US Open – Jobless claims trajectory improves, EZ disastrous data, BOJ ponders unlimited purchases, Oil rebound continues, Gold shines, Bitcoin soars

Financial markets have quickly adjusted to a disheartening pace in filings for unemployment benefits.  The coronavirus crisis has now wiped out 26.45 million jobs over the past five weeks, also annihilating all the job gains that occurred after the great recession. 

US stocks and the dollar had a muted reaction to the latest jobless claims report because the trajectory seems to be improving.  The number of individuals filing for unemployment last week was 4.43 million, slightly below the consensus estimate, but more importantly a third consecutive decline. 

Massive job losses are still expected over the coming weeks as more people become furloughed and as backlogs clear.  The unemployment rate seems poised to hit the 20% level and this alone should be reason enough for the Fed and Trump administration to keep throwing stimulus into the economy. 

US stocks are climbing higher on optimism the economic pain is slowing down and after reports the BOJ is considering unlimited bond buying.  Unlimited stimulus hopes will always give risky assets a boost. 

Euro

Despite being a couple weeks ahead of the US in battling the coronavirus pandemic, EU leaders are late to the game delivering much needed stimulus.  The bad data in Europe is coming much worse than expected as Germany and France saw business activity collapse to record lows.  The euro zone flash PMI readings indicate the shock to the economy will require multiple waves of stimulus and that will be difficult as Eurogroup continues to struggle to act swiftly in delivering aid.

The euro looks like it could become a funding currency again.  If you have to rate which economy of the G10 currencies will have the slowest recovery, it seems Europe is the easy winner.   

BOJ

Risk appetite got a surprise boost after the Nikkei reported the BOJ is considering releasing the floodgates with their bond buying program.  Currently the BOJ buys 80-trillion yen a year and the proposed change would be for unlimited purchases.  The Japanese yen nosedived against all its major trading partners.  The BOJ meets on April 27th and expectations were already high that they were going to launch a new rouund of stimulus aid.     

Oil

Oil’s rebound continues as production cuts are being brought forward.  Algeria and Kuwait have signaled they are cutting production immediately and this will likely be a recurring theme over the next week.  The OPEC + cuts are poised to start next month but others will probably cut earlier and deeper as tank tops are reached.  Energy markets are preparing for a massive wave of shut-ins all over the globe. 

Oil prices are also benefiting on some optimism that trajectory of virus-driven economic pain in the US seems to be losing some steam.  The US economic activity will take a couple months to ramp back up, but we could be nearing the end of the worst of the data.

US production will continue to drop, but until some of the energy giants come forward with production cut announcements, WTI crude might struggle to break above the $20 a barrel level.  In order for oil to turn the corner, global economic activity will need to significantly pick up, but that probably won’t happen until later in the summer.

Gold

Gold prices are rising after reports that the BOJ is considering unlimited bond purchases.  Gold will continue to rise as expansionary policies from all over the world seem poised to continue intensifying. 

Stimulus is everywhere. Europe is working on a 2-trillion euro plan for economic recovery that could also provide another boost for risky assets. 

Gold’s climb towards $1800 continues.  The stimulus trade is not going away anytime soon and that should mean record highs for gold (in dollar terms) by the summer. 

Bitcoin

Bitcoin is starting to attract retail interest again.  With worldwide stimulus efforts showing no signs of easing, some traders are jumping into cryptos as a hedge against currency wars(competitive devaluations).  Bitcoin is nearing the top of its recent trading range and could have enough momentum to break above the $8000 level.   

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