European markets still traded broadly higher into lunch but failed to make much headway in a pretty lacklustre session. The FTSE 100 failed the test at 5900 and retreated to 5800 where it found support. Bear in mind this comes after a near 4% gain in the last trading session on Thursday. The DAX was off its highs but still traded up 1% for the session.  As of send time, Wall Street is more positive and the Dow was looking to open about 300 points higher.

Meanwhile corporate earnings kicked off today with two Dow components first on the slate. Johnson & Johnson raised its dividend but lowered its guidance for 2020 to reflect the Covid-19 impact. The dividend was raised by 6.3% to $1.01 on adjusted earnings per share of $2.30 vs $2.01 forecast. 

JPMorgan EPS came in a 78 cents vs $1.84 expected and $2.57 a year ago. The key thing was credit costs – provisions for losses jumped to $8.3bn, which was double the median estimate, although it was a lot lower than the $25bn that one analyst forecast. Last year the number was $1.3bn. The bank is preparing for a severe recession and needs to set aside capital to cover expected losses – problem is no one has a clue how big these might be. I should stress that even the cleverest banks won’t know just what the damage will be in a situation where the economy is stopped and then restarted. No big surprise to see a big improvement in trading revenues whilst similarly the drop in investment banking earnings was to be expected. 

Wells Fargo was similarly weak – $0.01 EPS vs $0.33 expected down to the build-up of a huge capital buffer against expected credit losses. The bank raised its reserves by $3.1bn and took a $950 impairment charge that produced a headwind of $0.73 on EPS.  

Gold pushed up to set fresh 7-year highs with spot up at $1727. The move higher comes investors hedge their bets against a sharp decline corporate earnings and a deluge of central bank printing. US retail sales tomorrow and China’s GDP print on Friday are likely to be the chief macro events to focus on. Whilst the gold safety net is all about the decline in real yields, the idea that central bank printing will lead to inflation seems a step too far given the profoundly deflationary shock from Covid-19. Nevertheless, despite inflation and inflation expectations tumbling the impact of Fed and other central bank easing could see real yields drop further into negative territory.

Crude oil futures (Front month WTI) were weaker still with $22 cracking. The massive contango still leaves the Jun contract at above $29. The spread means Spot Oil on the platform is trading with a huge premium to the normal futures contract. A retrace to $20 looks possible for the futures and the real question is how the Jun and further out contracts can hold up where they are. Whilst OPEC has cut output and US production is coming off sharply, the massive build in inventories will surely take time to unwind and we do not see a sudden rebound in demand as economies take time to come out of lockdown. Even when restrictions are lifted, it will take time for people to drive and fly as much as they did. And as far as the OPEC deal goes, Oman’s March output was up 13% in March vs February.  

In FX, the pound was unmoved by the OBR saying that UK GDP could decline by 35% in the second quarter. The coronavirus will cause a deep recession and a £220bn black hole in the public purse, according to the watchdog. This is a known – what matters is how soon the exit from lockdown and how quickly the recovery. The latter depends to a huge degree on how effective the fiscal support has been – how well has money and relief got to companies and individuals. The hit to sentiment long term is going to be much harder to get over. 

GBPUSD held gains north of 1.2530. As per this morning, the pair is looking to hold the rally above the 61.8 retracement at 1.25150. March swing highs around 1.2650 offer near-term resistance to the bulls, as well as the 200-day moving average at 1.2657.