Caught in two minds

Stock markets are back in the red on Tuesday as the summer consolidation continues to play out, the only outlier really being the US NASDAQ which continues to defy gravity, up more than 50% from its March lows.

Broadly speaking though, the environment hasn't reallly changed and this is not a week of major economic releases or central bank announcements. We are heading into second quarter earnings season though which will naturally be a disaster, albeit one that will more than likely get a free pass, as investors focus more on the reopening prospects.

Even this isn't straightforward though, with reopening comes risk as many states in the US are now seeing. Second wave anxiety is putting a downer on the economic enthusiasm that accompanied the lifting of restrictions around the world and its left investors caught in two minds about the great stock market recovery. Barring the obvious exception, mentioned above.

Should these targeted lockdowns prove successful, there will still be economic consequences but not nearly to the same degree as we experienced in the second quarter. Nationwide lockdowns are now unlikely and the better the track and trace systems become, the more targeted and speedy the restrictions will become. This may mean the anxiety we're seeing passes, although in the near-term the US remains a major concern.

Oil lingers around $40

Oil prices have basically given up yesterday's gains, with WTI once again hovering around the $40 mark. As we're seeing elsewhere, the rally we've seen since mid-April is being disrupted by the challenges of reopening economies when the virus is alive and well and there is still no vaccine or treatment.

There is plenty of cause for optimism on this front, with rapid progress being seen as companies and universities race to be the first to market with a mass produced solution. The speed in which these advancements is taking place is nothing short of remarkable but even then, it's going to be the end of this year at the earliest. That's a long time to go without, which makes the v-shaped recovery fantasy all-the-more unlikely.

Crude's outlook also depends highly on the willingness of producers to continue these record cuts and how quickly they agree to phase them out. We've already had one oil price war this year, is it so unlikely that we'll see another?

What more is there to say?

I'm not sure there's anything more to add on gold that hasn't already been said, repeatedly. It continues to struggle on any approach to $1,800 and as yet, we haven't even seen a proper run at that. Gold seems to be suffering the same mid-summer burnout that's hampered markets across the spectrum, with the moves that built up into early June running out of steam. If gold can break through, it could be a strong catalyst for another strong run higher, but that's looking a big if at this point. Patience will be key.