US open – Earnings, Fed, ECB, oil, gold, bitcoin

Will Anything Shake Investor Confidence Now?

We appear to be seeing some profit taking after a surprisingly strong start to the week, with European markets slightly lower as US futures a little flat.

It’s been really interesting to see investors navigate a potentially huge banana skin of a week. The normal caution has been replaced by an unshakable belief that bad news is old news and good news is a buying opportunity. Everlasting stimulus from the central banks around the world naturally encourages such behaviour but the approach can seem rather wreckless at times.

Of course, yesterday we had the promising results from Gilead and its Remdesivir drug which could be part of the equation that enables everyone to return to work – and life to something that resembles normality – but this is far from guaranteed and nowhere near mass production. There’s a lot of pain ahead and you’d never guess that from these markets. Not to mention that the rally this week preceded that news.

The big earnings we’ve seen this week have pretty much been in line with rock bottom expectations, while Facebook and Microsoft gave us cause for optimism. Amazon and Apple are among the big players reporting today, all-but wrapping up a huge earnings week. It’s been a rather strange earnings season, one in which the results have broadly been given the eocnomic data treatment. I imagine the trend will continue.

ECB gives us a new acronym to remember, PELTROs

On the day when Italy and France officially fell into recession, with sharp contractions in the first quarter, the ECB has expanded its easing programs in an attempt to further alleviate pressure on the region in these tough times. The central bank reduced interest rates on its TLTRO III program and introduced new non-targeted pendemic emergency LTROs (PELTROs) in a bid to further support liquidity conditions.

There was no increase in the PEPP or the additional of “fallen angels” in the purchases yet but that must just be a matter of time. It could be a few months before the latter becomes compulsary so there was no urgency today, with Italy holding onto its investment grade earlier this week.

Oil making decent gains but volatility risk remains

The oil bounce continues on Thursday as traders shrug off early week declines following reports of the USO ETF shedding its June WTI holdings. That’s quickly become yesterday’s news with the contract making double digit percentage gains for a second day. Of course in absolute terms that only equates to about $5 but it’s progress, taking the price to a now-respectable $17.50.

I don’t see how illiquidity is going to help this contract over the next couple of weeks but we’ll see. Traders may be encouraged by Norway’s decision to cut production for the first time since 2002, adding to OPEC+ efforts and the decline already seen in the US. The cut will be 250,000 in June and 134,000 for the rest of the year. It’s still not enough and doesn’t really address capacity issues in May but it’s a step in the right direction.

Gold struggling in either direction

Gold remains in consolidation mode, with the price holding above $1,700 but not exactly taking off to the upside. It continues to look caught in two minds with little desire to move significantly in either direction. We may have to get used to this for a little longer yet as it’s not entirely clear what its role is in these markets. A break of $1,660 or $1,750 may reinvigorate it but that could take some time.

Bitcoin surging as halving nears

Bitcoin has certainly sprung back to life. It took some patience with the break of $7,500 not giving it the boost it could have but once $8,000 fell, it really took off. This may simply be a case of the halving putting it back in the news – big price moves won’t do that any harm either – which has previously benefited the crypto space. It’s already come close to $10,000 but fell just shy at the first time of asking. A break of that could be another significant catalyst.

Economic Calendar

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