Can Earnings Support the Rally?

Stock markets have been given another lift this morning by another promising vaccine trial, this time from Moderna, as the race to be the first to market intensifies.

It goes without saying that a vaccine will be the gamechanger in the pandemic, the thing that will allow life to return to normal and businesses and households to thrive once again. So it’s hardly surprising that investors get a little excited when the results of these trials emerge, even those in the early stages.

The boost tends to be relatively short-lived though and in a week like this, there’s plenty of distractions. The markets have looked a little vulnerable at times and while trial results like this may paper over a few cracks for now, something more meaningful may be needed to turn the tide back in the bulls favour once again. Even the Nasdaq is looking a little shaky after Monday’s big reversal.

Earnings season is off and running and it’s going brodly as expected so far, with trading revenues at the major banks offsetting huge provisions for the growing number of souring loans as a result of the pandemic. Obviously, that is only so if the bank has a large trading unit, which some do not. We’ll get more results today including Goldman Sachs ahead of the open.

That’s not all, we also have the Bank of Canada interest rate decision to look forward to. Not to mention a raft of US economic data, which comes as Fed policy makers are warning about another dip ahead for the economy which may necessitate more assistance. That should keep stock market bulls happy.

Oil Facing a Taper Tantrum?

Of course, I haven’t forgotten about, arguably, today’s most important event. The meeting of the JMMC will deliver recommendations around the tapering of previously agreed production cuts from OPEC+ members. Fears of a taper tantrum has taken the edge off oil prices, although WTI does find itself back above $40 as a result of the Moderna celebrations.

The most sensible thing would surely be to extend the full 9.6 million barrel cuts by a month to August, allowing the global economy more time to show its on a sustainable path to recovery. It will also hopefully allow for these spikes in cases to be dealt with a provide evidence that we’re better prepared to deal with them, without too much of an economic cost. Perhaps that’s all a bit too hopeful but I’m not convinced by the tapering case this month, maybe producers will agree. If they want to see oil above $40, they’ll probably need to.

Gold Looking a Little Tired

Gold is wavering around the $1,800 mark in a manner that could be viewed as both bullish and bearish, depending on how you view it. On the one hand, the yellow metal broke through $1,800 with relative ease despite its historical significance and has, broadly speaking, spent plenty of time above here since. That must be encouraging for gold bulls.

The flip side is that, rather than seeing an explosion of buyers on the back of the breakout, it’s looking a little tired. We have seen this plenty of times over the last month or so, in fairness, but you’d be forgiven for thinking that would be different this time around. A break through $1,820 will surely reinvigorate the bulls, with $1,840 providing the next test above, while a drop through $1,790 may spell near-term problems.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.