Stock bottom confirmed for many on therapy optimism, China’s unknown recovery, Oil’s disconnect, Gold shines

The stock market rally could be here to stay as Wall Street becomes cautiously optimistic a treatment for the coronavirus is nearing.  Gilead Science antiviral drug, Remdesivir showed promising results from the University of Chicago Medicine. Patients widely showed “rapid recoveries in fever and respiratory symptoms.  Optimism is high that Remdesivir could become the first approved treatment against COVID-19. 

The US rolling reopening strategy along with high hopes a coronavirus treatment is near could mean the March low was the market bottom.  The phase-one reopening strategy means Americans can return to movie theaters, restaurants, churches and gyms. 

The V-shaped recovery will however struggle on reinfections risks and permanent damage done to certain sectors of the economy.  Stocks are soaring today and may for a few more days as some investors believe the worst is behind us.  A cure for the coronavirus is a game changer, but that is still not in the immediate future.  Trump’s restarting of the American economy has the potential to be rather lengthy, as the larger cities likely remain in lockdown mode a lot longer than what happens in the Midwest.  

As investors prepare for the weekend, today's optimism might be short-lived as the harsh reality is that health experts will push for a safe re-opening of economies and that will not trigger an immediate economic recovery.  The US economy will bounce back, but too many thorns are in the way to warrant a steady rise higher in stocks.  

China

The world’s second largest economy aired all their bad economic laundry for the first quarter.  China suffered its first contraction in decades and the baseline for how bad things got appears to be slightly lower than what many economists were forecasting. 

Investors are focusing on any queues on the China’s recovery. All the bad news was heavily priced in and now what everyone wants to know is, where is demand now that production has resumed.

Oil

Oil price volatility went into overdrive as contracts roll, reopening hopes in the US offered some relief for crude demand, but oversupply conditions persist as producers are forced to shut in output.  The consensus remains oversupply conditions will keep oil prices heavy.  The OPEC + pact that will cut 10% of global supplies might have only prevented crude prices from collapsing to single digits and are completely insufficient in providing a reason to become bullish.   

Optimism that the parts of the American economy will start reopening in May should be positive for crude demand, but the problem is that major metropolitan cities will likely take much longer.  Oil prices could start showing some constructive signs but will likely see sellers reemerge on headlines that major global storage capacity limits are reached. 

Gold

Gold’s pullback continues as investors turn positive that financial markets are nearing the other side of coronavirus pandemic.  Gold is likely to tentatively break below the $1700 level as hopes are growing a treatment for the coronavirus is nearing and that the US is getting closer to reopening certain parts of the economy.  Risk appetite is soaring, but it might be overdone as permanent damage to the economy will see a battered US consumer.  Gold will remain supported by the boatload of monetary and fiscal stimulus that will be in place for the foreseeable future.  Record high calls for gold in dollar-denominated terms are slowly becoming the base case scenario, so we could see volatility ramp up over the coming weeks.  In the event of a deeper pullback, the $1650 level remains key support. 

Bitcoin

Bitcoin bulls should be concerned the world’s largest crypto is failing to rally on such a broad risk rally day.  Much of the crypto community is growing cautious that the recent rally might not stick since it did not come with rising volumes.  Bitcoin and all the larger digital coins should benefit from Facebook’s commitment to their Libra project, as broader mainstream interest will grow.  In the short-term, cryptocurrencies are looking vulnerable as investors prefer the moves in global equities.