Europe open – Bull market, OPEC+++, gold, bitcoin

A bull market, really?

European stock markets are a couple of percent lower on Wednesday, pulling back a little after another strong start to the week.

There’s no such thing as a boring day in the markets which means that even a day like today, when newsflow is maybe a little lighter than it has been, we continue to see these big moves in the markets. The reversal on Wall Street on Tuesday has weighed on risk appetite across Asia and Europe today, just as the Dow entered back into a technical bull market. That’s a crazy thought right there, all things considered.

I understand why we’re maybe seeing a bit of a relief rally. For one, a near 40% drop from peak to trough across various indices, including the Dow and FTSE 100, means stocks are trading at a heavy discount and will naturally attract interest at a hint of good news. Falling new cases in the worst hit parts of Europe and now New York is fantastic news. We haven’t had much to celebrate recently and should take the wins as and when they arrive.

Unfortunately, the worst is not behind us. New cases may (I stress, may) be flattening off in the UK but it’s early days. And even if this is the case, the next two weeks will be incredibly tough with the death toll likely to continue to accelerate. The US isn’t even at this stage yet. Economies are still locked down, doors are closed and people are stuck at home. And we don’t know how long that will last.

The Dow may technically be in a bull market but this has all the feeling of a bear market rally. Of course, that’s not to say there isn’t value at these levels but as ever, it’s a matter of timing. These markets are discounted and picking bottom’s is a mug’s game. But these are wild markets, even still, so a high pain threshold is required.

Wide-ranging expectations for Thursday’s OPEC+++ meeting

The OPEC+++ meeting on Thursday is huge and you only have to look at the wild swings in oil prices to see that. Double-digit price swings in oil prices have become the norm over the last week as energy ministers around the world scramble to find common ground and resolve the imbalance in the market. So far they’ve all agreed that $20 oil isn’t great. But that’s about it.

The virtual meeting on Thursday will hopefully go better than Monday’s which was cancelled after a war-of-words over the weekend between Saudi Arabia and Russia. It’s not even clear who will attend this meeting, let alone who will participate in cuts and how it will be coordinated. Oil prices are well off their lows as a meeting of any kind is a step forward but the range of outcomes goes from no cut, more hostility and ramp up in the price war to  a grand deal including the US. How do you price that? With extreme difficulty, it seems.

Gold continuing its ascent

Gold is continuing to find its feet in these extraordinary times. It appears to have settled on being aligned with risk markets, contrary in the main to the dollar, while being well supported by the flurry of central bank stimulus around the world. There’s a lot of catch up to be had, to be fair, as it saw none of the benefit when many of these measures were initially announced. I wonder whether the risk alignment will continue if stock markets do come under pressure again, especially if they do so in a less outrageous manner.

Bitcoin driving on but $7,500 putting up a strong defence

Bitcoin’s civil war is continuing with bulls having the upper hand while bears are defending the $7,500 fortress for their life. We saw a similar battle around $7,000 and the bulls eventually broke through, can we expect the same this time. If this level breaks, the rally could pick up a few notches as bears go into retreat. This had previously been an interesting area of support and resistance – between $6,500 and $7,500 – and it’s been fierce once again. There is other potential resistance above but a break higher now may open the door for a run towards $10,000.

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Craig Erlam

Craig Erlam

Former 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.