Europe update – Trump warning, oil, gold, bitcoin

Brace Yourself!

Safe to say, it’s been a torrid start to the decade, as evidenced by the Dow’s worst first quarter performance ever, and European stocks are continuing that trend on the first day of Q2.

It’s been a much more encouraging week or so in financial markets, with equities around the world rebounding off their lows to end the quarter with five positive sessions in six days. Unfortunately, this was always going to be tough to sustain with many countries including the US still only approaching peak-coronavirus. Quarter-end/start can cause unusual fluctuations in stock markets so we don’t want to read too much into today.

Of course, when the President of the United States warns of a “very, very painful two weeks” to come, with the White House anticipating between 100,000 and 240,000 deaths as a result of the coronavirus, it’s understandable for investors to be shaken. This was always the risk of last week’s rebound and we must now hope that quarantine measures bring that number considerably down.

This is a huge change in tone from the President who has failed to grasp the true horror of the coronavirus in the past, repeatedly claiming it will be defeated very soon. As we enter a rapid acceleration phase in the US which brings enormous uncertainty, the bullish case for stock markets is a little weak and we could see the rally quickly run out of steam. We can only hope the next two weeks aren’t nearly as bad as we now fear, on all accounts.

Trump did propose another $2 trillion stimulus package, this time focused on infrastructure spending, but it’s unclear whether it will pass Congress given that they have only just passed another huge packageof the same value. It would be welcome as part of any recovery but doesn’t address concerns investors have right now.

Oil takes another hammering

Crude prices are once again taking a beating, with Brent off more than 4% as risk aversion spreads across the market. US WTI is seeing smaller losses but once again touched $20 a barrel where it saw some support, coming close to the lows hit on Monday. This comes as Trump plans to lease out space in the country’s strategic oil reserve in an attempt to alleviate some of the capacity concerns, after Congress blocked attempts to max it out with purchases from domestic producers.

This will only provide temporary relief and it won’t be long before we’re questioning where it’s all going to go, which will further weigh on prices and raise the prospect of bankruptcies in the US shale industry.

WTI Daily Chart

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Is gold re-finding its safe have status?

Gold is behaving a little more life the safe haven it traditionally is this morning, rising more than 1% as risk assets turn south. Whether this is actually a sign of the relationship re-emerging or another example of month-end price action isn’t yet clear. The yellow metal slipped back below $1,600 on Tuesday, despite risk aversion building on the final day of the quarter. Clearly all is still not well there.

Gold Daily Chart

Bitcoin’s bullish credentials face major test

Bitcoin is being dragged down with everything else, although compared to its usual swings, these moves are fairly modest. The cryptocurrency faces a big test of its bullish credentials over the next few days, having fallen short of last week’s peak during this recent rebound. Should it continue to trend lower and break the lows of earlier this week, just shy of $6,000, then further pain may lie ahead, with the next test potentially coming around $5,000.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

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