Markets cheer on stimulus measures, but gains constrained

Our own market loved the idea of the US stimulus and the Federal Reserve intervention, with rises in US futures helping our market to a very strong close yesterday. Our own economy will take a large hit from the virus and I personally don’t believe that the measures our Government has taken to mitigate this hit will be enough; certainly we are doing less than overseas Governments. Regardless, our market will continue to rise and fall with the movements in US markets and they are currently rising. Technically, our XJO is sitting around the downtrend line and some resistance at 5,000. Should that break, there is a potential resistance level around 5,300. If 5,000 holds as resistance, the target to the downside would be some potential support around 4,750, followed by 4,500.

US stocks gained ground for the second session in a row, with the Republicans and Democrats agreeing on a massive $US2 Trn stimulus plan. The Dow closed 495.64 points higher (2.39%) and the S&P 500 was up 28.23 points (1.15%). European and Asian markets rose strongly as well.

US stocks enjoyed their largest two-day rally since 2008, but it was a whippy session, with prices pulling strongly off highs towards the close. Despite the strong session, unemployment claims are rising and hospitals in some states are starting to reach full capacity. Attention is now turning towards tonight’s jobless claims report from the US economy, with economists now expecting around one million claims across the past week; the real number may be higher, with California itself announcing that they had reached one million claims since the 13th of March. Technically the US S&P 500 index has now rallied back towards some potential resistance around 2,500. If the index breaks above this level, the next target to the upside would be at 2,750. To the downside, the next support level is around 2,200-2,250, if that goes, you have to assume the target would be 2,000.

XJO Implied Volatility was up 4.08% and closed at 43.734. The US volatility was up 3.57% and closed at 63.95%.

US oil was slightly higher overnight, despite a lower than expected US inventory read, prices remain depressed.

Gold pulled back overnight, prices in Australian dollar terms (given the fall in the AUD) remain ludicrous however.

Iron ore bounced back strongly for a second day. Prices remain strong considering the economic situation.

The Aussie dollar was flat overnight, but prices remain extremely low relative to the US dollar.

Things are looking a little more positive in US markets after the strong intervention from authorities. Germany is also planning to intervene strongly, discussing plans for a roughly $1trn Euro stimulus package. Regardless, the economic consequences of the virus are also starting to mount. Overnight we heard news that British Prince Charles has tested positive, perhaps the most high profile infected to date. Tonight will be the real test for markets with jobless claims and other economic reports from the US economy, these will be some of the first to us an insight on the strength of the economic impact. Domestically we are also approaching further shut-downs, which could weigh on our market if announced.