(30 March 2020)DAILY MARKET BRIEF 1:Everyone wants a deal with Saudi.

Not surprisingly, last week’s enthusiasm over the Federal Reserve’s (Fed) pledge to buy unlimited amount of assets and the US government’s historical $2-trillion rescue package didn’t last long.

The Dow closed Friday’s session 4% lower, as S&P500 (-3.37%) and Nasdaq (-3.79%) broke a three-day winning streak before the weekly closing bell.
Meanwhile, the national emergency situation in the US was extended to April 30 as the death toll increased past 2000, shattering Donald Trump’s hopes of seeing the economy getting back to a better shape before mid-April.
One thing is sure, the Western world is headed for a dim Easter 2020.

Asian stocks kicked off the week on a mixed note. The ASX 200 gained 7%, Nikkei fell 1.57%, as Hang Seng (-0.67%) and Shanghai’s Composite (-0.87%) traded in the red.

Flat-to-positive in Asia, US and European stock futures picked the positive direction into the weekly opening bell, suggesting that we may see a soothed volatility across the equity markets, although the energy-heavy FTSE 100 will likely remain under the shadow of a 5% drop in oil prices as a result of the cancellation of whatever was left from the Easter holiday plans.

The extension of containment measures across countries and through time will likely continue weighing on oil prices. WTI crude traded near the $20 mark in NYMEX. Decent buy orders should continue giving support to oil prices below the $20 handle, as supply should thin as pumping oil becomes meaningfully unprofitable for most nations. This situation is clearly favourable for Saudi Arabia, who wanted to curtail production to support the oil markets despite being the cheapest producer among all producers, and hostile for Russia, who refused to do so. Hence, oil prices so low increase the probability of Russia changing its mind and establishing a deal with the OPEC nations to stop the heavy bleeding. According to the latest news, US State Secretary Mike Pompeo has also reached out to Saudi Arabia inviting them to ‘reassure’ stability in oil, and hence, the financial markets. There are even rumours that the US would strike a deal with Saudi Arabia, which would include Saudi leaving OPEC. We are not sure how solid the latter threat is, but one thing is sure, with the size of the cake shrinking this fast, the fate of all oil producer countries depends on Saudi Arabia. The latest CFTC data showed that the net speculative long positions in oil increased last week on expectation of a necessary rebound in the foreseeable future.

Elsewhere, gold met resistance above the $1630 per oz. The net speculative long positions in gold retreated for the fourth consecutive week as investors left the market on gold’s decreased inability to hedge against the market headwinds and increased trading costs due to liquidity issues caused by a scarcity amid refineries slowed or ceased activity. Low gold output should however support gold prices in the short run. Support could be found above the $1500 per oz handle.

By Ipek Ozkardeskaya