Europe update – Markets, Fed, oil, gold, bitcoin

Stocks Crumble Despite Fed Action

If the Fed’s dramatic easing measures were intended to support global markets, then I can’t imagine the carnage we would have faced today without them.

Source – Thomson Reuters Eikon

As ever, officials have the extremely difficult job of striking the right balance in response to the coronavirus, between providing sufficient support and not creating mass hysteria. Some may suggest that the Fed cleared ventured too far towards the latter but I think they’ve probably done what’s necessary and anyone that thought the situation wasn’t that bad to begin with was kidding themselves.

These markets are wild and today is merely a symptom of that. As was Friday, by the way. Near 10% gains on Wall Street in this environment is utterly ridiculous. The simple fact of the matter is that we’re still in the getting worse phase and not that close to turning a corner so we better get used to these markets and I, for one, am happy central banks are acting so drastically.

If more governments follow suit, the global economy may have a good chance of a strong recovery later in the year and all the toilet roll panic buying will be a thing of the past. The flip side of that though is that if the darkest hour is just before the dawn, then we may only currently be in late evening. A true test of investors risk tolerance is yet to come.

Oil prices whacked as world prepares for recession

Shockingly, a impending global recession and an oil price war isn’t doing crude any favors. Brent is back scraping its March lows and threatening a break of $30. How much further it will go depends on just how much Saudi Arabia and Russia have the stomach for a prolonged price war and whether either is prepared to wait for the US shale companies to run into difficulty. Fortunately, low oil prices are one of the few positives for consumers and many businesses as we all head for recession.

Brent Daily Chart

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Carnage is not gold’s friend

Once again, gold isn’t coping overly well with the latest stock market rout. While it’s only a little over 10% from its peak, you would typically expect it to perform well in such risk-averse conditions. But the huge down days are proving just as problematic for the yellow metal as the up days, with margin covering taking its toll. And unfortunately for gold, there’s plenty of days like that at the moment. I still believe gold will come back into favour once we start to see fewer of these outrageous trading sessions but before that, we may face a period back below $1,500.

Gold Daily Chart

Is bitcoin suffering a similar fate to gold?

I’ve not hidden my thoughts on bitcoin’s safe haven properties in the past and for good reason. But given the way gold is trading at the moment, it’s safe to say I can’t give the crypto space too hard a time. It may well be suffering a similar fate, with bitcoin being a more speculative option for many and therefore first out the door when times get tough. It’s moves are always more exaggerated than others but at nearly 60% off its highs, gold still feels the much safer bet. And times aren’t getting any easier.

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

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