Stocks reverse early gains
European stocks abandoned their early gains to trade more than 1%.
Initially, they got off to a good start, with investors encouraged by the early global response to the coronavirus. As always, we see a constant stream of updates on coronaviruses, so maybe this is taking its toll. In particular, the update from the British Chief Medical Officer who warned that this was a delay rather than confinement, as they find a case of community transmission, which could quickly increase the spread and the make it harder to contain.
The IMF and the World Bank are the last to join the cause, pledging up to $ 50 billion and $ 12 billion respectively, and further reassuring investors that the global response will be enough to avoid a serious slowdown. Sure, we’re going to have to see new evidence of this, but it’s an encouraging start.
Many obstacles remain, however, with a high degree of uncertainty as to the real gravity of things. Add to that the data we will be getting over the next few months, which will likely be pretty rotten and we will soon have an idea of what investors will be willing to tolerate and the adequacy of the authorities’ response.
Many central banks have already rushed to lower interest rates, including the Federal Reserve, which made the extraordinary decision to do so two weeks before its scheduled meeting. Many expect others to follow, and we will be hearing from the outgoing Governor of the Bank of England, Mark Carney, today who could enlighten us on his membership in the club in the coming weeks. Of course, it has less leeway on interest rates than the Fed or the BoC.
Oil slips before OPEC + decision
Much of the OPEC meeting appears to be going according to plan, with Saudi Arabia pushing for another substantial cut in production of around 1.2 million barrels and Russia keen to expand to current levels. The latter would seriously disappoint the markets and could bring Brent below $ 50 to test the lows.
I doubt that OPEC and its allies will allow such a blatant error and, instead, we could simply see Saudi Arabia taking on the burden even more in return for Russia’s participation. In this uncertain context, they will have to deliver above or above the top of expectations just to avoid a further fall in prices.
Gold stable after a volatile period
Gold stabilized a bit after Tuesday’s rebound, as the recent price action took many surprises. However, the yellow metal is not too far from its recent seven-year highs. A little bit of stability will probably be good for gold, but in today’s environment it’s probably a lot to ask. More central banks are expected to join the easing club in the coming days and weeks, which should continue to support gold prices.
For an overview of all of today’s economic events, see our economic calendar.
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