Mid-Market Update: In Fed we Trust, Oil breakout, Gold bulls defend $1900

Risk appetite remained strong after durable goods data and excitement that Fed Chair Powell reaffirm the whatever it takes attitude to supporting the economy later this week at Jackson Hole.  Everyone waiting for softer US economic was disappointed after the July durable good orders came in better-than-expected.  Fed Chair Powell’s speech on Thursday will deliver broad strokes with their new approach to inflation and likely confirm their ultra-accommodative monetary policy stance.  Despite strong rebounds with certain parts of the US economy, a large part of the labor market is not bouncing back anytime soon and that will should mean near zero rates will last for at least a few years.

Love for the Nasdaq continued after Salesforce hit a homerun with their earnings report. Dicks Sporting Goods also impressed as COVID-19 demand for equipment helped their e-commerce numbers tremendously.

Oil

Oil prices continue to rise as Hurricane Laura strengthens and approaches oil country.  Expected to become a Category 4 before making landfall later tonight, uncertainty to how bad the region will get hit and if we will see prolonged disruption to oil production.  Hurricane Laura has already shut about 3 million barrels a day of refining capacity and the higher premiums have already sent gasoline prices higher. Gasoline prices are off the hurricane-driven highs and seem to be settling just ahead of the $130 level.

The EIA crude energy report showed that both gasoline and crude inventories declined before Hurricane Laura.  This report will not get much focus as the impact with Tropical Storm Marco and Hurricane Laura will be reflected in next week’s release.  Crude exports posted a noticeable increase as demand got frontloaded ahead of the storms. 

The news has not been completely positive for crude as the airline industry seems poised for harder times, as weak demand will force significant workforce reductions.  More airlines will follow American Airlines lead in announcing massive job cuts if the government aid does not return.  Jet fuel demand might not rebound as quickly next year as travel restrictions will likely provide a cloud of uncertainty as to when and where people can vacation. 

Crude demand devastation from hurricanes and COVID-19 will put a little cap with current breakout, but ultimately higher prices should persist in the short-term.    

Gold

And like that, the gold trade is back.  Gold prices are reframing their short-term outlook after a weaker dollar returns, tech (safe-haven for stocks) earnings fuels stocks higher, and as dovish expectations grow for Fed Chair Powell’s speech later in the week.  If Fed Chair Powell does not disappoint the doves, gold could quickly look to recapture the $2000 level this week. 

The pressure is growing by the day for Congress to deliver for more fiscal support and the longer the wait, the larger the package will end up being.  Gold is about to shine bright again and the necessary consolidation before the climb back toward record high territory could be ending.      

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