TalkMarkets Monday Chat: And Oil Makes It A Rally?

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It's Easter Monday and the markets will be open in the U.S. as will many other major exchanges. Hong Kong, London and Frankfurt markets will be closed. Futures in New York are mixed as investors take in the latest from OPEC and the Covid-19 outlook. The S&P 500, (SPY) the key Bear or Bull indicator is showing that the Bulls have returned. Is the rally here to stay? Is oil on the way to $50 per barrel? Let's look at what some of TalkMarkets contributors have to say.  

George Krum looks at the charts in his top of the week exclusive for TalkMarkets and says that last week's oversold rally will turn into an overbought correction this week. He writes, "The SPX had a very strong week and gained 12% which helped it to break out of the crash zone, however this week the roles are reversed, and market breadth is overbought, which usually precedes a sideways/down phase for the major indices." He notes that "The severity of the expected pull-back will provide us with valuable information about the state of recovery of the markets. We expect that the March lows will hold." Krum says that "2900 is the upside target (for the S&P 500) and a key bullish pivot level." 

There is already much comment that the new OPEC deal which stays in place for an initial two months, will only provide only immediate short term relief to oil prices, but Warren Patterson a writer at ING Economics, in his article " We Have An OPEC+ Deal" takes not only a look at the short term, but also, takes a stab at prices for 2H 2020.

He notes the following: " ...we have revised higher our ICE Brent forecast for 2Q20 from US$20/bbl to US$25/bbl. Given the scale of the cuts through until the end of this year, along with organic declines from other producers, like the US, the outlook for prices over 2H20 does now look more constructive. This is particularly the case if we assume a recovery in demand over the latter part of the year. These factors should lead to sizeable inventory draws by the time we enter that period, and we have consequently revised higher our ICE Brent forecast for 3Q20 from US$35/bbl to US$37/bbl, whilst our 4Q20 forecast has been revised from US$45/bbl to US$50/bbl."

Patterson conditions these predications on OPEC's ability to comply with their own agreed upon production cuts.

Taki Tsaklanos heads his recent post "The Most Promising Stock Market Indicator", with a picture of a raging bronze bull and notes that according to the charts the downward momentum "Surprising, but true, VIX (the widely watched volatility index) is close to confirm a bullish continuation of the surge in stock markets."It remains to be seen if the VIX will continue to fall and if the Dow will stay at near its closing levels of last week, but bull signs are out there.

John Mauldin in his thoughtful article "Bending The Inflation Curve " takes a look at what we know at this point in time about the economic and societal impact of Covid-19 and the importance of the current and continuing stimulus actions being taken by the federal government. He argues that though the stimulus packages are necessary the impact of closing the economy down (for even a couple of months) will be felt for the next several (at least 3 to 4) years.

I will leave you with his ending comments but strongly suggest you read the whole thing. "Yes, that is going to blow the budget out (govt. stimulus). It is going to mean even deeper deficits and even then many will be without a job. We may actually need a real infrastructure program to create jobs, spread out over several years, to fix our ailing water systems, electrical grids, roads and bridges, etc. Now that would be honest-to-God stimulus, as opposed to the mere replacement of lost income. At least we would get something real from that money."

James Picerno looks at the Covid-19 mortality rates in the U.S. and finds them trending lower, "US Coronavirus Deaths Appear To Peaking For Daily Changes", but is unsure what to make of the data.

He notes with worry that "there’s bad news to consider: the apex for the sum of cumulative fatalities is still nowhere on the immediate horizon." Picerno makes use of charts showing U.S. daily death rates against those of other countries which show that U.S. rates "continue to rise at a relatively strong rate for cumulative fatalities."

Still, looking for a bright spot, which is much needed by the markets, Picerno notes " White House health advisor Dr. Anthony Fauci offered a bit of encouragement earlier today, advising that “cautious optimism” is warranted for thinking that parts of the US may reopen as soon as next month."

That's TalkMarkets, Monday Chat  for this Monday, April 13. If "cautiously optimistic" holds sway in the markets this week, we may be able to actually say that "Spring 2020, has sprung"!