US Open – Stocks lower on Jobless Claims data, 22M jobs lost in one month, Yen in control, Oil nears bottom, Gold pares gain following data, Bitcoin’s Libra rally part deux

Earlier in the morning, US stocks were showing signs of life on expectations President Trump will unveil steps to reopening up the economy.  The President is eager to rush open some parts of the economy as the coronavirus is plateauing in some parts of the country.  While the country is nowhere near ready in delivering coronavirus testing to the masses, a return to work for some will be critical in slowing down the current economic freefall of pain.

The fourth consecutive disastrous US jobless claims reading showed 5.245 million Americans filed for unemployment last week, bringing the coronavirus pandemic driven total to over 22 million jobs.  The unemployment rate is set to skyrocket toward 20%, yet stocks are not selling off.

The morning economic data also showed housing starts had the worst drop since 1984 and the Philly Fed plummeted just like yesterday’s Empire manufacturing reading.  Investors are expecting terrible data for the next couple months and even as most of these economic indicators come in worse than the consensus estimate (Empire Mfg, Philly Fed, Housing data), optimism brews that the US economy is getting closer to the other side of the virus. 

Equities were unable to hold onto earlier gains as the short-term shock to the economy appears to dampen risk appetite.  Nothing good is coming out of earnings season so far and that will probably be the case over the next few weeks.

FX

The dollar slightly firmed up following the downbeat economic data as traders seem to focus on the positives that the US economy is getting through the worst of the data.

A sense of nervousness however is still persisting, possibly putting Japanese yen appears back in the driver seat.  Economic pain is expected but the numbers are coming in much worse than anyone initially expected.  A flight to safety appears in place as Treasuries soar and the yen rallies across against all its major trading partners.

Oil

Oil prices were initially unfazed this morning after energy traders digest a steady stream of mixed news.  Energy traders are finally getting a sense of how bad the coronavirus pandemic has hurt the US economy.  Much of the bad news for crude demand is heavily priced in, so that might help explain why we did not see much of a reaction following the jobless claims release.  The four-week jobless claims total rose to an unprecedented 22 million, which will likely mean the unemployment rate appears headed toward 20%.

The stay-at-home economy is crippling crude demand and that is why President Trump is eager to unveil his strategy to reopening the economy.  Today, Trump hopes to convince Americans that they will be returning to work soon and that children will be able to go back to school.  While everyone wants things back to normal, several key epicenters are sill seeing hundreds of deaths daily.

The biggest bullish driver for oil prices will be voluntary production cuts from the larger oil companies.  Today, ConocoPhillips announced a voluntarily reduction of 225,000 gross barrels of oil per day.  The supply and demand shocks warrant further production cuts across the entire energy space, but the nearing of global storage tank capacity will force everyone’s hand.

Yesterday, oil benefited from reports that the Energy Department is preparing a plan to cut US oil output by compensating drillers not to produce. This may not end up happening, but it sure shows how desperate

The longer WTI crude stay near the $20 a barrel level, the harder it will be for prices to crash again one more time.  With Europe starting to show signs of easing lockdown measures, a small crude demand bump could be enough to keep prices stuck around current levels.  The US might be a couple weeks behind Europe and that should mean that we are very close to the bottom for oil prices.

Gold

Gold gave up a big chunk of its gains after weekly jobless claims came inline with expectations.  The morning data was bad, but investors have grown to expect that and used it as an excuse to lock-in profits.

Calls for fresh record highs (in dollar terms) are growing as Newmont CEO Palmer calls for gold to break above the $2,000 level over the next five years. Gold will struggle to top $1800 this week, but that might not pose a problem over the next few weeks.

Bitcoin

Facebook has not given up with its Libra project.  The social media giant’s latest strategy will attempt to support various versions of digital coins, that will be backed by fiat currencies.  Facebook is doing a lot of the dirty work with regulators and that ultimately should be positive for Bitcoin.  Facebook will also bring a lot of attention back to the crypto space and that should be constructive in the longer-term for Bitcoin.

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