US open – Earnings, Fed, oil, gold, bitcoin

Big Bro Fed Got Your Back

Stock markets are back in the green in Europe and Wall Street is poised for decent gains on the open despite the late drop into negative territory on Tuesday.

Investors are showing no fear despite this being a blockbuster week in terms of earnings and central bank meetings. It’s easy to be brave when big brother Fed is stood behind you and has committed to having your back for the foreseeable future. Big bro can’t stand behind investors indefinitely though so the longer this goes on, the more chance there is of more carnage further down the road. If you looked at the markets, you’d swear the economy was going through a minor blip, not the worst recession in a century. Madness.

What do you say about the bank results when investors seem so happy to ignore larger credit provisions – more than double in the case of Barclays – and the risks associated with a sharp recession and potentially prolonged recovery? Barclays and Standard Chartered shares are both up more than 4% this morning, despite the plunge in profits, a theme that’s been prevalent across the banks that have reported this week.

There’s plenty more earnings results to come from the US today, with Boeing among those reporting before the open and Facebook, Microsoft, Tesla and eBay joining them after the close. Alphabet’s earnings were met with some relief, with revenue not as bad as feared, despite the expected weakness in advertising as a result of the coronavirus crisis. Facebook investors may not be so forgiving later today, although if the season so far is anything to go by, investors are in a very forgiving mood.

The Federal Reserve meeting later today should spring too many surprises on us. I mean, what is there left for them to do? Their balance sheet has expanded at an eye-watering pace, inceasing around 60% since late February to more than $6.5 trillion. Moreover, financial markets have calmed right down, giving investors trillions more reasons to buy those dips. It’s far from healthy but compared to what was happening in late February/early March, it’s the lesser of two evils. Either way, the Fed can afford to take it easy today.

Fed Balance Sheet

Source – Federal Reserve

Oil bounces back for now but the carnage hasn’t passed

More oil price carnage this week after it was reported that the largest oil ETF, USO, was planning to sell its entire holding of June WTI contracts in favour of longer dated instruments. That thinking seems to be being shared by many after the drama of early last week when the May contract fell to minus $40 heading into expiry. The June price has recovered today and lifted the broader oil market with it but any hopes that all will be plain sailing from here are misguided.

This could become quite an illiquid market in the final weeks of trading so more volatility is likely, not less. Carnage will remain as long as the market remains so incredibly imbalanced and we get closer to mid-May when storage facilities are expected to be full to the brim. Those cuts can’t come soon enough.

Gold in consolidation

Gold appears to have entered into a consoldation phase, which is probably for the best as it can’t seem to decide what its actual role is in these markets. Is it aligned with risk? The dollar? Central bank easing? Physical demand? Who knows at this point. I remain convinced that all of this easing from central banks will support prices in the longer term – more than $2.5 trillion more from the Fed alone, as mentioned earlier – but for now it seems caught in two minds. $1,660 is the level to watch below and $1,750 above but the walls may be closing in.

Gold Daily Chart

OANDA fxTrade Advanced Charting Platform

Bitcoin pushing on higher as halving day nears

Bitcoin looks to have found some extra momentum today which may provide crypto bulls some comfort after the slowest of breakouts last week. It’s currently grappling with $8,000 and looks to be winning at the moment but if the battle of $7,500 is anything to go by, this could last a while. The bitcoin halving in under two weeks may explain some of the bullish activity by speculators but you have to think that an event that has been in the diary for so long will already be priced in. This could see some of these moves faded as we hit halving day.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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