US stock indices extended gains on Tuesday. The S&P500 gained 3.06% and Nasdaq rallied 3.95% as technology stocks led gains. Big banks
were among the worst performers of the New York session, followed by energy stocks.
US banks were offered after the first corporate
results showed that bank profits were hit by sizeable $12+ trillion loan-loss provisions from potential payment defects from credit-card
borrowers and oil companies. Banks must also shoulder a prolonged period of very low interest rates amid the back-to-back interest rate
cuts in the US and elsewhere to fight the coronavirus-led economic slowdown. Trading revenue however helped JP Morgan (-2.84%) keeping its
head out of water as expected, while Wells Fargo beat interest income consensus surprisingly. Bank of America, Goldman Sachs and Citi will
report earnings today, Morgan Stanley will report on Thursday.
WTI crude (-7.36%) shortly slipped below the $20 a barrel on Tuesday
after the OPEC+ decision to cut the joint production by 9.8 million barrels per day was booed by investors. Fading expectations of a
meaningful supply-side intervention, combined to uncertainties regarding how long the slump in global oil demand may last should
continue weighing on oil prices. Under these circumstances, oil producers have interest in revisiting their decision, given that lower
daily production combined with lower market price will only hurt revenues across the board. But for now, there is no such hope. Hence, price
advances past the $23 mark could open interesting top-selling windows for oil bears. The downside potential remains capped near the $20
level however, as a decline below this level signifies a naturally curbed production in most oil producer nations, where pumping oil
becomes economically dull.
Stocks were mixed in Asia. The ASX 200 fell 0.93% after NAB business confidence index recorded a historic fall
of -66 versus -2 printed a month earlier, while Westpac’s consumer index slumped 17.7% in April versus -3.8% a month ago. Stocks in China were
flat-to-negative as yuan fell on the announcement of further stimulus measures from the People’s Bank of China (PBoC). The Nikkei slid
0.4%.
Meanwhile, news on how long and how deep the coronavirus-led recession should continue hitting the global headlines and sour the
investor mood. The IMF warned yesterday that the economic recession which will follow the ‘Great Lockdown’ will be the steepest in a
century, while the British Office for Budget Responsibility (OBR) said the UK’s economy could contract as much as 35% in the second quarter
of this year, the worst since 1956. Leading banks also expect over 30% decline in growth in developed economies in the second quarter and the
numbers are perhaps not an exaggeration.
Under these circumstances, and with looming first quarter corporate earnings, recent gains
we have seen in equity markets could be the calm before the storm. Investors could close their positions and run to safety in the blink of an
eye. This explains why safe haven assets are curiously bid despite solid gains across global equities.
For now though, there is no
alarming signs of an imminent, meaningful sell-off in equities. Activity in FTSE futures (-0.03%) hint at a flat-to-negative start in
London. DAX futures (+0.28%) point at a slightly bullish start, while US equities could retrace a part of yesterday's gains, but the
downside appears to be limited with Dow (-0.47%) and Nasdaq (-0.37%) futures trading less than 0.50% in the negative.
On the
safe-haven side, the USDJPY is testing the 107 support and the USDCHF slipped below the 0.96 mark for the first time in two weeks.
By Ipek Ozkardeskaya