US Close – Strong US PMIs derail stimulus prospects, Biden picks Yellen, Backwardation, Gold’s crumbles, Ethereum outperforms Bitcoin

US stocks peaked after the flash PMI readings showed that the recovery gained further momentum as hiring surges to an all-time high, dampening the outlook for significant fiscal support from Congress.  Business activity remained strong as news business growth rose to a 30-month high.  Domestic demand is driving the recovery and that will complicate the argument for targeting massive stimulus to support the economy. 

Before the flash PMI readings, Wall Street was focused on a third consecutive Monday with positive vaccine results.  The third major COVID-19 vaccine breakthrough came from AstraZeneca-Oxford, with an average efficacy of 70% in protecting against the virus. 

AstraZeneca’s COVID vaccine comes in third place with an average vaccine effectiveness of 70%, a strong number but lower than both Pfizer and Moderna, who showed their respective coronavirus vaccines are 95% effective in preventing infection.  One dosing regimen for AstraZeneca showed effectiveness of 90%, but with participants getting first a half dose, followed by a full dose.  Fewer than 2,800 received the smaller first dose and that will likely raise scrutiny in trying to determine how effective will the vaccine be once tested on a larger sample. 

Yellen

Stocks moved slightly higher after reports that former Fed Chair Yellen would become the next Treasury secretary, cementing dovish leaders behind both fiscal and monetary efforts.  It seemed the finalists all supported a more dovish stance, so it came as no surprise that financial markets didn’t react strongly. 

Oil

Crude prices got every positive bullish catalyst, another COVID vaccine breakthrough and a possible terrorist act at a Saudi oil distribution station, but still was not able to break above the summer highs. 

The focus has been on the curve and both WTI and Brent are showing signs of backwardation.  At the end of last week, WTI crude showed the first quarter of 2022 showed backwardation and today, Brent’s prompt month flipped.  Pre-pandemic travel is starting to get priced in and that will keep oil demand healthy. 

A lot of oil got stored and the storage situation means the possible return of crude to the market is capping oil price gains. Crude prices can’t breakout higher until the storage concerns are alleviated.  

Gold

Gold prices got beat up after another Monday coronavirus vaccine posted positive high-level results and US flash PMI data diminished argument for massive stimulus.  Safe-haven demand went out the window today after virus data showed US case growth is dropping dramatically and after business activity took hiring to an all-time high. 

When gold broke below the $1850 level, that opened the floodgates for sellers.  The strong dollar alongside a shortened holiday week have traders doubting their allegiance to gold in the short-term.  Despite new COVID restrictions, the US economy still looks like it is on sound footing and the unwind of dollar bearish bets could lead to further gold weakness.  If the dollar can outperform again, gold could easily tumble towards the $1800 level.  The longer-term bullish outlook is still bullish for gold, but the reflation trade will take a lot to assert itself. 

Cryptos

Ethereum surged over 17% as the November 24^th pledge deadline approaches, which could allow for a long-awaited update which will allow for faster speeds that could have them compete with the major credit card companies.  Investors skeptical of Bitcoin have embraced Ethereum, which has the most actively used blockchain globally. 

Bitcoin once again failed to capture the $1900 level and could see weakness if the dollar continues to stage a comeback here.  The US economy is stubbornly showing continued strength and that is weighing down on the stimulus trade which has propped Bitcoin up so much. 

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