US Close – Mnuchin goes Grinch, Fiscal Stimulus hopes, Pfizer submits EUA, Oil’s 3rd positive week, Gold surges, Bitcoin eyes $19K

With 61 days until January 20^th, financial markets are trying to figure out if any near-term uncertainties will produce a significant stock market pullback.  The escalating pandemic is putting pressure on Congress to pass a stimulus package with federal unemployment benefits and small-business aid.  Treasury Secretary Mnuchin’s unusual request to have the Fed return some money surprised everyone.  Some parts of the country are about to see the worst COVID-19 and now seems hardly the time to remove any support programs. The current COVID surge will trigger further economic pain for the US economy and possible strains to the financial system, thus making Mnuchin’s request a Grinch-like move that just adds more uncertainty to the short-term outlook. 

The spread of the virus is accelerating prompting the CDC to advise Americans not to travel for the Thanksgiving holiday.  Markets showed little reaction to the Pfizer/BionTech announcement that they will file for emergency use authorization today for their COVID-19 vaccine.  This could pave the way for Pfizer’s vaccine to be used with high-risk populations in the U.S. by the middle to end of December 2020.

Heading into the close, US stocks are slumping into the weekend as investors will wait until we see an actual breakthrough with stimulus talks. The Dow and S&P futures turned negative and the Nasdaq is little changed.

European indexes are mostly positive but lost some momentum after Poland and Hungary affirmed their disagreement with the 7-year budget which includes the EU Recovery Fund. Both countries reject the linkage democratic standards and budget disbursements. The next summit is expected to be on December 10-11th and if it doesn’t pass then you will see a more significant reaction.

Mnuchin

Early in the pandemic, the Fed and Treasury worked beautifully in backstopping the financial system and swiftly providing significant support for the economy.  Mnuchin’s request wants to use the $429 billion on extended unemployment benefits and aid for small businesses, but it is not optimal as it removes a safety net for the financial system.  The US economy might be feeling better, but that doesn’t mean you stop taking your medication. 

The Fed never makes rifts public, but Mnuchin’s request comes shortly after Fed Chair Powell noted he wants the emergency lending programs extended.  The selling pressure that hit stocks was limited as many anticipate Congress will eventually come up with a new relief bill and that the Biden administration in January could quickly bring back all the programs.  The political impact is that it will make the Biden administration need to renegotiate for these funds. 

Mnuchin defended his request for his request for the Fed to return unused funds on CNBC. 

Stimulus talks

After months of political posturing, Congress is ready to restart negotiations for a new COVID-19 relief bill as coronavirus cases continue to rise rapidly.  The holidays are likely to be accompanied with further lockdowns that will put added pressure on a labor market recovery that has completely stalled.  A deal could get done before the holidays, if small-and-medium sized businesses announce more job cuts.

House Speaker Pelosi noted that she will discuss the lame-duck session with President-elect Biden. The expanding public health crisis should drive Congress to get something before the end of the year. Risk appetite will once again be headline driven over this round of stimulus negotiations.

Oil

Crude prices are set for a third consecutive weekly gain on vaccine optimism, but the near-term outlook will likely prevent any significant moves higher as the likelihood of more lockdowns grows.  In New York City, the testing lines are wrapping the block as many residents are getting tested before they see their families.  A lot of Americans may ignore the CDC recommendation to cancel Thanksgiving plans and that will keep the energy markets prepared for further and longer lockdowns across the US throughout December.  The virus situation in the US was finally showing some optimism that the rate of increase of new cases was slowing, but massive Thanksgiving gatherings will cast any doubt on any improvements we see over the next few weeks.

WTI crude seems destined to hover around the low-$40s, but that could change if oil storage concerns continue to grow.  Inventories at Cushing are over 80%, but that may have been more about bets to store barrels of oil and reap rewards early next year.  2021 will be a great year for oil prices, but before that happens, the demand situation needs to get beyond the winter lockdowns across the US and Europe. 

Gold

Gold is rallying after Treasury Secretary Mnuchin confirmed fiscal stimulus negotiations will restart and that the Fed and Treasury have plenty of firepower left.  Investors are focusing on the “we have plenty of capacity left” comment, which reminded investors that if the next few weeks get even uglier with the virus, swift coordinated action should happen.   

Gold’s stimulus trade is back and sadly the virus spread following Thanksgiving weekend could intensify and lead to further lockdowns for the rest of the year.  The US could see 200,000 new coronavirus cases today and the rate of increase could spike higher after massive family gatherings happen over Thanksgiving weekend.   

Bitcoin

Bitcoin is surging as stimulus prospects grow after the Treasury Secretary Mnuchin raised doubts over the Fed’s ability to backstop the financial system for the rest of the year.  Bitcoin is eyeing the $19,000 level and could see exaggerated moves as the weekend approaches.  

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