US index futures fell over 4% early this morning, erasing most of yesterday’s gain. Crude oil might be a drag on broad sentiment, as US WTI slid further into the $26.8 area.

A deeply imbalanced supply and demand outlook has not changed as Saudi and Russia have ramped up production in a time when global energy demand is badly hurt by border controls and travel bans. The situation may not change any time soon. WTI may hover around $28 for a while and it may head south if more restrictions are implemented worldwide.

US markets rebounded overnight on stimulus hopes that could amount to an $850 billion spending package. Meanwhile, the Federal Reserve announced plans to enter the commercial paper market to provide an extra $500 billion liquidity to support overnight lending. This underscores the fragility of the short-term debt market and stretch in liquidity. Again, the core issue is to contain Covid-19’s spread and prevent systemic risk.

According to a recent report from IHS Markit, US GDP is set to fall by 5.4% annualised rate in the second quarter. A recession could last until the end of the year.

Is there any game changer? Yes, there might be one. China has announced a start to human trials on an experimental coronavirus vaccine conducted by China’s Academy of Military Medical Sciences last night. A clinically approved Covid-19 vaccine might hopefully bring a silver lining to this chaotic market.

Asia Pacific markets are seeking stability today striking a balance between the virus impact and stimulus hopes. Greater China markets may prove to be more resilient against external shocks, as the mainland is the first major economy to recover from the Covid-19 outbreak. Business activity has gradually recovered in most areas outside of Hubei Province, albeit a foreseeable decline in external demand is going to weigh on growth throughout the year.

Crude Oil West Texas - Cash chart