Europe open – Jobless claims, oil, gold, bitcoin

Encouraging week but bottom may still lie ahead

Stock markets are back in the red on Thursday but there is a feeling of calm currently, with the losses being seen very much in comfortable territory compared to what we’ve seen at times over the last month.

Source – Thomson Reuters Eikon

The decline also follows two good days for equities and almost two weeks of more stable markets, by which I mean days without double digit losses. We’re still very much living through a period of extreme volatility but it feels like we’re heading in the right direction, by which I mean cooler heads prevailing, rather than just simple market direction.

In fact, I still expect challenging times ahead. The Fed and other central banks have done some extraordinary things in recent weeks to manage the situation and prevent a full meltdown in the markets. Governments are also stepping up with enormous stimulus packages, with the US Senate the latest to pass a $2 trillion package. This is all plays a huge role in stopping the panic in the markets.

The reason I think the market probably hasn’t bottomed yet is simply that much darker days lie ahead as far as the coronavirus is concerned. That makes it extremely difficult to understand just how long economies will be shut down for or how severe the short, medium and long-term damage will be.

We can only start to understand that when we’re approaching peak virus. I don’t think we’re there yet which means stocks are vulnerable to further sell-offs, although the scale of them may be less extreme due to the declines already seen and the sheer volume of stimulus.

Everyone is eyeing the US jobless claims data today for an idea of just how devastating the shutdown of the economy has been. The PMIs earlier this week were horrible which doesn’t offer much confidence. Investors may be more accepting though as they’ve had time to come to terms with the situation and now have a huge stimulus package to lean on.

WTI still vulnerable despite huge sell-off

While oil prices are still throwing out big percentage moves, that’s more a reflection of just how far they’ve fallen rather than the level of volatility we’re still seeing there. The ranges have tightened up considerably since WTI came within touching distance of $20. This week, it’s primarily stayed within the $20-25 range, although it remains vulnerable to the downside.

It helps that the panic has passed for now but the dynamics in the oil market haven’t changed and the downside risk is probably still greater as the coronavirus continues to spread. The good thing is that there isn’t a huge amount of room to the downside at this point. Should $20 break then support could come as early as $18.

Brent Daily Chart

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Gold looking good after Fed reset

We seem to be seeing some profit taking in gold as it continues to find its feet. It’s been an extremely unusual month for the yellow metal but the Fed’s huge stimulus measures appears to have hit the reset button and it’s been trading a little more rationally since. It’s not perfect but it is back above $1,600 having rebounded more than 10% over the last week. It remains vulnerable to downside shocks but the improved stability in the markets will be encouraging for gold bulls.

Gold Daily Chart

Momentum with bitcoin bulls

Bitcoin has been well supported since bottoming just below $4,000 almost two weeks ago. It has gradually been rising but has run into resistance around $7,000 where it’s still struggling to break down. Momentum is very much with the bulls at this point, with $7,000 looking rather vulnerable. It may face further resistance around $7,500, with the entire range between $6,500-7,500 having been an interesting barrier over the last six months or so.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

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