Europe open – Coronabonds, OPEC+++, gold, bitcoin

It’s Going to be a Looong Weekend

What a session we have in store; an OPEC+++ meeting, US jobless claims and the final trading day for most heading into the Easter weekend. It’s going to be all action.

Source – Thomson Reuters Eikon

Europe is playing a little catchup this morning after the US rallied into the close and Asia posted decent gains overnight. The withdrawal of Bernie Sanders from the Democratic leadership race seemed to be the catalyst for the move but it came in a market in which investors investors look pretty keen to jump back in. Sometimes they just need a little nudge.

Under the circumstances, there appears to once again be a case of FOMO investing happening. Let’s face it, no one likes to be the only one that missed out on the bargain of a lifetime, and these markets are heavily discounted afterall. But is this the right time? That’s debateable and only time will tell.

The US is fast becoming the biggest victim of the coronavirus spread with almost another 2,000 deaths in the last 24 hours. It is on course to take over Italy in total deaths in the next couple of days and the numbers aren’t even close to plateauing.

The upside has been the policy response which is largely what we owe the rebound in the markets to. Governments and central banks around the world have held nothing back and while the reward in the medium-to-long term will hopefully be economic stability and damage limitation, in the near-term it’s a more stable stock market and an end to double digit percentage collapses.

The one exception here is the eurozone which is yet to agree on a common response to the crisis. In all-too-familiar fashion, the block is at odds as to how to fund the response. The most obvious is jointly issued bonds – or coronabonds – but the usual players are refusing to engage in such a politically problematic venture and would rather make use of the ESM, the bailout facility. As ever, the unwillingness to further deepen the bonds the bind them will prolong and worsen this crisis and provoke further hostility and anti-EU sentiment.

Overall sentiment in the market looks to be holding up going into the loooooong bank holiday weekend. In times like this, the weekend can feel long as it is. For those holding risk, especially given the trajectory in the US,  it may feel very long indeed which may see some exposure cutting into the end of the day.

Market has high expectations for OPEC+++

The stand-out event today is the OPEC+++ meeting, where producers will attempt to find agreement on output that addresses the collapse in demand and crude prices. No one is winning in this environment but, as ever, each are losing to different degrees and have a different ideas on how it should be resolved. I don’t think a grand deal is as nailed on as markets would have us believe but, as ever, common sense should prevail.

If a substantial deal is going to get over the line, the US must play a part in some form. It is currently hoping that a market-driven, forced production cut will be enough to convince other producers to cut but I’m not sure that will be enough. Other assurances will be necessary to get Russia on board, which is the biggest risk to a deal.

WTI Daily Chart

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Gold plods on higher

Gold is on the rise again this morning as it sets its sights on $1,700. The yellow metal continues to benefit from this calmer environment, even as risk appetite improves. The market is flooded with cash from central banks around the world which is inflating gold prices at this highly uncertain time. The test will come if we see a stock market downturn again, given that it’s recently been quite well correlated with it, while the dollar has been the safe haven of choice.

Gold Daily Chart

Bitcoin still pushing for major breakout

The bitcoin battle rages on, with $7,500 proving to be quite the barrier to the upside. Buyers have been relentless and undeterred until this point though so I don’t think they’re going to give up just yet. The price is just shy of these levels at the time of writing, the question is whether risk appetite holds up into the long weekend, which could drag.

Economic Calendar

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

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