US Open – Fed Vigilance, Oil’s supply concerns, Gold higher, Bitcoin teeter

Nasdaq continues to be the flavor of the month, with technology stocks remaining where investors want to be positioned even if a second wave hits the US.  Roughly $3 trillion is still on the sidelines and investors will want to see if the Fed remains very accommodative and ready to act if necessary. 

Wall Street is slightly growing nervous that COVID-19 is far from over.  New cases are emerging in Asia and Latin America appears to be going through the worst of it right now. 

Over 100 vaccines are being evaluated, with Moderna’s phase-three trial starting in July. The initial optimism that a vaccine is nearing is turning to cautiousness as investors brace for the possible disappointment if Moderna and Oxford don’t see their vaccines pass the phase 3 trials this summer.  If the front runners don’t get a vaccine, the focus will primarily shift to finding a treatment.  

Presidential election focus will start to take hold now and President Trump will try to narrow the gap with former-VP Biden.  Biden has a comfortable lead in the battleground states, but Trump is still better viewed at handling the economy and that should only improve as the recovery from reopening accelerates. 

Fed

Fed Chair Powell will likely soothe jittery investors, acknowledging the recovery is on its way but signaling they will remain vigilant as several risks to the outlook remain in place.  The Fed will signal no change in interest rates are expected over the next two years and that the next move will be a hike when the labor situation improves significantly.  The Fed is in a holding pattern and this meeting should show policymakers are skeptical of the economic recovery. 

Given the strong start to the economic rebound, negative rates seem unnecessary now and Fed watchers will want to find out if discussions begun about adopting yield curve control.  The Fed will do their part to ensure a low interest rate environment stays in place over the next few years. 

Treasury traders will look to see if the Fed commits to changing from daily to monthly bond buying. 

Oil

The API report raised expectations oil producers are itching to get shut-in production back. As the global economic recovery accelerates, crude demand will improve, but oil-producing nations will quickly want to make up for lost revenue and we could see the oil market struggle to find balance this month. Energy traders will pay close attention to the EIA crude oil inventory report to see if US production shows signs of stabilizing.  WTI crude seems to poised to settle around the mid-$30s as the oil market works its way to balance. 

Gold

Gold is benefiting from modest safe-haven flows this morning, but ultimately should see further support from a Fed that will likely signal they will remain vigilant.  New COVID-19 cases are a risk that is not going away anytime soon and that focus could grow over the coming days.  Gold should see further support as investors remain skeptical that US stocks may only have the room to go up another 5% from current levels for the remainder of the year.  Gold has a plethora of fundamental catalysts that could help trigger the climb back towards the $1800 level. 

Bitcoin

Bitcoin prices are teetering as crypto-watchers are waiting to see if the dollar resumes its slide.  Bitcoin’s momentum from growing institutional interest has run its course and  if the rally is going to finally sustain a move above $10,000, a broad rally for risky assets needs to occur.  Bitcoin fundamentals have been exhausted and cryptocurrency traders need a fresh catalyst. 

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