April 9, 2020

US Markets Set To Open Higher

US Markets Set To Open Higher

US futures are trading higher as investors continue to focus beyond the negative influence of Coronavirus. There is no doubt that the current journey is going to be arduous, and full of obstacles, but keeping a positive attitude matters the most. It is this optimism that pushed the markets higher on Wall Street last night and investors are set to build on this momentum today.  

The reality is that no one knows how long, and how deep this downturn is going to be, but with current fiscal and monetary policy measures, investors are hoping that we will be able to battle our way out of this situation. However, one concern is still hunting investors, and that is the SMEs are still not getting the help that the governments have promised. They are still very much cash strapped, and the process of applying for loans through government schemes is immensely arduous. Only a minuscule percentage of businesses have been able to get access to these loans.

The situation is no different for no medium size businesses. Basically, lenders are extremely cautious despite the government guarantees, and this has kept the door open for the flood of bankruptcies–if the situation is not addressed in time. Some also worry about the size of the current aid package as it is nowhere close enough to current demand, and if further aid measures are not put in place, not only borrowing cost will start to tick higher, but the risk attached to the current situation (in terms of bankruptcies) will balloon further.

Overall, governments around the world are busy in drawing the plans of re-oping their economies. The longer the lockdown remains in place, the bigger the damage will be. But taking precautionary and necessary measures are the most important factors, and governments should not be rushing in to end the lockdown prematurely. In the UK, we had the deadliest day yesterday, over 900 people lost their lives and it is highly likely that the lockdown will be extended until the end of this month. There is nothing new about this because no one was expecting this to end soon anyway but policymakers are watching the situation closely in countries that have eased off the lockdown measures such as Austria and Denmark.

Oi: Cut or No Cut?

In the commodity space, all eyes will be on the OPEC+ and its virtual meeting. At 4:00 PM UK time, we are expected to hear the cartel’s decision on supply cut. So far, it is clear that the Trump administration is not attending this virtual meeting and this means that OPEC+ is going to pressure the US to shoulder the burden of a production cut. So far, the US has said that a natural reduction in oil production is already taking place because of lower oil trading prices and we have seen companies like BP, Exxon Mobile cutting their CAPEX spending, but this will take much longer time. OPEC+ wants the US to reduce the supply directly, after all, they are producing more oil than the Saudis.

After this meeting, all eyes will be on the G20 meeting that is scheduled for tomorrow, and the main agenda is oil prices. If the US doesn’t participate in the call today, it is anticipated that we will get some positive news on this front tomorrow.

US Weekly Claims

As for the economic data, it is US weekly jobless claims that matter the most and the question is if market participants are ready to give a free pass to bulls again. During the past few weeks, we are consistently getting feeble readings but traders have ignored them because such readings are already priced into the price action. The question is if they are really priced in or are we just being ignorant.

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