Treasuries climbed and stocks were little changed as investors assessed testimonies on the Fed and US government’s policy response to endure the coronavirus pandemic. Fed Chair Powell and Treasury Secretary Mnuchin delivered over 2 and a half hours of testimony that signaled the fundamental backdrop of never-ending support remains for risky assets.
Pressure for a fiscal response did not emerge from today’s testimony before the Senate Banking Committee. For the most part, Powell was the glass is half empty guy, with his skepticism that more may need to be done to aid the economy, while Mnuchin’s outlook was half full, with economic conditions improving in the second half.
Investors did not learn anything groundbreaking with respect to the Fed’s and US government policy response to COVID-19. The wait-and-see economy is here and it seems the reopening of the economy will need to unfold before we can start to speculate on how much more stimulus will come into play.
JPY
The Japanese yen remained under pressure following yesterday’s massive risk-on trading session. Yen remains vulnerable as trade tensions between the world’s two largest economies have taken a backseat today, and reopening momentum has yet to have any major disruptions.
Oil
Oil prices are trying to keep rolling higher. Energy markets have a relative sense of calm as the crude contracts will not see a repeat of last month’s historic plunge that took prices to negative territory. Crude’s bullish momentum stemmed from continued production cut efforts worldwide that have helped bring the market closer to balance and a pickup in demand led by China and other major economies that have begun reopening.
This is the time of the year when energy traders remain on edge as geopolitical risks and hurricane season (official start June 1st, but already seeing action) can often bring shocks to the market could easily deliver spikes higher with oil prices. Last night, WTI crude attempted to extend its rally after a rocket hit near the US embassy in Baghdad.
Higher oil prices however won’t be able to last as energy producing countries will not want to give up market share and will likely be quick to ramp production back up. If economic activity continues to quickly rebound, like it has in China, oil-producing nations could quickly keep this market well oversupplied as no one wants to be the one that give up their piece of the pie.
Gold
Gold prices pushed higher after Powell signaled all emergency lending programs will be up by end of month and that the Fed and Congress may need to inject more money into the economy. Today’s testimonies on the coronavirus and CARES Act were delivered by Treasury Secretary Mnuchin, the optimist, and Fed Chair Powell, the pessimist. Mnuchin’s comments were mostly supportive of a strong economy taking place in Q3 and Q4 but warned that prolonged state closures could cause permanent damage. Powell mostly reiterated his commitment to support the economy and outlined a laundry list of risks to the economy that he is monitoring. The Fed is far from done with pumping stimulus into the economy and gold prices are liking that.
Bitcoin
Bitcoin has survived the volatility following last week’s halving but seems to be struggling to crack the $10,000 level as outlandish calls for prices to skyrocket several thousand dollars seems to grow. Bitcoin’s bullish run seems to have somewhat stalled out and a correction could be in the cards if the last wave of interest is small retail traders. Bitcoin could easily test $14,000 by year end, but right now the current consolidation pattern could see a test of $8,500 first.