Mid-Market Update: Stocks appearing bulletproof, Oil pares gains following mixed inventory report, GBP unfazed by negative rate talk, Gold shines

US stocks are higher again as hopes soar that US economic activity is about to roar back now that all 50 states have eased some coronavirus-related restrictions and after standout earnings from Lowes and Target.  Vaccine doubts were short-lived as investors remain confident that everything is being done to get treatments and vaccines in place by next year.  Many investors question how much higher we can go, but don’t want to short US stocks after all the stimulus that has been pumped into the economy.  Right now the path of least resistance is higher, so stocks continue to go that way. 

Oil

The EIA crude oil inventory report put a cap on WTI crude’s reopening optimism rally.  The headline draw of nearly 5 million barrels was better than the expected build of 1.8 million barrels, but still within the consensus range.  The Cushing, Oklahoma hub posted a record declines with a 5.6-million-barrel draw, while Gulf Coast stockpiles hit a record high.  It seems however the energy market is disappointed with what was promised during oil companies’ earnings season and with what shut-ins are transpiring. 

Crude exports dropped off and the US became a net importer of oil for the first time since February.  The biggest surprise was the 2.8-million build with gasoline inventories, a big miss of the expected 2.7-million draw that was expected.  Gasoline inventories were expected to come down as early states that reopened saw more demand from the pump as people avoid mass-transportation. 

WTI crude should have difficulty continuing this robust rebound until traders are convinced the spike with new cases will not derail the easing of coronavirus-related restrictions.  It takes two weeks for new cases to emerge, followed by another two weeks for hospitalizations, so oil prices could start to trade in a range

GBP

Bank of England Governor Bailey’s comments to parliament’s Treasury Committee went pretty much went as planned.  Bailey noted, “We don’t rule anything out for policy”, also adding that the “MPC is keeping the lower bound under active review.”  Gov Bailey reiteration to not rule out negative rates has the bond market still expecting the BOE to join the ECB, BOJ, and several other central banks in the negative interest rate club. 

The British pound is little changed on the day as investors await tomorrow’s flash PMI readings to see if the UK economy is bouncing back.  If the UK economic rebound fails to rival their neighbors, sterling could see a return of significant selling pressure. 

Gold

Gold’s outlook remains bullish as prices remain steady despite another strong day for US equities.  Initially higher on concerns with Moderna’s potential vaccine, gold remains a favorite spot for investors who remain skeptical of the stock market rally.  While much of the focus remains on the reopening of the US economy, many strategists believe a second wave of the coronavirus outbreak is inevitable. 

Gold is right up against major resistance and right now silver seems to be playing catch up and could continue to outperform.  It seems like only a matter of time before gold runs higher as the fundamental backdrop indicates global stimulus efforts will continue to grow and the prospect of negative interest rates for the UK and US seem to be growing.

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