Gains in crude oil help restore calm

After two weeks of extraordinary volatility, the likes of which haven’t been seen since 1929, the Dow Jones traded an inside day, meaning its daily range was within the previous days high and low for the first time since the equity meltdown began in mid-February.

The Dows 188 point gain dwarfed by the gyrations over the previous eight sessions of at least 1000 points or more, prompting the question, have the measures undertaken by policymakers and central bankers reached a scale large enough to convince the markets collective psyche that the global economy can weather the Covid-19 storm. Or is this the calm before the next storm?

There is a range of considerations here. On the virus front, there are a host of theories as to whether the virus can be contained or whether its spread will continue. The truth is no one knows and this remains a dark cloud to be sure. Another dark cloud on the horizon would be U.S. Congress failing to pass the $1.2 trillion fiscal stimulus package in quick time. If the bill is not passed by very early next week, I would expect to see stocks retest recent lows.

Finally, when we look to when stocks started accelerating to the downside it was two weeks ago after Russia blocked OPECS plans for a supply cut. A price war followed, taking oil to near U.S $20, its lowest level since 2002.

Overnight, crude oil gained +25% after President Trump indicated he was looking for the “medium ground” in the ongoing dispute between Russia and Saudi Arabia and this followed President Trump's tweet last week he would look to fill the U.S. Strategic Petroleum Reserve at current prices.

When viewed on the weekly chart below, there is ample room for crude oil to trade higher towards the “gap” near U.S $35.00. More so if the Saudis and Russians can agree to mend fences for their mutual benefit, thereby helping to bring some much-needed stability to global equity and asset markets as a whole.

Source Tradingview. The figures stated areas of the 20th of March 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.