Rebound Taken With a Pinch of Salt
Europe is off to a more positive start on Tuesday, after stocks suffered their worst losses since the global financial crisis at the start of the week.
I’d like to say this morning’s rebound is promising, that the proposed fiscal stimulus hinted at by Trump on Monday is the answer to all of our problems, but that’s not exactly true. Payroll tax cuts are great in the longer run, but in the near-term it’ll do nothing more than exacerbate the great toilet roll shortage of 2020.
On any ordinary day, gains of a couple of percent in indices would be a solid day but given the scale of yesterday’s decline, it could well be nothing more than a dead cat bounce. US stocks came within a whisker of bear market territory, which may have played in their favour as investors sensed an opportunity. The circuit breakers appeared to have served their purpose.
Ultimately, the sustainability of any rebound will hang on the policies we hear from various governments and central banks over the coming days. Significant efforts to contain the spread and support companies facing cash shortages will be most effective in the near-term, far more so than just a constant reminder that fatality numbers are currently low and stocks are cheap. Those reassurances will fall on deaf ears.
Oil rebound nothing to get excited about
Sentiment in the market was already fragile enough without an oil price war, although consumers worried about recession will hardly be feeling too down. If Saudi Arabia was hoping to bully Russia back to the table then this was certainly the opportune moment, it’s just not clear whether they will allow themselves to be bullied.
Especially if they see an opportunity to hit a heavily indebted US shale industry that has aggressively chipped away at their market share in recent years. In the short-term, it’s tough to be particularly bullish about oil prices, despite a decent rebound today. That said, if we approach yesterday’s lows again, traders may take a longer term view as the downside for prices becomes far more limited at these levels.
Gold joins the list of losers on Monday
Gold is once again having a difficult time. Buoyed initially by the sheer amount of risk aversion and monetary easing being priced in, which saw the price briefly move above $1,700. It’s since pared those gains and found support around $1,650 earlier today, with today’s slightly improved sentiment proving a drag.
Once again, it seems yesterday’s aggressive sell-off hindered gold’s ascent, with traders possibly forced to liquidate positions to cover margin calls or losses elsewhere. The environment generally remains bullish for the yellow metal though, with $1,700 likely to face further challenges.