US Close – Stocks edge higher, Weaker demand slumps oil prices, Gold awaits FOMC, Bitcoin above $40K

US stocks pushed higher as US real yields fell to fresh record lows and as lawmakers came closer to exhausting bipartisan talks.  It seems that Democrats will have to go at infrastructure spending alone and that is the least bullish outcome for stocks.  Monday felt like a holiday for many traders as no one anticipated any major positioning ahead of this week’s big-tech earnings bonanza, FOMC decision, and first look at second quarter GDP and the Fed’s preferred inflation gauge.  Today was the calm before the storm but China did throw a wrench in that trade as a crackdown on education sent another sector lower. 

Oil

Crude prices declined as the Delta variant continued to spread, travel restrictions are not easing, and on expectations Chinese crude imports will fall sharply. 

Advanced economies are grappling with the problem of inspiring the unvaccinated to go get their jabs.  New York City issued a September 13^th vaccine deadline for municipal workers otherwise they risk losing pay. France mandated COVID health passes for dining and travel.  The world is figuring how it will live with COVID and right now it still seems the short-term crude demand worries will prevent this tight market from sending oil prices much higher.    

Gold

Gold investors have made up their mind that they won’t do anything big until after the FOMC policy decision and press conference.  Initially gold was supported on safe-haven flows from news that China’s education sector fell victim to another crackdown.  Gold may continue to wobble until investors get some clarity over how the Fed will begin tapering asset purchases.

The chance the Fed will deliver a hawkish surprise is brewing and that is probably why gold refuses to rally much above the $1800 level. 

Crypto

Everything is going right for cryptocurrencies, short-sellers are throwing in the towel, Amazon is contemplating cryptos, gold is struggling despite record low real yields, and the institutional world is still salivating at the opportunity of getting into Bitcoin.  Bitcoin is making a run towards $40,000 ahead of Wednesday’s FOMC decision that will likely confirm the core principle that Bitcoin is a store of value.  Some traders still hold onto the notion that it is inflation and this week’s inflation data and earnings comments of companies passing on costs will likely provide more support for that argument. 

Bitcoin momentum is back and incremental endorsements on Wall Street could easily be the catalyst to help prices rally towards the $45,000 level.  This week Bitcoin could have underlying support on expectations Treasury yields will remain lower as the Fed will likely reaffirm their dovish stance despite providing more hints on tapering its monthly asset purchase program.  Bitcoin’s biggest risk this week could be a hawkish surprise from the Fed, which might explain why prices have not yet been able to clear the psychological $40,000 level.

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