Earnings season a major hurdle for stock market rebound

European stock markets are off to a decent start again on Tuesday, as the long bank holiday weekend produced some encouraging numbers that suggest many countries are now on a more positive trajectory.

Source – Thomson Reuters Eikon

Only time will tell whether the weekend also marked a setback for many of these countries but the data we do have so far is encouraging. No doubt, the coming weeks will continue to be deeply troubling for many of these countries but if we are now positioned in the latter part of the bell curve, we can start to imagine life after the lockdown which is what investors have craved for weeks.

It’s been encouraging to hear that some states are in talks to develop a joint plan to reopen the economy but it’s still unclear when that will be. Not too long ago, the US President was talking about Easter and that is far from the reality that we are now seeing. This is a learning curve and will be approached with a lot of caution, there’s still likely to be a bumpy road ahead. Still, we’re in a much better position than we were a few weeks ago.

It’s going to be far from straightforward for investors from here though and the next test for this stock market recovery begins today. The economic data we’ve seen so far has been given a free pass. We expected horrific numbers and while much has been worse, the permanence of it is still unclear, particularly in relation to unemployment.

First quarter earnings season gets underway in the US today and that’s unlikely to get the same free pass. There will continue to be a huge cloud of uncertainty over the near-term outlook but it’s difficult to ignore the bottom line. Expect some hard truths from US corporates in the coming weeks which may destabilize things a little.

Underwhelming output deal drags on crude prices

The OPEC+ deal has received the underwhelming reception it deserves, frankly, with producers delivering right at the bottom end of expectations after days of talks. This may be the largest ever cut but we’re living through an unprecedented event and demand has fallen off a cliff. It’s no surprise to see oil prices paring back the early April gains to sit not far from their lows.

The sell-off could have been worse had it not been for the drop in US output last week and another plunge in the rig count, which may have factored into producers decision making. Unofficial participation from the US and others will be crucial to restoring prices back to sustainable levels. Better coronavirus news may also be providing some support for prices.

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Gold marches on higher

Gold is being buoyed by a softening US dollar, which has seen it surge through $1,700 to its highest level since late-2012. It’s now almost 20% off its panic-induced lows and it’s not struggling for momentum. My bullishness in gold has been seriously tested at times over the last month or so but the endless flow of monetary stimulus helped offset any doubts.

Given the dollar’s current position as a favoured safe haven, gold now appears to have temporarily, at least, aligned itself with a more risk on environment. That’s working out quite well at the moment and as long as central banks leave the taps running at an unprecedented rate, it’s hard to be anything other than bullish. The next big test could come around $1,800 but I’m not sure quite how big a test that will turn out to be.

Gold Daily Chart

Bitcoin battle rages on

Bitcoin is holding in the $6,500-7,500 range that has proven to be testing in the past. Despite numerous attempts, the upper end of this range held firm but more battles may lie ahead. The inability to break back below $6,500 yesterday will be encouraging to bulls and another run at the top of the range may well be on the cards. A break above $7,500 would be a major psychological victory and could trigger a strong surge in the price, with $10,000 the next likely major hurdle.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

Economic Calendar

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