US Open – German Recession the Icing on the Cake

Reality Doesn’t Sit Well With Investors

Europe is off to a strong start on Friday, while Wall Street is poised to open a little lower following the late rally on Thursday.

It’s not been the best week for stock markets. We’ve had more data that’s very hard to ignore – Germany in recession, worst monthly UK contraction on record – Powell was less than optimistic about the outlook, tensions between the US and China are rising at a ferocious rate and on top of all that, the threat of a second wave of coronavirus cases is upon us in some countries just as others are starting to emerge from the first.

This was meant to be a week of promise, the first step towards the new normal – whatever that will be – and instead it’s been a little draining. Don’t get me wrong, it would come as no surprise if this is forgotten about over the weekend and stocks are marching higher again on Monday but this week serves as a reminder that there’s wounds that endless stimulus can’t heal. There’s going to be plenty of them in the months ahead.

Fine line between confidence and complacency

Oil prices are heading higher once again as WTI closes in on $30 a barrel, almost $70 above the level it plummeted to almost a month ago. I mean, that’s staggering even when you forget about the negative prices. There’s clearly a different feel to the oil market heading into this contract expiry, with production cuts having been enforced globally, either through deals or unilaterally.

But will it be enough to avert another panic selling moment? The odds have certainly reduced and there’s no sign of caution among traders but there’s plenty of time yet. There’s a fine line between confidence and complacency and we can only hope that line hasn’t been crossed or early next week it could quickly unravel.

Gold catching up with reality

In lockdown, it can be easy to lose track of what day it is but take one look at a gold chart and that Friday feeling is shining through. Consolidation over the last month has made this running daily commentary quite painful at times. You’d swear we’re living in relatively mundane times.

Finally it seems gold is catching up with reality, maybe even – dare I say it – acting like a safe haven (ish)? The breakout came during some weakness in risk markets and while they have bounced back, I wonder whether the gold move is being sustained more by technical factors that the fundamental that triggered the move in the first place. Whatever the reason, a break of $1,750 could kick it into a higher gear.

The excitement is palpable

Bitcoin enthusiasts are some of the most bullish people you’ll come across. No matter what is happening, it’s bullish for bitcoin. With central banks around the world throwing everything they have at the crisis, I can imagine there’s a lot of very, very bullish forecasts right now. We’ve seen three runs at $10,000 and the failure doesn’t appear to be shaking them at all. The excitement is palpable. If this breaks, it could be a very bullish catalyst.

Economic Calendar

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