US Open- Relief Rally, Oil’s make or break moment, Gold struggles

US stocks are showing signs of life after four days of pain.  Coronavirus fears are leading markets to price in more easing from Fed and even Germany seems closer to delivering fiscal stimulus.  The recent market carnage saw the S&P 500 futures fall 9% from the record high and investors are nervous we could see further short-term weakness as history suggests outbreaks could take several months before the longer-term bullish trend reasserts itself.   Longer-term investors might be waiting until the pullback reaches the 10% or 15% thresholds before jumping back in.  The virus is still spreading as global coronavirus cases exceed 80,000 and has reached 33 countries. 

The headlines today were somewhat positive today after positive comments from the EU health minister and WHO EU Director, Germany signaled they may finally be ready to fiscal stimulus, and US new home sales surged 7.9% to 764,000 homes, the biggest gain since July 2007.  If today’s rally holds up, that does give the all clear to pile back into stocks.  Until the global spreading of the virus appears under control, we could see continued downward revisions to growth forecasts.  Brazil announced their first positive test of the coronavirus and if this spreads further into Latin America, we could see another wave of risk aversion. 

 Oil

Oil prices continued to stabilize after US crude oil inventories delivered a smaller than expected build.  The weekly inventory increase in stockpiles was only 452,000, much less than the 1.8 million build that was eyed.  Oil companies remain in the danger zone as long as WTI crude is trading in the low-$50s.  Explorers and producers have over $85 billion in debt maturing between now and 2024 and they won’t be able to be profitable if oil does not stabilize soon. 

This is a make-or-break moment for the oil industry and in order for higher oil prices to occur, central banks need to deliver a wrath of stimulus, OPEC + must deliver deeper production cuts next week, the global spread of the virus needs to ease. 

Gold

Gold is taking it on the chin today.  After a bloodbath of stock selling and a tremendous drop in global bond yields, today’s optimism does not really reflect any breakthroughs in the handling of the coronavirus.  Gold is softer on the session, but the longer-term outlook for higher prices remains firmly in place.  Gold will see support from rising expectations the virus impact to global growth will force the Fed as deflationary pressures will rise.  Even if virus jitters ease, the bond market will force the Fed to cut rates no matter what.  Gold bulls will have to handle wild swings and if US stocks end up retracing about half of their recent losses, gold could risk testing the $1,600 an ounce level. 

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