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.
Thesituation is no different for no medium size businesses. Basically, lenders areextremely cautious despite the government guarantees, and this has kept thedoor open for the flood of bankruptcies–if the situation is not addressed intime. Some also worry about the size of the current aid package as it isnowhere close enough to current demand, and if further aid measures are not putin place, not only borrowing cost will start to tick higher, but the riskattached to the current situation (in terms of bankruptcies) will balloonfurther.
Overall,governments around the world are busy in drawing the plans of re-oping theireconomies. The longer the lockdown remains in place, the bigger the damage willbe. But taking precautionary and necessary measures are the most importantfactors, and governments should not be rushing in to end the lockdownprematurely. In the UK, we had the deadliest day yesterday, over 900 people losttheir lives and it is highly likely that the lockdown will be extended untilthe end of this month. There is nothing new about this because no one wasexpecting this to end soon anyway but policymakers are watching the situationclosely in countries that have eased off the lockdown measures such as Austriaand Denmark.
Oil: 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 thismeeting, 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 calltoday, it is anticipated that we will get some positive news on this fronttomorrow.
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.