US Open – Rally mode continues, Oil dips on easing cut outlook, Gold drops, Bitcoin bounces

Global equities continue to climb higher on hopes that Europe is finally nearing a 750-billion euro fiscal response and as investors eagerly await the results of human trials of COVID-19 vaccines. The long awaited EU fiscal response is a key turning point for the bloc as the survival of the euro was always needing nations to share financial hardship.  The proposed fund will require all 27 EU nations to approve 500 billion euros in the form of grants to member states, and 250 billion euros in loans. 

The long-awaited stimulus package helped European bonds rally across the board with the euro finally rising above the 1.10 level. 

The next several weeks will see critical phase-one trial updates on the vaccine front, but stocks may not react as much as progress has firmly been priced in.  Their is no denying Wall Street’s confidence that they believe we will see a vaccine fully in place for 2021, which means we will likely have to deal with the coronavirus in the fall.  Widespread inoculation is unlikely to happen this year and that should drag down some of the prospects of a stronger finish this year. 

Rally mode continues for stocks and tech will still lead the way higher, despite the catch-up trade that is unfolding with financials and industrial equities.  Stay-at-home stocks still remain the favorite trade going forward, which means the small cap stocks recovery will take a lot longer.  

Oil

Oil’s rally stalled out after Russia signaled they want to unwind productions in July, a sign that the battle for market share will resume as crude demand improves.  The OPEC + agreement will be revisited at the June 9-10th meeting and it was always expected that the cuts would taper in July.    Russia’s comments on easing cuts in July served as a reminder that higher prices and improved crude demand will likely see OPEC + compliance go out the window. 

The physical market is also improving as refiners are buying up distressed cargoes from Africa and the Middle East.  As the oil market nears balance, expectations are high for WTI crude to hold onto the $30 a barrel level, but struggle to break above the $40 level until air travel demand bounces back. 

Gold

Gold prices are down for a third consecutive day as financial markets remain in rally mode as vaccine hopes continue to put a damper for safe-haven demand.  Gold’s bullish outlook still remains intact as expectations are still high that more fiscal and monetary stimulus is on its way.  The EU’s new fiscal stimulus package will likely be the beginning of another wave of stimulus that should help prop up risky assets. 

The new “Cold War” between China and the US will also likely drive a lot of demand for gold as tensions will remain in place leading all the way up to the Presidential election.  President Trump wanted to run on a campaign of a strong stock market and economy, but he may only have half of that. Permanent damage to the economy will likely settle in over the next couple months and gold will see steady flows as unbalanced recovery takes form. 

Bitcoin

Bitcoin is shrugging off concerns that tighter regulation could be in its future. The SEC decision to block Telegram’s efforts to build an open network and associated Gram cryptocurrency has many crypto-traders concerned the regulatory hurdles could see US regulators take another shot at Bitcoin. Bitcoin is starting to see mounting bearish sentiment and a healthy pullback might be needed before it can break above the $10,000 level again.

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