US Close – Stocks stabilizes, Oil rebounds, Gold struggles on strong dollar and cash scramble

US stock markets are showing some signs of stabilization as hopes start to grow that progress was made in finding new virus treatments and by a boat-load of stimulus by both central banks and governments will put the global economy in position for a U-shaped recovery once the market is beyond the virus.

The tech-heavy Nasdaq is outperforming as passive investors start to scale back into heavily discounted bargains.  Volatility will likely remain in place and could see downward pressure for risky assets resume if lockdown efforts are raised and when US reaches its healthcare capacity.   

Central Banks

Central banks are going all-in.  Last night the ECB launched a 750-billion-euro program called the Pandemic Emergency Purchase Program (PEPP), practically a guarantee for the credit markets.  The ECB’s decision was well received by markets and even helped stabilize periphery bonds.  The RBA also slashed rates and unveiled a bond buying facility. 

The BOE is late to the party, but nonetheless delivered another rate cut and expanded QE.  The second emergency move by the BOE will do little to support the economy next quarter, but hopefully put it in a better place later in the year.  The British pound initially rallied following the BOE action, but has since seen the rally faded on the back of a broad stronger dollar move. 

Oil

Oil prices are recovering much of yesterday’s crash as the three-day collapse saw some bottom fishing after WTI failed to break the $20 a barrel level.  The oil rebound also extended higher after President Trump stated he would get involved in oil price war at the appropriate time.  The Trump administration is now showing signs they will try to defend the shale industry and stabilize oil prices.  The US will likely strongly consider delivering sanctions against Russia for their role in blowing up the OPEC + production agreement.   

Brent crude will struggle to recapture the $30 a barrel level as a flood of supply is about to hit the market next month and since no one can say with confidence when energy markets could start to see a return of steady demand for crude.   

Gold

Gold can’t catch a break.  Just when it seemed gold was going to join Treasuries as a favored safe-haven trade, the dollar’s relentless strength and investors continued need for cash is dragging it down.  The one lesson many gold traders learned from the Global Financial Crisis is that you have to be able to stomach huge swings.  The last 24-hours yielded additional stimulus measures from the Fed, ECB and BOE, which should clearly provide gold a springboard that will shoot prices higher once the scramble for cash eases and dollar loses its crown.  If the $1,450 an ounce level breaks for gold, we could see one last extreme selloff before long-term bulls jump back in.