US open – Earnings, oil volatility, gold, bitcoin

Earnings Season Poses Big Risk

Equity markets are back in positive territory on Wednesday, with Wall Street eyeing more than 1% gains on the open, as investors look past the oil price carnage of the last couple of days.

It’s been suggested that the oil price mayhem was responsible for equity market weakness at the start of the week, as the price of a barrel of WTI for May delivery plunged to minus $40 a barrel for the first time ever. There may be an element of truth to this, carnage in one market can often have knock-on effects elsewhere, I’m just not sure it was as responsible as is maybe believed.

The bounceback rally has been waning since the start of earnings season and last week didn’t give us much to be optimistic about in the coming weeks. Some things can be overlooked, others are harder to ignore. It was always going to be a challenging couple of weeks and I think we may have seen some profit taking regardless, although another excuse to do so never does that any harm.

The rally has clearly run into some momentum issues but who can blame it. More than 50% of the late February/early March losses were wiped out and yet most places aren’t open (and we have no idea when they will), we’re all still in lockdown and there’s still a huge degree of economic uncertainty.

I understand we are seeing promising signs in many countries as far as new cases and the death toll is concerned, thankfully, but we’re not out of the woods yet. I understand that the recent trend gives some cause for optimism and a little more clarity than existed before but that’s some rebound given what still lies ahead and what’s still unknown.

That’s why earnings season was probably a good opportunity for many to take a bit of cash off the table, sit back and get to grips with what businesses are saying. They may decide it’s not as bad as feared and hop back in, which is fine, but they may not like what they hear. The next couple of weeks will be very interesting indeed.

Drastic times call for drastic measures

What we’re seeing in oil markets is nothing short of remarkable, a word I’ve rarely used in my life but has bordered on overused this year. The May contract is no longer trading which means all the attention is on June, which is currently trading at a rather flattering $11. As I said, remarkable.

Something drastic will need to change over the next couple of weeks to avoid the same fate and panic in the June contract that we saw in May. Some traders may already have escaped the drama and decided its not worth it, others may view it differently. A call between OPEC and its allies didn’t yield much this week, with the next meeting scheduled to take place in June, although in this virtual world what’s to stop further discussions happening before then.

The previously agreed cuts aren’t even due to kick in until 1 May, something that could have been changed at the meeting but wasn’t, for some reason. Perhaps US output declines will offer some stability but that will take time and a more drastic announcement may be needed first. I’m just not sure where that will come from as every rational idea seems to have its opposition. The wild ride looks set to continue, then.

Gold rebound unconvincing

Gold is bouncing back a little today, its bizarre risk correlation holding strong in these strange times. There were some suggestions that gold fell victim to margin calls again this week, as oil did what oil now does, which could be one to watch out for in the coming days and weeks. We saw what happened when stock markets behaved similarly.

It bounced off $1,660 yesterday and has since rebounded back to $1,700 where it’s now running into a little trouble. The near-term outlook still doesn’t look great for gold so this bounce may be short-lived, although longer term I still firmly believe the opposite to be true.

Gold Daily Chart

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Bitcoin sitting this one out

Who’d have thought that in 2020, we’d be talking about stocks, bonds and commodities in terms of outrageous volatility and bitcoin wouldn’t even be in the conversation. What incredible times we live in. Instead, the cryptocurrency is trapped between support and resistance – $6,500 and $7,500, respectively – and showing little sign of breaking free. It’s like the space has decided this isn’t its battle. No, thank you. Strange, strange times.

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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.