Wall Street shrugged off the worst surge in jobless claims and delivered the best three-day rally since 1933. Investors have been comforted that the recent global fiscal and monetary stimulus efforts make this an ideal opportunity for scaling back into stocks. This rally is strong, however should struggle to keep on going since it is starting to get a lot worse in the US on the virus front. The US has more cases than either China or Italy and concerns are growing that the virus spread is about to accelerate across the country. NYC is the key epicenter in the US and concerns are high that hospital systems are going to be overwhelmed a lot sooner as the number of patients hospitalized is skyrocketing,
If history holds true, the market crash playbook suggests that this week’s significant rally will eventually be faded. Unfortunately, the virus spread will intensify into developing nations and the massive fiscal stimulus will fall short in preventing permanent damage to the economy. It is hard to go against Fed and friends, but this economic downturn could be much worse than what many initially were hoping for.
Oil prices recovered some of Thursday’s losses as the broader market rally has provided some relief to the virus-driven demand destruction worries. This week crude has shown signs of stabilizing but that will likely be attributed to short-covering, a key turning point in the dollar, and some optimism that traders might be seeing the light at the end of the coronavirus tunnel. Much of the market is growing optimistic that the virus will peak within a few weeks in Europe and the US, thus suggesting crude demand could start returning by early summer, but that might not be the case for the rest of the world. Oil will likely be much higher at the end of the year, but right now oversupply concerns will probably trigger the next selloff as the Saudis and Russians appear poised to follow through on their production increase threat on April 1st. The last three years saw OPEC + deliver production cuts that basically went right to the US shale industry. Oversupply concerns should not go away anytime soon as the Saudis and Russians will want to win back market share.
Gold is paring some of yesterday’s gains but that shouldn’t last long. Gold should see strong support in the short-term come from the aggressive efforts by the Fed and friends. Central banks worldwide will likely intensify stimulus as financial markets brace for a few months of terrible economic data. Yesterday, Singapore’s GDP reading and the US jobless claims reading came much worst than expectations and traders should get used to that trend.
Bitcoin is benefitting from the broader market rally and on some false optimism that the US is considering a digital-dollar to help with payments that will come from the $2 trillion stimulus package. The crypto-world rejoiced the news that Democrats were flirting with the idea of a digital dollar, but that will not likely gain any traction anytime soon. Bitcoin nonetheless is no longer drowning and could see prices continue to stabilize as long as Wall Street does not have a scramble for cash.
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