European update – ECB PEPP, oil, gold, bitcoin

Europe Bounces on ECB PEPP

Europe is enjoying a decent bounce this morning after the ECB announced a huge new pandemic emergency purchase program in a bid to ease market conditions and support the economy.

Source – Thomson Reuters Eikon

The monetary easing has been coming thick and fast recently and while I have no doubt that it’s making a huge difference and will continue to do so for the rest of the year, investors just haven’t been buying it. Which is strange as we’ve spent a decade talking about how inflated markets have become as a result of such easing and now that we’re getting an extraordinary amount in a short period of time, it’s doing very little to stop the rot.

Given the experience of recent weeks, I’m not particularly confident that we’ll see anything more than a short-term bounce on this occasion as well. Of course, the sharp decline in bond yields, particularly in Italy but also Spain, France and others, is the most important thing. The equity markets will eventually bounce back properly.

Ultimately, the only thing investors are interested in is the number of coronavirus cases. China has shown us that these draconian measures do bear fruit, we just have to be patient. As soon as we start to see evidence of this across Europe and the US, I think investors may start to view things differently. Then again, the coronavirus has surprised us so much already, so who knows.

How much lower can oil feasibly go?

Oil has a woeful day on Wednesday, the third worst on record for WTI, as traders continue to prepare for a more severe slowdown. This naturally means less demand for oil and already comes at a time of severe distress and an oil price war. We’re at extremely depressed levels now though, with WTI at one stage coming very close to breaching $20.

I know producers knew what they were getting themselves in for but I wonder whether they expected such a fierce response in the markets. How long can they keep this up at these levels? A lot now seems to be priced in and I wonder whether it’s gone a little far already.

Brent Daily Chart

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Stronger dollar a drag on gold

Gold is trading back in the red again on Thursday, with the stronger US dollar and higher Treasury yields keeping the pressure on the yellow metal. Yields rebounded higher as Trump announced a $1.2 trillion coronavirus stimulus package. With all the extra stimulus from governments and central banks out there, it’s been a wild ride in debt markets recently, further feeding the frenzy in precious metal markets. Gold has continued to be volatile but is trading under pressure, with $1,450 being the next big hurdle below.

Gold Daily Chart

Bitcoin enjoying a break

Bitcoin is enjoying a bit of a break from all of wild activity of the last couple of weeks. It managed to hold onto the $5,000 handle on Wednesday but given what we’ve seen in recent weeks, bigger tests of this will likely lie ahead. Above, $6,000 remains the next key level but even if this is broken, I’ll struggle to get too excited about any rally while the coronavirus continues to hang over markets.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

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