European Wrap – Will Covid Overshadow Earnings?

Rising Numbers in the US a Growing Concern

It’s been a decent start to the week for stock markets, carrying over some momentum from Friday’s bounceback as we head into earnings season in a positive frame of mind.

It’s worth noting that we started last week strongly as well and it didn’t take long for that to peter out. That was similarly driven by seemingly little so we shouldn’t be surprised if the momentum quickly fades as we navigate through another hectic week on all fronts, with earnings, data, central bank meetings and geopolitics all having a role to play.

One difference this week is that packed schedule which could make things very interesting. Earnings season is the standout, for obvious reasons. Safe to say, expectations are low, with profits seen taking a 40-50% hit as the coronavirus forced businesses to close their doors around the world.

That question is, has the bar been set low enough? And what will companies have to say about what lies ahead? Many declined to offer guidance three months ago and everyone was quite forgiving, they may not be so this time, especially coming alongside what’s going to be some quite horrific numbers. Wall Street is setting a nice low bar though so even if we see some ugly numbers, investors may still find reason for optimism.

The challenge for stock markets may not come from what companies have to say though, with many states in the US seeing trends reversing on the case count and now the death count seems to be rising again. This was inevitable with the economy reopening, but how much is rises could become cause for concern. Huge spikes in the number of cases is a lot easier to take if not met with corresponding spike in deaths. We’ll soon see whether that is the case but recent numbers are a concern.

Oil flat ahead of OPEC+ decision

Crude prices are a little flat today, with this weeks big event being the Joint Ministerial Monitoring Committee (JMMC) meeting on Wednesday, as members of the OPEC+ alliance decide on whether the extend production cuts an extra month to August or risk a taper tantrum as countries continue to experience reopening setbacks.

The 9.6 million barrel cut was crucial to stabilizing oil prices and rising back to levels more tolerable for producers but with economies reopening, some may be keen to start increasing production again. That seems a quite risky option, with the safer being a one month extension but there’s a lot of speculation that it could be reduced to 7.7 million. It may be time to brace for volatility once again.

Can gold hold onto $1,800 handle?

Gold came agonisingly close to ending the week above $1,800 following a hard fought breakout earlier in the week. The level proved a step too far back in 2011 and 2012 but, despite momentum lagging in the run up to it, it seemed to go through with relative ease this time around.

The yellow metal added to these gains early in the day but once again finds itself hanging around the $1,800 level. We’re talking small margins when it comes to Friday’s close so how it trades over the next couple of days could be key to whether it takes off from here or once again sees momentum wane.

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