US Close – Manufacturing weakness sends everyone back to tech, DNC expectations, Oil rises, Gold rebounds, Bitcoin surges

US stocks continued their painstaking climb toward record territory as investors jumped back on the tech bandwagon after JD.com crushed earnings, Nvidia got a few big analyst upgrades ahead of Wednesday’s results, and Tesla made a new record high on expectations of growing demand for electric vehicles in China. Fears that a Biden presidency would kill the stock market have eased on expectations the US would see stability on trade and on the virus front, along with a massive infrastructure plan counter the negative effects of increased taxes.             

Empire

Manufacturing is stalling even in states that have had a good handle of the coronavirus.  If the Philly Fed business outlook on Thursday also shows further weakness, it will be difficult for risk appetite to remain strong. 

DNC

The Democratic Convention kickoffs today and the theme should be that Biden will be good for the economy.  Wall Street seems convinced that Biden’s tax policy will not kill the stock market as stability in fighting the coronavirus and a conciliatory tone on trade will drive risk higher.  Corporate taxes might rise, but the prospects of a massive infrastructure plan could be what is needed to drive cyclicals roaring higher.  A Biden presidency could offer greater certainty and stability for the economy and that is probably why US stocks are climbing higher. 

Treasuries/FX

Treasury yields are coming back down to earth as financial markets begin to anticipate the Fed will reiterate that they do not want long-term yields to rise.  The Fed is the buyer of last resort and they will likely step in if the curve steepens too much.  The 10-year Treasury yield is down 4.1 basis points to 0.669%.  The rest of summer will likely see record issuance as businesses take advantage of low rates for refinancing or future investment opportunities.  Trillions of high-grade bonds will be sold and this should keep pressure on the Fed to signal they will do more. 

The dollar remains under pressure after the first regional survey showed the manufacturing rebound in NY is slowing despite having a strong handle of the virus.  It seems the Fed will not be in a position to even consider when they could possibly begin thinking about tightening. 

Oil

Crude prices steadily rose after a steady flow of bullish news.  Oil prices stabilized early after a draft report showed OPEC+ compliance was in the 95-97% range in July, with the rally taking hold as a weaker dollar persisted and as the relentless stock market rally returned.  WTI crude is once again near the upper boundaries of its tight trading range, but it might struggle until the virus spread shows strong signs of slowing down across the Sunbelt. 

WTI crude could continue the climb higher if further tightness is shown with EIA oil inventory report, expectations are for a 3-million-barrel draw. 

Gold

Gold prices made an attempt at recapturing the $2000 level after Berkshire Hathaway joined the precious metal’s bandwagon, reporting a new stake in Barrick Gold last quarter.  Warren Buffett’s Berkshire new bet is a reversal to prior skepticism to investing in gold-related plays.  The fundamentals remain very bullish for gold as widespread interest continues to grow.  Gold could possibly consolidate over the next 24 hours until the Fed’s minutes are released and anxiety eases about Wednesday’s 20-year bond and Thursday’s 30-year TIPS auctions.   

Bitcoin

Bitcoin’s rally is accelerating as dollar weakness resumes and as retail interest continues to grow.  Barstool Sports founder-turned boisterous day trader, Dave Portnoy, has embraced cryptos and is leading a new army of traders.  The entire crypto space is benefiting from newfound interest and it seems there could be a lot more in this rally.  Bitcoin has cleared $12,000 and could have enough momentum to retest the 2019 high of $13,851. 

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