Market Drivers April 28, 2020
- Risk mildly higher
- Dollar slightly weaker across the board
- Nikkei -0.6% Dax 0.65%
- UST 10Y 0.66%
- Oil $10/bbl
- Gold $1701/oz
- BTCUSD $7687
Asia and the EU
- No Data
North America Open
- No Data
Its been a choppy, hesitant, tepid trade in the Asian and early European session, with markets essentially consolidating the gains from yesterday. Investor attention has turned to earnings with several marquee names reporting after the close.
On the commodity side, oil continued its slide with June contract trading towards the $10 handle as a global glut and lack of storage continue to weigh on crude. Over the past week much has been written about the retail interest in the USO (NYSE:USO) ETF with "mom and pop accounts" trying to bottom tick the price action in the underlying which suggests there could be yet more carnage in oil as capitulation is yet to set in.
Many analysts have pointed out the discrepancy between the price action in oil, which represents the “real” economy, and the massive rally off the lows in stocks, which are now trading on very aggressive assumptions about a return back to “normal”. The lift in equities has been breathtaking and is a testament to the massive central bank infusions into the system all across the OECD. At this point, however, so much positive expectation has been priced in that its difficult to imagine a further rally.
Nevertheless, for now, equities maintain a bid as investors focus will turn to earnings with Alphabet (NASDAQ:GOOGL), AMD (NASDAQ:AMD), Starbucks (NASDAQ:SBUX) and Yum China (NYSE:YUMC) reporting after the bell. The results should offer insight into just how bad business was in Q1 and more importantly provide some guidance going forward.
Of all the names on the docket, Alphabet may be of greatest interest as it could provide a reasonable proxy for business spending into the near future, given its dominance of the online ad business. If the company issues a warning, expect other digital leaders to get hit, including Facebook (NASDAQ:FB) which in turn could drag Nasdaq lower. The index was the leader of the prior bull market but is now a laggard as investors fear that the days of torrid growth for high tech are over.
In FX land, price action was muted as well. The eco calendar was basically barren today and the dollar continued its mild weakness against the majors. Despite the well-known issues in the Eurozone the EUR/USD continues to form a bottom at the 1.0700 figure suggesting that the bearish sentiment may have peaked. Although the Eurozone faces massive challenges in the post-COVID world, the price action in the pair indicates that currency traders are optimistic about US prospects. With Fed balance sheet ballooning by trillions of dollars in a month and US deficits running as much 10-20% of GDP the flight to safety trade to the dollar may come into question, which is why the move in the EUR/USD could continue higher catching many by surprise.