Stock markets in freefall and it seems unlikely central banks and governments in the short-term can do anything. Technical selling is getting ugly and even though expectations are high the Fed will take rates to the zero bound, the retail investor will likely want to wait this one out. It seems the collapse with oil prices have added a log to the deflationary fire the Fed will try to extinguish. Virus fears, deflationary risks, and growing stress in the credit markets, means markets will see the Fed launch a new QE program very soon.
Eventually investors will start scaling back into stocks, but it seems the technical selling can remain ugly for a couple more days. The longer-term playbook will likely to buy stocks again as markets will move beyond the virus, adjust to lower oil prices, and expect a wrath of global stimulus likely to remain in place over the next year.
Oil
Saudi Arabia and Russia basically said ‘enough is enough’ to US shale. After crashing 10% on Friday, West Texas Intermediate crude is down around 20% today as energy markets begin to price in life with out the OPEC + production cuts and the race for market share. Saudi Arabia’s pricing move over the weekend signaled they are going after market share and all signs suggest they will ramp up production quickly to over 10 million barrels a day in April and possibly another 2 million in the short-term.
Oil prices should remain heavy in the short-term and energy traders should not be surprise if they see prices drop another 20-40% over the next couple weeks. Oil has rebounded several dollars from the overnight low, but that will likely get faded.
Gold
This weekend’s fireworks took gold tentatively above $1,700 an ounce, but the scramble for cash have investors closing out short-term bets. Gold is somewhat struggling to do much of anything as US stocks trigger circuit breakers. Once we start to see some normal trading, gold should continue to climb higher. Wall Street is about to see an emergency wave of global stimulus and gold prices will likely shine all the way to record territory.
Bitcoin
Bitcoin is getting punished as investors are scrambling for cash. Bitcoin could see some support around the $6,500 level, but if that breaks, it will get even uglier.