European Open – IMF, Coronavirus, Oil, OPEC, Gold

Stocks Reverse Early Gains

European stocks have given up early gains to trade more than 1% lower.

They initially got off to a bright start as investors were encouraged by the early global response to the coronavirus. As ever though, we’re seeing a constant stream of coronavirus updates so perhaps it’s taking its toll. Particularly the update from the UK Chief Medical Officer who warned it’s a case of delay rather than containment as they find a case of community transmission, which could rapidly increase the spread and make it harder to contain.

The IMF and World Bank are the latest to join the cause, pledging up to $50 billion and $12 billion, respectively, and further reassuring investors that the global response will be sufficient to avert a severe slowdown. Of course, we’re going to need to see further evidence of this but it’s an encouraging start.

Many hurdles still lie ahead though, with there still being a high degree of uncertainty around just how bad things are actually going to get. Add to that the data we’re going to get over the coming months which is likely to be fairly rotten and we’ll soon get a sense of just what investors will be willing to tolerate and how suitable the response from the authorities is.

Many central banks have already rushed to cut interest rates, including the Federal Reserve which took the extraordinary step of doing so two weeks before its scheduled meeting. Many expect more to follow and we’ll hear from outgoing Bank of England Governor Mark Carney today who may shed some light on whether it will join the club in the coming weeks. Of course, it has less room to manoeuvre on interest rates than the Fed or BoC.

Oil slipping ahead of OPEC+ decision

It would appear the OPEC meeting is going largely as expected, with Saudi Arabia pushing for another substantial production cut of around 1.2 million barrels and Russia only wanting to extend at current levels. The latter would severely disappoint markets and could push Brent back below $50 to test the lows.

I doubt OPEC and its allies will allow for such a blatant error and instead, we may just see Saudi Arabia shouldering even more of the burden in exchange for Russia’s participation. Against this uncertain backdrop, they’ll have to deliver at or above the top end of expectations just to avoid another drop in prices.

Gold stable after volatile period

Gold has stabilized a little after Tuesday’s bounce, with recent price action having caught many off-guard. Still, the yellow metal finds itself not too far from its recent seven year highs. A little bit of stability will probably be good for gold but in the current environment, it’s probably a lot to ask. More central banks are likely to join the easing club in the coming days and weeks which should continue to support gold prices.

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam