US Close – Trump capitulates on stimulus talks, Virus rages on, Go Canada, Oil’s strong week, Gold’s back

Fiscal stimulus headlines are all over the place today.  In the morning, Senate Majority Leader Mitch McConnell stated that a coronavirus stimulus deal seems unlikely to happen before the election.  McConnell acknowledged a new stimulus was needed and seems to be pivoting from his prior stance of hitting the pause button to determine if more stimulus is necessary.  McConnell’s concession that an airline-only bill is unlikely could show that Republicans are ready to meet somewhere near the $2 trillion ballpark for stimulus.

Stocks surged after White House advisor Kudlow said Trump has approved a revised stimulus package.  That was immediately followed by a tweet from President Trump that “COVID relief negotiations are moving along.”  The president couldn’t afford to have the airlines mad at him before the election so his capitulation should not come as a surprise.  It seems the latest development is that Treasury Secretary Mnuchin will present House Speaker Pelosi with a $1.8 trillion counteroffer. 

Stocks were earlier supported by tech.  AMD’s potential takeover of specialty chipmaker Xilinx is very positive for the M&A space.  Investors are also looking toward next week’s Apple’s October 13th “Hi, Speed” event.  Apple is expected to unveil the biggest overhaul to the iPhone in years.  Four new iPhones that support 5g are expected to be released and if successful, could provide strong support to Apple and all of its suppliers. 

Earnings season starts on Tuesday and the big banks are expected to show profits, the beginnings of clamping down on expenses, and the health of the US consumer.  Stocks might not fizzle too much on stimulus disappointments as next week’s risk events could be positive for tech, consumer and financial stocks. 

Virus 

The virus is not going anywhere and that will completely derail the reopening of the economy for the rest of the year.  COVID cases in the US continue to rise, with 41 states seeing increases and 23 states experiencing a 10% or greater surge with hospitalizations. 

Europe is not faring any better with COVID-19.  The Spanish government declared a 15-day state of emergency in the capital, after a court overturned the partial lockdown announced at the beginning of the month.  European cases are now rising exponentially, and it seems only a matter of time before the rest of Western Europe follows Spain’s restrictive measures.  Switzerland added German and Italian regions to its quarantine list.  Scandinavia is seeing rising cases in Sweden, Finland and Norway. 

Europe will need to impose stricter measures to contain the virus spread and that should weigh on the outlook for the rest of the year. 

Canada

The Canadian dollar surged against the greenback after a robust employment report saw 378,200 jobs created in September, higher than the consensus estimate of 150,000 jobs.  Canada is only 720,00 jobs away from its pre-pandemic level.  Optimism with the Canadian economy might be short-lived as the second wave of the coronavirus is underway in most of the country.

Oil

Crude prices steadily rose this week as Hurricane Delta shut down most production in the Gulf of Mexico.  Oil is settling slightly off the highs, but comfortably above some key technical levels, $40 for WTI and $42.50 for Brent crude.  This week was very bullish for oil prices as supply disruptions stemmed from both Hurricane Delta and after strikes in Norway put million barrels of output at risk.  Lost in all the news was OPEC’s optimism yesterday that global oil demand will return to pre-pandemic levels in 2022. 

WTI crude extended gains after reports that Treasury Secretary Mnuchin was going to present House Speaker Pelosi with a $1.8 trillion counteroffer.  The airlines need support and it seems something will get done to make sure that happens. 

Oil prices pared gains after the Norway’s Industry Lobby stated that the Norway oil strike was called off.

Gold

Gold prices skyrocketed passed the $1900 level after the White House blinked first over the stimulus deadlock.  Trailing hugely in the polls, President Trump had to capitulate to the Democrats.  Gold looks like it will benefit from a stimulus deal before the election.  It is unclear if Democrats will accept the latest $1.8 trillion offer, but it seems the White House is determined to get something done.  The Democrats will require they get everything they want before handing Trump a big victory right before the election. 

Stimulus will happen sooner or later and that is good news for gold prices.  Gold has stabilized and the path higher should be much easier for the rest of the year.   

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