US Open – Fading the overnight limit up rally, Oil extends rally on hopes Russia and Saudis will resume talks, Gold softens

Following Monday’s stock market massacre, stimulus hopes helped stocks trade limit up overnight after rallying 5%. Today’s turnaround may have been a bit excessively premature as much of that rally was attributed to optimism that the Trump administration will shortly have major stimulus announcements. President Trump want’s a tax relief measure and other lawmakers want short-term paid sick leave, but his economic team has yet to meet with Senate Republicans. Kudlow and Mnuchin will have lunch with Republicans, but it seems they are more on the exploratory side of deciding what to recommend.
Today’s rebound was spurred by significant technical buying and on expectations that the major central banks will deliver deeper rate cuts and announce additional stimulus measures over the next couple weeks. Even if the

Following Monday’s stock market massacre, stimulus hopes helped stocks trade limit up overnight after rallying 5%.  Today’s turnaround may have been a bit excessively premature as much of that rally was attributed to optimism that the Trump administration will shortly have major stimulus announcements.  President Trump want’s a tax relief measure and other lawmakers want short-term paid sick leave, but his economic team has yet to meet with Senate Republicans. Kudlow and Mnuchin will have lunch with Republicans, but it seems they are more on the exploratory side of deciding what to recommend.

Today’s rebound was spurred by significant technical buying and on expectations that the major central banks will deliver deeper rate cuts and announce additional stimulus measures over the next couple weeks.  Even if the Trump administration announces fresh tax cuts, financial markets may treat this as a “buy the rumor, sell the news” event.

Treasuries

The move with Treasuries is fascinating.  One month ago, the 10-year Treasury yield was around 1.60%, five days it traded through the 1.00% level, while yesterday’s slide tested 0.33% before rebounding above 0.70%.  Volatility will remain on high alert at the very least for the next couple weeks and it is too early for investors to feel they have the all-clear sign that a bottom is firmly in place. 

Oil

Risk aversion is tentatively back, and oil prices are clearly benefitting from the broader market rally.  Oil extended their gains to 10% earlier in Europe after Russia energy minister Novak said further cooperation with OPEC + is possible. 

Despite all the positive vibes financial markets are feeling today, the outlook for oil should not be for a sustained Brent rally back above the $40 a barrel level.  Other OPEC + members are ramping up production and if the ultimate Russian goal is to do irreparable damage to US shale, oil prices need to stay near their crash lows a lot longer. 

Gold

Gold prices are struggling here as investors start to scale back into their riskier bets.  Gold’s outlook is still bulletproof if you can handle wild swings.  If the US stock risk appetite rally extends above last night’s high, gold in the very short-term could have downward pressure target the $1,625 an ounce level.  Gold’s bullish outlook is still in place as the dollar will end up becoming a funding currency and a wrath of global monetary easing and fiscal stimulus will ultimately take prices toward the 2011 record high. 

 

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.

Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya