US open – Fed, markets, gold, OPEC+, oil

Fed to the Rescue

Volatility is going nowhere but the stock market sell-off appears to have stabilized, at least for now, with healthy gains being seen for the second time this week.

Source – Thomson Reuters Eikon

Once again , it’s central banks to the rescue with the Fed opting for a little shock therapy with its unscheduled 50 basis point cut and others doing so in the more traditional manner. That’s not going to solve any problems in the real world but it may sustain financial markets in the medium term and allow other policy makers to step up.

World leaders have a fine balancing act on their hands. Put the public on high alert to the point that they take coronavirus risks very seriously but not scare people so much that the economic consequences become exacerbated and recession self-fulfilling. It was suggested on Tuesday that the Fed action erred on the wrong side but I think that was probably more a reflection of jittery markets and, perhaps, a little bit of fact selling after Monday’s rally.

Other central banks have already joined the party and more will likely follow in the coming weeks. Given its prominence, the Fed’s was arguably the most important which is why it didn’t wait two weeks, while others can afford to be a little more patient. That should sustain things for now but ugly data is lying around the corner and governments need to stand prepared to convince us that it won’t be tolerated and supportive measures are ready to be enacted.

Gold has rediscovered its mojo

Gold has rediscovered its mojo in the last 24 hours. A traditional safe haven that sold off during the worst week in the markets since the financial crisis doesn’t exactly fill you with confidence. But yesterday’s rate cut from the Fed clearly helped it find its feet again. Gold may have become a little dislocated from the markets for various reasons but monetary easing, a softer dollar and down markets are its bread and butter. With more easing likely, the environment is only improving for the yellow metal. More severe sell-off’s in the markets may destabilize it again but this week is looking a little better so far.

Gold Daily Chart

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Oil facing resistance as OPEC+ meets

Oil prices have bounced back well as OPEC and its allies prepare to meet. We’ve seen some strong responses already from the various monetary authorities in recent days and some governments have also announced some bold measures, with others likely to follow. Will the oil producers be the next to take extraordinary measures to deal with the coronavirus?

I’m not holding my breath. Another cut does seem likely but whether it will be enough to arrest the decline is another thing. Russia has previously been a reluctant participant, with Saudi Arabia left to bear the brunt of the bulk of the cuts. The same may be true this time around, with the Saudi’s maybe once again going over and above. For now, Brent could face significant resistance around $54-55, with WTI seeing similar around $50.

Brent Daily Chart

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