Cautious tone for equities, oil rallies

Morning Note

HSBC is said to be mulling a move back to Hong Kong because the Bank of England asked it to not pay a dividend. Certainly, bank boards won’t be happy – their members count on those divis for paying for their second and third homes. Nor too will many savers, many of which are in Hong Kong. But any notion that the authorities will be interested in doing anything to ‘support savers’ is fanciful. That idea died with the last financial crisis with central banks unleashing QE and permanently ultra-low rates.

This crisis has turned accommodative monetary policy up to 11 – regulators, governments and central banks are not interested in savers. The hunt for yield goes on – income investors shunned the British bank stocks yesterday, which seems odd given that it was well reported the day before that the BoE was forcing them to ditch dividends and buybacks. HSBC’s threat is likely a reminder to the UK authorities that this time around the banks are here to fix the problem and should not be a target for politicians like they were last time.

Markets in Europe got off to cautious start, trading mildly higher and trimming a chunk of early gains, with the usual tug-of-war as investors try to figure out just how far the virus spreads and just how bad the economic damage will be. There is not a huge amount of conviction out there, following a tough session on Tuesday that saw European and US equities down ~4%. It looks like the month-end rebalancing juiced equities into the last days of March.

Today the focus is on the US weekly unemployment claims count for an indication of the extent of economic damage. Last week this surged to 3.3m and could be even higher this time around. Talk of 5m+ is not overly pessimistic but the consensus is 3.7m.

In the cash market, the FTSE had yesterday eased back close to Friday’s low, hitting 5414, a little shy of the Mar 27th bottom at 5407. Yesterday’s high at 5,671, struck on the open, is the first target. We’ve had only three down days in 10, stabilisation is still the order of the day.

In FX, GBPUSD remains within the range of the 50% and 61.8% levels (see chart). We can mark out a pennant, usually a continuation pattern, on the 4hr chart.

Markets.com

GBP/USD, 4-Hour Chart, Marketsx – 08.13 UTC+1, April 2nd, 2020

The selling in oil has lost momentum resulting in a bounce well flagged yesterday by the MACD crossover on the daily chart after a series of failures to breach $20 on the downside. Near-term resistance offered at the 200-hour moving average. There is a lot of noise out there about whether Russia is ramping production or not, what Trump is up to etc. Talk of a truce in the price/supply war is lifting sentiment but you cannot help but sense a dead cat bounce. Trump always claims he close to a deal.

From what we can glean from the chatter, Russia is not raising output but the Saudis are not backing off and have increased output to record levels. If there is a truce then oil can rally a bit but the pressure seems weighted to the downside and any supply deal will not be able to offset the collapse in demand. US oil inventories surged by 13.8m barrels in the week to March 27th, the biggest one-week rise since 2016. Globally inventories are going to full to the brim within weeks.

Markets.com

Crude Oil Futures, 1-Hour Chart, Marketsx – 08.37 UTC+1, April 2nd, 2020