US Close –Stocks pare losses after record PMIs and housing data, FX, Oil softer post EIA, Gold clawing back, and Bitcoin rebounds

US stocks pared the earlier mounting Covid lockdown losses after the US flash manufacturing PMI reading for January surged to the highest level since the series began.  This was a surprisingly robust report as service business activity rose more than expected as business embraced vaccine developments and were encouraged the Biden administration will provide a stable environment for the economy.  Risk appetite continued to creep back after existing home sales delivered a better-than-expected reading for December, making 2020 the best year for the housing market since 2006.  This will be the peak for the housing market, but don’t expect a significant drop come spring time. 

Despite a strong round of US economic data, the COVID situation remains tense as the EU will likely have more lockdowns as the virus variant spreads and as China starts to intensify restrictive measures.  Global vaccine rollouts have disappointed Europe and the US seems poised to reach herd immunity in the fall.  Johnson & Johnson targeted the COVID-19 late-stage trial results by January, so we could see it any day.  If J&J follows the Monday theme that Pfizer and Moderna, we could see J&J announce their results on Monday morning.  J&J’s single-dose coronavirus vaccine could be a gamechanger for vaccine rollouts if it will be at least 80% effective against COVID-19.  Expectations are high for good news from J&J after the Warp Speed Chief Dr. Moncef Slaoui said “The expectation is to have 80, 85%, or maybe more, efficacy.”  The short-term risks are growing to the outlook, but no one wants to be short ahead of the potential J&J vaccine late-stage trial results.

FX

The dollar gave back most of its gains after robust US data took away some of the pessimism over mounting virus restrictions across the globe.  The US dollar is surging against commodity and EM currencies as FX traders unwind bearish dollar bets.  Partisan politics also supported the dollar rebound as a quick passing of Biden’s stimulus plan is unlikely and will have to wait until mid-February.  It seems the Democrats will get a stimulus pushed through using the budget reconciliation process, which will dampen expectations Republicans will play nice for other initiatives such as infrastructure spending. 

Oil

Crude prices are under pressure as the dollar surges against commodity currencies and after the EIA crude oil inventory posted a surprise build.  Inventories increased by 4.35 million barrels, more than both the consensus estimate of a draw of 1.73 million barrels and the API report of a rise of 2.56 million barrels.  The US became a net importer of crude, snapping a four-week streak of exporting.  The four-week average for demand is still depressed at around the 7.8 million bpd level.  

WTI crude is not getting any favors from the EIA report, but has not given back some of the gains seen following the better than expected US economic data.  

Gold

Gold pared losses after the strong dollar move slowed down after robust economic data showed the US economy remains optimistic despite disappointment with vaccine rollouts and mounting lockdown fears.  Bets against the greenback remain excessive and the dollar rebound might need to continue before dollar weakness can resume.  Gold appears set to consolidate, but the longer-term bullish outlook should remain intact on ballooning deficits and as inflationary pressures heat up.

Bitcoin

Bitcoin is rising again, clawing back from losses that saw panic selling take it below $29,000.  Bitcoin’s plunge this week was over a 30% drop from the record highs seen earlier in the month.  The potential double-spend crisis triggered a tentative loss of confidence in Bitcoin but that was slowly alleviated after cryptoverse was educated that did not occur here.  Bitcoin is bouncing back as big money buys the dip, with some focusing on MicroStrategy’s purchase of $10 million of Bitcoin.  Bitcoin will remain volatile and if it can continue to consolidate between  $30,000 and $40,000, many crypto traders will argue the longer-term bullish trend is intact.  

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