Will Fed Put Prevent a Correction?

The stock market has really lost its spark these last few weeks and once again we’re seeing indices coming back towards the recent lows.

Growing unease around the success of the reopening process is no doubt fuelling much of this, with numerous regions being forced to backpedal on lifting restrictions, or at least pause the process. This is far from disastrous and in no way unexpected given the amount of second wave talk there’s been over the last couple of months.

But while we’ve known a second wave is coming, we haven’t known how bad it’s going to be, how it’s going to be managed and how successful that is going to be. Perhaps this is why we’re starting to see a few nerves but the localized approach, should it be a success, may put investors’ minds at ease.

As I’ve mentioned previously, it will also provide an interesting test of investors willingness to buy the bad news in anticipation of it bringing more stimulus. We’ve seen the “bad news is good news” trade rear its ugly head before and there’s no reason why we won’t again. The Fed and others have shown themselves more than capable of quickly fixing any leaks that appear, the plumbing looks well taken care of.

It’s a shortened trading week, with the US celebrating the Independence Day bank holiday on Friday, so much of the data that would typically appear later is being brought forward, hence the US jobs report unusually being released on Thursday. Today we had the ADP data, which has never been the most reliable of releases ahead of the NFP, but when the last month is being revised by almost six million, you’re left wondering what’s the point?

I know these numbers are outrageous and the collection of the data must be a nightmare but when you see releases like this, it’s hardly surprising markets aren’t paying much attention.

Can EIA be the catalyst that breaks $40?

Oil prices are edging higher today but broadly speaking continue to hover around the $40 mark. Not even a large inventory drawdown, reported by API on Tuesday, provided much of a lift, despite a small increase being expected. We’ll see if the EIA report today gets the same treatment, should it confirm the same. Perhaps it’s just indicative of how far prices have come, maybe we’re looking at an exhausted trend, although there’s no rush at the moment to bail out. That may change if we see a break of $37 in WTI though.

Gold has a huge momentum deficit

Gold is continuing to creep gradually higher, getting close to $1,790 before some profit taking once again kicked in. With such a major level lying just above, I expect to see more of this behaviour, with rallies being quickly bailed on. That’s not to say we won’t see $1,800 break at some point, I’d be surprised if we don’t, but there’s a huge momentum deficit that makes me highly doubt it at this time of asking.