Mid-Market Update: Bear Market Rally, BOC goes all-in, Bojo and Health Chief test positive, Oil sinks as oversupply concerns grow, Gold softer on profit-taking

This week’s historic stock market rebound seems to be more of a bear market rally than a confirmation that the bottom is in place.  Coronavirus worries and messy fundamentals will likely see skepticism remain on everyone’s mind.  Investors are worried that weekend virus updates could see markets open up next week limit-down. 

BOC

An emergency rate cut by the Bank of Canada (BOC) and falling oil prices sent the loonie sharply lower.  The Bank of Canada cut rates to near zero and launched two new programs to alleviate strains in short-term funding markets.  The BOC decision is pretty much mirroring the Fed’s actions with rates and purchases of commercial paper.  It would have to get a lot worse for the BOC to consider negative interest rates, so for now it seems policy is maxed out. 

Boris Johnson tests positive for coronavirus (health chief too)

The British pound and FTSE 100 sold off after news that PM Boris Johnson and Health Secretary Matt Hancock tested positive for coronavirus.  Heading into the close, traders were nervous about holding positions over the weekend and possibly used Johnson’s virus news to rush for the exits.  Johnson is the first major world leader to be infected with COVID-19 and this will probably raise expectations that lockdown measures will have to last a lot longer than what many traders were expecting.  The UK strategy in battling the coronavirus has been widely criticized by health professionals so the shock to economy will probably last much longer. 

Oil

Oil prices appear ready to collapse again real soon on surging crude supply and further demand shocks.  The coronavirus shock to the US economy appears to be getting a lot worse as the virus spreads across the country. If lockdown and quarantine efforts outside the major metropolitan areas intensified next week, the demand outlook would deteriorate even further.  Crude demand devastation will get worse as consumption and production will likely come to halt for much of the country. 

Energy traders are also bracing for oversupply concerns to help drive the next crash in oil prices.  Oil sold off earlier this morning after Saudi Arabia ended any hopes that they might be talking to the Russians on joint output cuts or that they have not discussions on making OPEC + larger.  Next week, Saudi Arabia, Russia, and Iraq (OPEC’s second biggest producer) are expected to boost output. 

Selling could accelerate into the close as energy traders will be fearful that oil could gap lower to start next week. 

Gold

Gold is ending on a down note, but still having its best week since 2008.  Gold prices will have underlying support from a wrath of stimulus from central banks worldwide.  If the coming weeks sees risk aversion returns as US becomes the new epicenter of the coronavirus pandemic, gold should resume its role as safe-haven as the Fed’s unprecedented measures should slow down any surges with the US dollar.

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 at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments 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 BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya