Marginal recovery cannot mask fundamental stresses on global markets


The global markets are trading in green and have recovered some of their losses after gigantic indications of support from major central banks. The US Federal Reserve also extended its swaps line to nine central banks (up from five) to ease the shortage of US dollars and loosen funding constraints around the world.
 



Three-month cross-currency basis swaps shows some relief in the premiums from major currencies against USD after Fed support:

Source: Bloomberg

Oil also is shooting higher in today’s session. It recently both reached its lowest level for 18 years and recorded its largest one-day percentage gain after the U.S announced it would buy for strategic reserves (See the chart below).

However,  the fundamentals suggest a bearish outlook in oil as the price war between Saudi Arabia and Russia persists and global demand has collapsed thanks to the global spread of COVID-19.

WTI is flirting near 28 , and taking profit activities could help the prices to 30s levels and we could see some selling pressure to be back from this level again.

Biggest percentage gain for Oil on record:

Source: Bloomberg
 
Plentiful US dollar liquidity today and improved investor sentiment have helped Gold rise above 1,480 support levels, and there is reason to have a positive outlook on the short-term support higher prices. A correction toward 1,555 and 1,575 is a probable scenario.
 
VIX is falling from its highest level:


Source: Bloomberg
 
 
However, we do not think today recovery in the global markets would persist for longer as the COVID-19 outbreak is still increasing in scope. Central bank measures have comforted the markets but looking forward we are now in a bear market and the economy is in recession.

We are still watching closely the spread of the virus outbreak and what monetary and fiscal measures are taken around the world as these will be the main drivers for traders’ sentiment.



 



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