Commitments by the Federal Reserve last Thursday to provide liquidity to local government and smaller businesses underpinned confidence while undermining the US dollar. Growing optimism about a rapid recovery from the impact of containment measures pushed the Nasdaq index higher overnight, and the SPX and Dow to recover from early losses of around 2.5%. The lift comes as the company earning reporting season gets into full swing.
The Fed’s balance sheet is now at record levels above $6 trillion, after the central bank pumped almost $2 trillion in quantitative easing since late February. The surge in US dollar liquidity is now overwhelming the safe haven flows that previously supported the greenback. Commodity currencies are notable beneficiaries, despite further pressure on oil prices.
Low interest rates and unprecedented liquidity have pushed gold prices to levels last seen in 2013. Disappointingly, cryptocurrencies are not enjoying similar support, and CMC’s All Crypto Index is down 10% in the last two trading sessions.
Analysts’ expectations for earnings reflect higher optimism about a quick recovery from the virus containment measures. In the US the consensus is a 23% hit in earnings this quarter, followed by a 19% bounce the following quarter. Japanese companies are forecast to drop 27%, followed by a 13% lift. The expectations of quicker economic recovery reflect increasing optimism that containment measure will soon be wound back as infections curves flatten and potentially turn down, as they did in China.
Johnson and Johnson, JP Morgan and Wells Fargo will front shareholders in the US tonight.
Many Asia Pacific countries return from an extended break today. US futures have moved higher this morning, leading some commentators to disregard mixed local futures ahead of trade data from China today.