US Close – Stocks rebound, ECB Recalibrates; No surprises from Claims/GDP data, Commodities pummeled but off lows

US stocks were dangerously getting close to correction territory, so Wall Street used better-than-expected GDP and claims data as an excuse to buy the dip. Decent US economic data alongside an ECB commitment for action in December helped global equities stabilize.  The lockdowns in Germany and France will be accompanied with massive fiscal support, so weakness should be short-lived.  The world is better prepared to COVID-19 over the winter months and hopes are still high that treatments and vaccines will get approvals before year end. 

Data

The advance reading for third quarter GDP showed a record rise of 33.1%, with consumer spending surging 40.7% and strong gains in business investment and housing.  The problem with the GDP data is that when you decline over 30%, you need to bounce back over 50% to fully recover from the pandemic hit to economic activity. The jobless claims decline is feared to be temporary as the latest virus spread will likely dampen the outlook for hiring for the rest of the year. Following this record rebound in GDP, economic output is still a little over a few percentage points away from the last pre-pandemic quarter.

ECB

ECB Chief Lagarde’s downbeat outlook paved the way for a new stimulus package at the December meeting.  The economic recovery has lost all its momentum and with the risks to the outlook clearly growing, the ECB will likely need to do much more.  Lagarde noted they will look at all instruments, but rate cuts will likely be a last resort if we see a double-dip recession.

Oil

Crude prices pared hefty losses following the better-than-expected US economic data and after Hurricane Zeta ended up delivering much more shuts-in to production than initially expected.  The US data was just the excuse used to pare losses, but really energy traders wanted to defend the lower boundaries of the trading range that has been in place since June.  Third quarter GDP data delivered a record rebound, but that won’t do anything to the crippling outlook for the fourth quarter. 

Lockdown headlines will continue to dictate how bad the crude demand outlook crumbles.  Much attention is on the lockdown announcement from France and Germany, but all of Europe seems poised to head in that direction.  Poland reported over 20,000 infections for the first time, Sweden is poised to announce stricter measures for a few regions, and Greece is expected to unveil a one-month plan to contain the virus spread.    

The BSEE reported that Gulf of Mexico operators shut 1.6m b/d of oil production after Tropical Storm Zeta.  Following yesterday’s first build in seven weeks, a steady rise in US production could easily have complicated the oil market’s fight toward balance. 

WTI crude could continue to hold the $35 level if risk appetite steadies until the election.  The strong dollar rally appears to be over for now and that should allow for commodities to consolidate. 

Gold

Gold’s kryptonite, the US dollar’s relentless rally delivered a huge blow to short-term outlook for the precious metal.  The dollar was poised for some momentum heading into a live ECB meeting, follow-through panic selling of risky assets, and as retail investors abandoned their gold ETF bets.  Gold’s selloff saw buyers defend the September low of $1851.  The unwind of retail investors is actually a bullish signal for gold as markets will likely start to show a consolidation phase for gold ahead of Election Day. 

The stimulus outlook is still very bullish for gold.  The ECB signaled action for their December policy meeting, while next week is expected to see a rate cut by the RBA, more QE from the BOE, and a signal from the Fed that they will need to do more to support the economy and ease credit risks.  Gold prices should firm up leading to the election.  

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