May 18, 2020 Market Drivers
- FX flat
- Powell boosts risk
- Nikkei 0.48% Dax 2.71%
- UST 10Y 0.645%
- Oil $31/bbl
- Gold $1762/oz
- BTC/USD $9551
Asia and the EU
- No Data
North America Open
- No Data
It’s been nothing but risk-on flow in Asian and early European trade today with equities and commodities sharply higher boosted by investor optimism that the world was returning back to business. FX, however, was flat with majors treading water with 20 pips gains across the board.
Equities were well bid with DAX up more than 2% and US futures up about 1.5% in overnight trade. The rise in stocks was helped by soothing comments from Fed Chairman Powell who was interviewed on 60 Minutes Sunday night. Mr. Powell essentially reaffirmed the Fed’s commitment to unlimited liquidity in its fight against the global pandemic that has laid global output to waste. The confirmation that monetary policy will remain ultra-accommodative for the foreseeable future was welcome news to stock traders who bid futures higher.
However, the truly big move was in commodities with oil rocketing higher by 5% and gold soaring to fresh highs at 1762/oz. Oil is rebounding on hopes that global demand will begin to revive as countries begin to ease the lockdown restrictions but gold is starting to respond to the Fed’s dovish stance and possible fears of inflation. Although inflation is unlikely in the current environment of suppressed demand gold could continue to benefit from low nominal rates and more importantly low real rates if the curve remains at current levels while price levels rise even marginally.
Today’s move through the key $1750 level could be the signal for a fresh bull leg higher and if the longs can run it through $1800 we could see a quick melt-up as shorts cover in panic.
Elsewhere the calendar is quiet with no data on the docket in EU or North America so the focus will be on whether the US corps can keep the equity rally going for the rest of the day. For the past month, the 3,000 level in ES and 9200 in NQ have been impenetrable barriers, but if equity traders truly believe that the worst of the COVID fallout is over, the topside may finally give way.