US Open – Rally Uncertainty, NYC reopens, Focus on Fed, OPEC delivers, Gold Stabilizes

It’s a bullish signal for global stocks after a shockingly strong nonfarm payroll report suggest the trillions of dollars in economic assistance from the federal government and Fed is fueling a quicker rebound in hiring during the coronavirus pandemic.  The world’s largest economy just grabbed the baton back and is leading the stock market rally. 

The dollar traded mixed against its major trading partners but seems poised for further declines ahead of the Fed as the global economic recovery continues. 

Wall Street continues to ride the global reopening trade as S&P 500 nears recovering all of its losses for the year.  Reopening momentum continues as NYC phase-one reopening begins today.  Life is far from normal in NYC, but after almost three months of lockdown, New Yorkers are welcoming construction, manufacturing and non-essential retail.  Haircuts and dine-in services still seem far from happening, but optimism is high that the city is headed in right direction.

Fed

The Fed policy decision in the middle of the week is expected to show they are still all-in with supporting the economy for as long as needed.  The job report raised some eyebrows that a fast rebound could ultimately end the stimulus trade a lot sooner than anyone expected.  One report however should not trigger a change with Fed guidance. 

Oil

Crude prices rose after OPEC+ had a very smooth meeting over the weekend that extended their historic production cuts by an extra month.  Oil was also supported after Tropical Storm Cristobal halted about 34% of oil production in the US Gulf of Mexico.  The impact of the storm was about 636,000 of daily crude output, alongside a 32% drop with natural gas production. 

Oil prices are riding high on the OPEC+ historic output curbs, reopening boost to crude demand expectations, and Tropical Storm Cristobal’s unexpected idling of oil production.  WTI crude has rebounded above the $40 level and the fundamentals could support further upside. 

The global economic recovery is still very fragile and Saudi Aramco’s price hike, the biggest in 20 years, could start to hamper the rally.  The next couple of months will be interesting as oil-producing nations will try to navigate maximizing oil sales while not giving up market share. 

Despite an amazing rally from almost -$40 to +$40 in just over a month, the curve indicates energy traders should not expect much higher prices over the next couple months.  Oil’s path forward will rely on the demand outlook and that will be determined by improving air travel and driving traffic.  Bullish expectations are becoming the consensus, but it seems oil prices could ready for a pullback once the Saudi-Russian price war gap is filled. 

Gold

Gold prices are shrugging off the last week’s decline on hopes the Fed will not tap the breaks in supporting the US economic recovery.  After a brutal week, gold prices are starting to show signs of life again as investors become skeptical that the US equities will struggle to climb much after recapturing all their losses this year. 

The global economic recovery will still require further aid and gold prices should still be supported over the medium-term. 

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