US open – Earnings, oil plunge, gold, bitcoin

Investors take a cautious approach

European stock markets are around 1% lower at the start of the week, as earnings season makes investors a little more cautious.

Risk appetite was put to the test last week as earnings season got underway and banks made huge loan-loss provisions linked to the coronavirus outbreak and lockdown that followed. This is the first real insight we’ve had into the impact on companies bottom lines and the initial readings are ugly. Investors have given a free pass to the data until now, they may not be so forgiving in the coming weeks.

We’ve seen a strong rebound in equity markets prior to last week so it wasn’t really surprising to see some profit taking. It’s now a question of how keen investors will be to jump back in. The next couple of days could give an indication of how investors will approach this earnings season and whether they’ll take a step back, as they appeared to last week.

While the numbers on the economy are grim and are looking to be broadly matched by business, coronavirus case numbers are giving cause for optimism in many parts of the world and particularly across Europe. Lockdown measures are starting to be eased in some countries and plans being drawn up in others which gives hope that life may start to return to something that resembles normal in the not-too-distant future soon.

WTI May contract plunges more than 25%

Oil prices continue to amaze, with the May WTI contract drawing particular attention after it plunged another 25% at the start of the week to below $14 a barrel. Rolling contracts has become a very expensive affair, with the June contract trading at a significant premium of more than $9 and down only (ONLY) 8% on the day.

Price action on the May contract highlights just how severe the imbalance is in the oil market right now and how fast storage capacity is filling up. There has been clear disatisfaction with the OPEC+ deal which is why prices are where they are but we’re already seeing evidence of US output shrinking due to market forces and it’s likely to shrink much further. Add to that other measures the US administration is reportedly discussing and the situation could look a little different in a month’s time.

Gold profit taking continues

Gold is off around 0.4% this morning as we continue to witness profit taking in the yellow metal. The dollar is continuing to apply downside pressure to the yellow metal and may continue to do so if risk appetite wanes in the face of weak corporate results. The longer-term outlook for the yellow metal remains bright though given the current environment but near-term softness may continue for now. It’s holding onto $1,680 for now but it’s looking vulnerable, with $1,640 the next test below.

Gold Daily Chart

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Bitcoin remains rangebound despite Libra assistance

Libra finding its way back into the news took some of the pressure off bitcoin prices as it tested its range lows. It’s since rebounded to the range highs but a breakout continues to elude it. There’s been less hype around Libra’s relaunch than we saw last time which may be limiting the upside impact but if it can force its way above $7,500, it could spark some life back into the cryptocurrency space.

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