the 1980’s.  The timing is terrible as Johnson is four weeks away from the heavily anticipated release of the post-Brexit budget. 

The British pound is higher on the day as expectations are greater that the conservatives may deliver bigger spending initiatives.  Johnson will have an easier path of managing the Treasury and delivering more infrastructure spending. 

Rishi Sunak has been appointed the new Chancellor and comes with an investment banking background before he made the turn to politics. 

Oil

Oil prices are holding up fairly nicely despite the wave of risk aversion that stemmed from a surge in coronavirus cases.  The Russian’s have pretty much signaled that everyone is on board for OPEC + delivering deeper production cuts.  The final decision comes from the government and that could mean we are just waiting for President Putin to secure some additional non-public concessions from the Saudis.

Crude’s price action possibly suggests a firm bottom is in place.  As long as the coronavirus does not show strong signs that the spreading of the virus is intensifying, WTI crude could make a run towards the mid-$50s. 

Gold

Gold is rising higher as coronavirus fears have quickly returned.  Gold is getting support from all over the place as global growth sentiment was dealt a major blow as fears grow the virus peak may not be as near as initially thought and on concerns the world’s two largest economies could see trade tensions flare up once China fails to live up to their purchase commitments. 

Recession fears for China are likely to keep gold supported and wreak havoc with industrial metals.  Copper prices are likely to fall under pressure and could remain stuck in a $5720-$5775 range until scientists are confident that the virus peak is nearing. 

LATAM

The latest wave of coronavirus fears are battering the Chilean peso.  Weaker industrial prices will continue to keep the pressure on the Chilean peso.

Both the Peruvian sol and Chilean peso will likely struggle to rally until China has most of their factories resume industrial production.  Peru may not see as much weakness as their government looks to ratify the Asia-Pacific trade agreement.  Peru is opening up to more markets and that will be positive for their economy in the long-term. 

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