European open – Stimulus, oil, gold, bitcoin

That Didn’t Last Long

Enormous stimulus packages from the UK and US governments managed just a single day bounce in equity markets, with those gains having already been wiped out in Europe.

Source – Thomson Reuters Eikon

The response from the various authorities is not going to prevent job losses or companies going bust but they will help significantly reduce the number of casualties. For that reason, the enormous measures announced are extremely encouraging, but as far as investors are concerned right now, it’s too early to get excited.

The measures announced will soften the blow to the economy, businesses and households, and, I imagine, significantly accelerate the recovery in equity markets when we get there. For now though, investors still don’t know when that recovery will come and how much damage will happen in the interim. For that reason, the primary focus is still the number of new cases and fatalities.

When the coronavirus was previously consigned to just China, investors started buying again when we started seeing a deceleration in the number of new cases. Given the scale of losses, I feel investors may be keen to get back in but we may have to at least see a drop of in the rate of increase, which may signal that the extreme measures being undertaken are working. This may take a couple of weeks at least though.

When will Russia or the Saudi’s blink?

Oil prices have slipped below $30, despite initially finding some support here on Monday. The combination of a global economic recession and an oil price war is obviously behind the continued slump in crude prices. Prices have fallen so far, there isn’t exactly a huge amount of room left to the downside, not unless this is a suicide mission by the major producers.

Consumers and business will obviously be happy about the timing of the slump but if prices keep slipping, the risk is that Saudi Arabia and/or Russia will blink and another output cut will be agreed, lifting prices off their lows. In the meantime, we have to look back to 2016 to see how it last traded around these levels and that low, around $27.10 is the next test for Brent.

Brent Daily Chart

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Gold not much of a safe haven

Gold enjoyed a bit of a bounce yesterday afternoon as both the US and the UK unveiled new huge stimulus plans. The move saw gold rise back towards $1,550 but it was short-lived and already it’s slipped back below $1,500 this morning. Whatever gold is, it’s certainly not much of a safe haven at the minute. It’s also not getting the usual boost from monetary easing that we’ve seen over the last decade, perhaps a sign that traders are fearing deflation rather than higher inflation. The next support for gold is $1,450 but the way this trend is going, I’m not particularly confident in it.

Gold Daily Chart

Bitcoin bulls may be wrongly encouraged

Fans of bitcoin may be encouraged by the price action over the last couple of days. It appears to have found some support around $5,000 and bounced ahead of the previous low which could be a good sign. Unfortunately for them though, these are not ordinary markets and further heavy selling in equities is likely to continue to take its toll on cryptocurrencies. The late 2018, early 2019 levels may not be too far away.

Bitcoin Weekly Chart

Source – Thomson Reuters Eikon

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