[Chart courtesy of MarketWatch.com]

1. Moving the markets

Signs of progress in the fight against the coronavirus in Europe and the U.S. kept yesterday’s rebound alive. Even though headlines were mixed, assumptions of a “plateauing” of the crisis prevailed on Wall Street, along with the idea that the markets are bottoming out.

While that is a hopeful explanation, however, expectations that economies are going back to normal within a short period of time are simply not realistic and are based on the commonly held view that markets and economies are connected, yet there is a reality gap, as analyst Bill Blain explains:

What Markets know is that Global Central banks are going to do whatever it takes… to keep markets high… The reality gap between financial assets and the real word grows ever wider…

While powerhouse Nomura added this for color:

The steep rally in global equities is nothing more than a giant “bear squeeze” rally, driven by panicked exits from shorts that investors accumulated during the downturn…

I have been pounding on this Central Bank theme for a long time. This morning, in order to keep the markets from dropping, administration officials came out with some well-timed and appropriate jawboning with Kudlow and Mnuchin both insisting that Trump is looking to re-open the US economy “as quickly as possible.”

As Zero Hedge pointed out, Kudlow took things a step further by dismissing worries about another drop to new lows by saying the Fed is sitting pretty with what he called “the ultimate bazooka.”

In other words, the Fed will come and rescue markets at all costs, even if it means eventually buying junk bonds (they already are buying corporate debt ETFs) and stocks, just like happened in Japan.

Despite all the above efforts, the markets ended up giving back an 800-point Dow rally and closed slightly in the red.

Did we just witness the end of another dead-cat-bounce?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures markets jumped out of the gate, as Trump presented an upbeat outlook during Sunday evening’s press conference with officials in New York and Italy reporting notable declines in new cases and deaths:

“We are beginning to see the glimmers of progress,” Pence said at a White House news conference on Sunday. “The experts will tell me not to jump to any conclusions, and I’m not, but like your president I’m an optimistic person and I’m hopeful.”

It’s impossible to tell which news headline valid and which ones are hype, but the computer algos simply ran with it and pumped the major indexes to solid gains with the Dow adding some 1,600 points for the day.

On other hand, the virus news what not that great with one analyst commenting:

“The virus is continuing to spread unchecked, especially in the US. US President Trump has warned that the population should prepare itself for two very tough weeks. This will further delay any normalization of public life. The economic impact is already very serious.”

Of course, whenever markets make a huge rebound move as we saw today, there’s bound to be a short squeeze involved. And indeed, ZeroHedge identified it as the second-biggest short-squeeze ever.

Additionally, a $6.5 billion MOC (Market On Close) order propelled the indexes into the close in a simply mind-numbing melt up. Given the bullish response, you would have expected gold to take a dive and tank, but we’re not living in ordinary times. Things are so twisted and non-sensical that gold soared to 8-year highs (above $1,700) totally in sync with the direction of equities. Huh?

Even JP Morgan seemed to have some doubts and suggested that “investors should prepare for a coronavirus-induced ‘vicious’ spiral more than twice as bad as the financial crisis.”

It’s impossible to say how this plays out, although I am personally more aligned with JP Morgan’s statement. However, right now, at least for this day, the buy-and-hold crowd has something to cheer about by having reduced some of their steep losses.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures markets crashed into the red last night, despite a strong start to the session. The cause was another unprecedented surge in initial jobless claims, after last week’s record 3.3 million rise, but this week, we added 6.648 million for a two-week grand total of 10 million new people claiming unemployment benefits, as ZeroHedge pointed out.

So, what do you do when you know the markets are about to get slaughtered again?

You create a rumor. And that is exactly what the White House did, as Trump tweeted this:

Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

That’s all it took to shift the computer algos into high hear with the Dow at one point being up some 500 points, after which it lost all of its gains and dipped below the unchanged line before recovering and storming back towards the highs of the day.

ZeroHedge clarified the events as follows:

The mid-day volatility was a result of Russia’s energy minister emphasizing that instead of cutting supply, Russia will wait for demand to return.

The Dow Jones news service made it clear that, according to Saudi sources, Trump’s tweet was nothing but a baseless oil price manipulation:

1. SAUDI OFFICIAL SAY TRUMP’S TALK OF 10 MILLION BBL A DAY CUT OR ABOVE WAS AN EXAGGERATION

Finally, Moscow confirmed where to expect the oil prices in the coming year:

1. RUSSIA IS SAID TO BASE REVISED 2020 BUDGET PLAN ON $20 OIL

After all this, it makes me laugh out loud how oil prices could have gained 23% and stocks participated with an over 2% advance, while 10 million Americans lost their jobs in 2 weeks’ time.

Maybe, it was simply another overdue dead-cat bounce.

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