US Open – Fading the overnight limit up rally, Oil extends rally on hopes Russia and Saudis will resume talks, Gold softens

Following Monday’s stock market massacre, stimulus hopes helped stocks trade limit up overnight after rallying 5%. Today’s turnaround may have been a bit excessively premature as much of that rally was attributed to optimism that the Trump administration will shortly have major stimulus announcements. President Trump want’s a tax relief measure and other lawmakers want short-term paid sick leave, but his economic team has yet to meet with Senate Republicans. Kudlow and Mnuchin will have lunch with Republicans, but it seems they are more on the exploratory side of deciding what to recommend.
Today’s rebound was spurred by significant technical buying and on expectations that the major central banks will deliver deeper rate cuts and announce additional stimulus measures over the next couple weeks. Even if the

Following Monday’s stock market massacre, stimulus hopes helped stocks trade limit up overnight after rallying 5%.  Today’s turnaround may have been a bit excessively premature as much of that rally was attributed to optimism that the Trump administration will shortly have major stimulus announcements.  President Trump want’s a tax relief measure and other lawmakers want short-term paid sick leave, but his economic team has yet to meet with Senate Republicans. Kudlow and Mnuchin will have lunch with Republicans, but it seems they are more on the exploratory side of deciding what to recommend.

Today’s rebound was spurred by significant technical buying and on expectations that the major central banks will deliver deeper rate cuts and announce additional stimulus measures over the next couple weeks.  Even if the Trump administration announces fresh tax cuts, financial markets may treat this as a “buy the rumor, sell the news” event.

Treasuries

The move with Treasuries is fascinating.  One month ago, the 10-year Treasury yield was around 1.60%, five days it traded through the 1.00% level, while yesterday’s slide tested 0.33% before rebounding above 0.70%.  Volatility will remain on high alert at the very least for the next couple weeks and it is too early for investors to feel they have the all-clear sign that a bottom is firmly in place. 

Oil

Risk aversion is tentatively back, and oil prices are clearly benefitting from the broader market rally.  Oil extended their gains to 10% earlier in Europe after Russia energy minister Novak said further cooperation with OPEC + is possible. 

Despite all the positive vibes financial markets are feeling today, the outlook for oil should not be for a sustained Brent rally back above the $40 a barrel level.  Other OPEC + members are ramping up production and if the ultimate Russian goal is to do irreparable damage to US shale, oil prices need to stay near their crash lows a lot longer. 

Gold

Gold prices are struggling here as investors start to scale back into their riskier bets.  Gold’s outlook is still bulletproof if you can handle wild swings.  If the US stock risk appetite rally extends above last night’s high, gold in the very short-term could have downward pressure target the $1,625 an ounce level.  Gold’s bullish outlook is still in place as the dollar will end up becoming a funding currency and a wrath of global monetary easing and fiscal stimulus will ultimately take prices toward the 2011 record high. 

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