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Daily Wrap: Mixed feelings in financial markets

Daily Wrap: Mixed feelings in financial markets

6 Apr 2020 07:39 PM

There’s no shortage of volatility at the start of the week, or over-confidence for that matter, as stock markets jump on some relatively promising numbers in recent days, even though President Donald trump warned America to prepare for the toughest week yet in its fight against the coronavirus pandemic. “There will be a lot of deaths” he said. The number of infected people in the United States has surpassed 300 000, the highest in the world.

Are investors once again premature?

Europe appears to have turned a corner, with Italy and Spain – the worst hit in the region – seeing a sustained period of declining new cases and deaths. The number of people to die of the pandemic in Spain fell for the third day in a row to 674, the lowest number in 10 days. Spain has suffered more deaths than any country except for Italy, but the authorities now hope it has passed the peak of its outbreak.

Other countries are also starting to see similar results which is certainly cause for optimism after a horrific month. Quarantine measures are clearly having the desired effect, and it is hoped that people continue to respect them or we could be back to square one.

The pound came under a little pressure this morning after UK Prime Minister, Boris Johnson, was admitted to hospital for further tests almost two weeks after testing positive for the virus. The Queen addressed Britons calling on them to remain united and resolute.  The currency bounced back fairly quickly though to trade flat on the day. It may face a tough week though if the coming week or two is as bad as many fear.

Nonetheless, optimism is misplaced as far as the UK and US is concerned. The next week or two is going to be grim and one day of positive reading from the US doesn’t change that. Investors are keen for the market to have bottomed, but it’s unclear if they will weather the upcoming storm, and nerves will likely be heavily tested.

Bulls are trying to regain control in the oil markets

Optimism is spreading to oil markets, where traders are shrugging off the Russia/Saudi spat over the weekend, turning a blind eye to the apparent reluctance of the US to be part of any deal, and completely ignoring the fact that today’s emergency virtual meeting was pushed back until at least Thursday.

Crude oil started trading a little lower this morning after reports delaying the scheduled meeting, but prices are still more than 35% off its lows and WTI 45%. The weekend’s action was a major setback for traders. The oil price may be helped by the overall lift in markets as a result of declining fatalities across Europe, but it’s extremely premature and oil is still looking very shaky.

The yellow metal bounces back quickly

Gold gapped lower overnight but took no time to fill the void and is now marching on higher again. The temporary break in its relationship with risk and the dollar makes it as difficult as ever to anticipate the moves in the gold market but there may be a little catchup being played after the yellow metal became just another victim in the stock market rout.

We’ve since seen unprecedented stimulus plans injected into the financial system recently and there’s probably more to come. There may be a lagging effect because of market turbulence, but gold cannot ignore that forever. Next levels to keep an eye on are $1,640, after which $1,700 could again be on the cards.

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