Europe open – Stimulus, Italy, oil, gold, bitcoin

US stimulus provides temporary relief

Europe got off to a strong start again on Wednesday after the US Senate agreed a $2 trillion stimulus package to deal with the economic consequences of the coronavirus.

This comes as Trump stressed his desire to have the economy up and running again by Easter, once again giving the impression that he is prioritizing the economy over the health of US citizens. This is despite warnings by the WHO that the US could become the new epicenter of the pandemic.

Given those warnings, I wonder whether the stock market bounce is a little premature. Of course, all downturns have up days but yesterday was staggering. The biggest percentage gain in the Dow since 1933 is not your normal bounce and coming against the backdrop of a dramatic acceleration in new cases and deaths, it feels a bit much. Darker days may lie ahead.

In Italy is was two steps forward and one step back as the number of deaths reported rose after two days of decline. There is still cause for optimism there, with the number falling shy of Saturday’s peak but we’re still talking about scary numbers. The country may be on the right track, which gives hope to other countries currently heading in the opposite direction, but it has suffered horribly and while hopefully declining, the numbers are still dreadful.

With all of this in mind, I think it’s far too early to call a bottom in equity markets. Policy makers around the world have been extremely bold and in many cases, prompt, but until we know how bad this is going to get, we can’t possibly determine what kind of recovery we have in store. All we can do is stay at home and hope that in six months, life has moved on and all of these stimulus efforts have protected people and businesses, and accelerated the recovery.

Oil rebounds but risks remain below

Oil prices are continuing to recover from their lows on Monday, bouncing more than 15% in that time, albeit from such low levels that the absolute rise is still relatively small. The rebound in risk appetite has clearly driven those moves with the oil dynamics still very much skewed to the downside.

This oil price war can’t last forever but we’re no closer to knowing just how long it will go on for. The coronavirus is the big unknown though and until we get a better idea of the economic fallout, traders will continue to fear the worst, which doesn’t bode well for oil.

Gold still has major downside risk

Gold is paring gains after soaring at the start of the week. Isn’t it amazing what an enormous Fed stimulus package, including QE-infinity, can do. A week or so without staggering declines is also likely aiding gold’s ascent, with the yellow metal having been battered by the need to cover margin and losses elsewhere.

The big downside risk remains the potential for those sharp sell-off’s in equity markets to be repeated, especially following yesterday’s huge rally, with the market leaving itself open to more panic selling.

Bitcoin facing major hurdle

Bitcoin is still creeping higher but remains below $7,000 at the time of writing, the level it peaked near just under a week ago and one which has proven notable over the last year or so.

Of course, these levels aren’t exact but the region around $6,500 – $7,500 has clearly been interesting in the past. It could provide a test to the recent bullish run in the cryptocurrency market.

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