Global equities are edging higher following Monday’s drop as investors weigh optimism that intensifying global lockdown efforts along with historic stimulus efforts paint a positive outlook for a U-shaped recovery, possibly later this year. While U.S. equities did open the week limit down, Monday trade did not see the need for circuit breakers.
The Fed’s latest round of stimulus is a gamechanger. The U.S. central bank launched unlimited QE, corporate bond intervention, enhancements to the commercial paper funding facility and telegraphed a main street lending program to small businesses. The Fed has delivered three huge acts in March and this latest one should satisfy everyone, including President Trump.
Heading into the weekend, optimism was high that Congress was going to quickly wrap up a $2 trillion stimulus package, but partisan politics appears set to delay things for possibly a few more days. Lessons from the global financial crisis should remind lawmakers to not drag this out too long. While risk appetite was dealt a blow after the U.S. Senate failed again to authorize the huge fiscal spending bill.
FX
The dollar is falling against most of its major trading partners after the Fed got an A+ in maximizing policy efforts to alleviate liquidity concerns, snap the dollar’s momentum and pretty much doing everything that was asked of them to support the economy. Currency wars are here to stay and right now the Fed’s efforts should derail a lot of the momentum that was building for the U.S. dollar.
The British pound is the worst performing currency as they are somewhat late to the lockdown party and as the economy seems to be in a bad place with having to deal with a massive recession and little optimism Brexit uncertainty will remain in place for many years.
Oil
Today’s oil rally is probably more of a dead-cat-bounce as crude demand destruction will only get worse as global lockdown efforts are raised. Oil is only rallying because the Fed’s unprecedented measures finally stopped the stronger dollar. Crude prices will have wild swings, but no one is expecting the bottom to be already in place. Oil is unlikely to produce a sustained rally on both demand uncertainty due to the global pandemic and as oversupply conditions remain firmly in place as it seems unlikely the Saudis and Texans will reach an agreement.
Gold
The Fed basically took spark plugs to gold’s recent rebound and sent it soaring higher. Gold is surging higher after the Fed went above and beyond in unveiling measures to support the economy. Easy monetary policy and eventually a boat load of fiscal stimulus will provide some key support for gold prices in the short-term.