Stocks rally on drug hopes, oil legs it lower

Morning Note

V is for vaccine: stocks have taken a bit of good news and are running with it for better or worse, whilst figures showing the economic wreckage can be discounted, by and large.

A lot of the chatter this morning centres on Gilead Sciences, whose shares leapt 16% in extended trading last night after reports that its antiviral drug Remdesivir was delivering positive results in treating Covid-19 in a University of Chicago trial. It’s not actually a vaccine, but anything that can help end lockdowns and get economies moving quickly is a huge positive. As risk appetite has improved stocks have firmed and US yields came back bit with 2s up at 0.216% after hitting an 8-year low of 0.195%, while 10s are trading at 0.645%.

Gilead remains pretty circumspect on the tests – there are obvious risks in getting carried away at times like these when people will cling to anything offering hope. On the other hand, there are a lot of companies working on cures and vaccines right now – human ingenuity will win in the end. 

Asian markets firmed up despite data showing China’s economy shrank in the first quarter, the first such decline since at least 1992 when records began, or more likely since 1976. Tokyo rallied 3%, with Hong Kong up more than 1% even as data showed Chinese GDP declined 6.8% in Q1, while fixed asset investment was 16% lower. Retail sales were down 15.8% in March, but industrial production only declined 1.1% vs expectations for a 7% drop. It wasn’t all bad news from Asia overnight; Singapore’s non-oil exports jumped 12.8% in March. 

Broadly, though, we continue to see the damage. US jobless claims surged again by more than 5.2m in a single week. New car sales in Europe have fallen off a cliff, particularly in Italy. On the virus, the UK is extending the lockdown by at least three weeks, while Donald Trump has set out a three-stage plan for exiting lockdown. 

European markets tracked the rally in Asia and US futures with ~3% gains at the open on Friday. The FTSE 100 added 150+ points in early trade. 5800 is again the target before a push to the week highs at 5900. Travel & Leisure leading the way indicates a risk on rally as investors lap up the Gilead news. 

Wall St was higher a touch yesterday, with the S&P 500 rising half of one percent to rest a whisker away from 2800. News of the treatment drug spurred futures on and can now look to close the March 9th gap. If this gap gets closed today by stumps, then the bulls have done some important work. The cash close at 2,973 on March 6th is the target but first there is key resistance at 2885. If the bulls can hold the break above the 50-day simple moving average it may start to act as support.

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USA 500 Cash, 1-Day Chart, Marketsx – 08.02 UTC, April 17th, 2020

In FX, the US dollar is squeezing peers again with the dollar index holding the 100 handle. GBPUSD has failed to recover the 1.25 and the near-term bias looks to the downside with the 1-hr chart showing lower lows and lower highs being made. The 50-hour moving average, which has been a solid support rung, has turned into resistance.

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GBP/USD, 1-Hour Chart, Marketsx – 08.12 UTC, April 17th, 2020

Crude oil futures have taken another leg lower ahead of the May expiry, with WTI sinking to new 18-year lows at $18.44. This opens up the way to the mid-teens. The OPEC deal is clearly failing to boost sentiment. We are in new territory so it all depends on the mood in the market – there is not a heck of support in the way to $10. 

With US yields higher Gold is trying to hold a break under $1700 but has rejected the 50-period SMA on the 4-hr chart at $1685. Next support lies on the 23.6% retracement at $1678.

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Gold, 4-Hour Chart, Marketsx – 08.15 UTC, April 17th, 2020