US Open – Overnight Reopening hopes and China optimism rally undeterred by IMF’s outlook and earnings, Oil can’t shake demand woes, Gold shines

The V-shaped recovery remains intact as world leaders start plans on how to re-open their economies.  S&P futures overnight were boosted overnight as investors are starting to see light at the end of the coronavirus pandemic tunnel.  Many investors are eyeing April as potentially the last major month of pain for Europe and Asia.  China has already begun opening up their economy and hopes are growing that Europe might be a month away from doing the same.  Lockdown measures were extended in India for three more weeks, while France committed to keep them until May 11th.  The UK is still seeing news cases and the death toll rise, so expectations could be higher for a slightly slower start than France. 

The US outlook to reopening is a lot more complicated as governors on the East and West Coasts have formed coalitions to decide a strategy on when business life can see some normalcy.  President Trump seems determined that it is his call to reopen the country and any conflicting messages from either side will not help sentiment.  The President decided not to push for a national lockdown and let it up to individual states to decide, so he may find some resistance from the larger metropolitan states, who might do not want to rush people back to work.

Earnings

JP Morgan kicked off earnings season with a rather dire outlook for the American consumer and economy.  The first-quarter profit plunge was expected and managed revenue pretty much came in-line with the consensus estimate.  Shares of the New York based bank probably would have been lower, but CFO Piepszak statement that they are committed to maintaining their dividend helped boost shares in early trade. 

The outlook for the economy is bleak as JPMorgan Chase prepares for loan defaults.  The bank placed $8.3 billion in reserve to cover potentially bad loans and $6.8 billion in reserves this quarter for the consumer card division.  The length of this severe recession will depend on how the COVID-19 unfolds, but it seems pretty obvious a big part of the country will not be able to pay their bills. 

CEO Jaime Dimon brought down any hopes of that the economy would open next month and targeted that it’ll be more like June, July, maybe even August.  JPMorgan’s results will likely be a template of what is to come this earnings season and unfortunately it will mean a battered US consumer. 

IMF outlook sinks dollar

The IMF’s World Economic Outlook report has COVID-19 crippling global GDP, downgrading the 2020 forecast from a 3.3% gain to a 3.0% contraction. The IMF is prepared to see the coronavirus trigger recessions across all the advanced economies this year, while India and China manage modest gains.  Substantial uncertainty will remain in place for months and economic disruptions could even be much worst for emerging market countries. 

The dollar fell against its major trading partners following the IMF’s gloomy projections which should support calls for the Fed to remain ultra-accommodative in the short-term. 

Oil

It appears energy traders have moved on from the OPEC + pact and continue to focus on the crude’s demand destruction and oversupply conditions.  Oil prices are falling again as a grim outlook from the IMF outlines a severe recession across the world, which will likely see crude demand’s eventual pickup be much slower than many were hoping.  Crude will continue to struggle as demand-side relief won’t happen anytime soon as advanced economies will keep lockdown measures throughout most of next month.

The OPEC + pact has done little to avert concerns that global storage tanks are nearing capacity.  WTI crude has now erased all the gains that stemmed from President Trump’s breakthrough conversation with the Saudi Prince that their price war with Russia was going to end.  If WTI breaks below last month’s low ($19.27 a barrel) and the $18.80 level, major support might not be reached until the $15 region. 

Gold

Gold is surging as risk appetite comes back, somewhat shrugging off all the cautious outlooks from Wall Street.  Gold is still a safe-haven trade, but this last move is strictly a risk-on rally.  The dollar is falling, and gold is loving it.  Gold prices are tentatively off their session highs as the $1,800 psychological should prove initially difficult to break.  Gold continues to benefit from the stimulus trade which seems will not be going away anytime soon if the IMF’s outlook is right.  Gold volatility will remain high, but the path appears set to make a run at its 2011 record highs. 

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