The Commodities Market Disconnect from the Global Equity Markets Appears to be Reversing

Talk of sliding crude oil prices in recent weeks is nothing new. May futures sliding into negative territory, however, was unprecedented. Even the global financial crisis didn’t deliver such black gold carnage…

For a U.S President hell-bent on becoming the face of Crude, it was a bad plan gone horribly wrong…

Not only did WTI futures continue to slide, but even the agreement to deliver 10m bpd cuts did little to stop the slide. Or the promise of 20m for that matter…

The Global Economy and Outlook

While we see the global equity and even the FX markets bounce around, it has been the oil futures markets that grab the headlines.

It seems almost astounding that the S&P500 saw its strongest weekly gain since the 70s just 2-weeks ago.

In stark contrast, WTI has been on the slide, culminating in a slump into negative territory for the 1^st time in history.

IMF forecasts for 2020 certainly delivered a reality check last week and contributed to the relentless slide.

Near-term, as governments begin to ease lockdown measures, the big question is the duration of this slump in demand…

One thing that seems inevitable, or at least logical, is for both the global equity and FX markets to align with crude.

What Lies Ahead

For the global equity markets, its earnings season that would normally deliver direction over the coming weeks. This time around, earnings have been written off. Worse yet, there is also little interest in what lies ahead.

That leaves the global equity markets at the mercy of another slide.

Coronavirus numbers aside, the markets will need to see employment numbers surge to support current levels.

A convergence of the global equity markets and oil futures markets must be an eventuality for market conditions to return to normal.

Few would suggest that the equity markets are reflective of the economic environment and of what lies ahead.

This talk of a V-shaped economic rebound has certainly provided support, with even the IMF unable to manage expectations.

If we look at today’s April’s ZEW numbers for Germany and the Eurozone that disconnect is never more evident.

Economists and analysts certainly caught the markets off-guard this morning. While aligned on current economic conditions, sentiment figures suggested an expectation of a V-shaped rebound.

This was in defiance with the IMF, which has been known to be somewhat bearish…

Germany’s ZEW Economic Sentiment Index jumped from -49.5 to 28.2, with the Eurozone’s rising from -49.5 to 25.2.

For Germany, the rebound took the Sentiment Index to its highest level of 2020…

Looking at the current conditions figures, these appeared to be more relevant today. Germany’s ZEW Current Conditions Index slumped from -43.1 to -91.5…

So, for the equity markets, the shift in sentiment did little to support the DAX or the EuroStoxx600 for that matter.

It is hard, after all, for the equity markets to ignore signals from the commodities markets.

And, all of this comes ahead of April prelim PMI numbers on Thursday that could send a few more tremors across the global financial markets…

At the time of writing, the DAX30 was down by 2.72%, with risk aversion also weighing on the EUR that was down by 0.22% against the Dollar.