Mid-Market Update: Stocks, Treasury yields, and oil surge on vaccine hopes and reopening optimism while gold, yen and dollar stumble

Many traders had a nice weekend as some normalcy crept back into their lives.  The return of German soccer, Nascar, and golf provided many households with some fresh entertainment.  The start of the trading week was supposed to have some optimism with the global economic recovery, but no one anticipated this Monday’s start. 

Risk appetite is running wild after Moderna’s experimental vaccine showed promising early signs to create an immune-system response might be able to fight off COVID-19.  Global equities are roaring higher on vaccine hopes combined with continued major economies reopening, and as the Fed continues to promise more stimulus is coming when it is needed.  Wall Street is focused with the good today, paying little attention to trade tensions, rising cases in Florida and Spain. 

Small-cap companies are surging today, which is what is needed for this rally to continue.  The Russell 2000 is having its best day in a month and S&P 500 futures are right at critical resistance, just ahead of the 2,950 level.  A vaccine is a gamechanger for the prospects of economic activity to return to pre-virus levels, but that is still months away from being finalized.  US stocks continue to surge, but that will be difficult to keep on happening if new cases begin to spike over the next couple of weeks. 

Treasuries/FX

Treasury yields are rising as investors start believing in the recovery.  The 10-year Treasury yield is 5.7 basis points higher to 0.700%.  A COVID-19 vaccine and successful staggered reopening of the US economy could easily see the 10-year Treasury yield make a run towards 1.00%, but a lot will need to go right for that to happen.  Falling bond prices will not be an easy trade as the Fed will prevent yields from rising too quickly.  The Fed will stay on course until it is certain that economy is on strong footing. 

The Japanese yen is down against all of its major trading partners as risk appetite got boosted by vaccine hopes and reopening optimism.  The dollar softened to its European trading partners and commodity currencies. 

Oil

Oil is breaking out higher after a potential coronavirus vaccine showed positive results in a Phase 1 trial and on reports that China’s crude demand is almost back towards pre-virus levels.  With much of the US entering reopening mode, crude demand seems like it will continue to improve over the coming weeks. 

Over the weekend, the crude demand outlook got a makeover and all of a sudden looks great.  If China remains the template for Europe and the US, the crude demand recovery could be much faster.   

On the supply side, the US oil rig count fell to the lowest level since July 2009, a sign that major producers are deepening their production cuts. 

For WTI crude, the $30 a barrel level was supposed to provide some formidable resistance in the short-term, but a suddenly improved demand outlook will see that now become major support.  To the upside, the $35 a barrel level should provide key resistance.    

Gold

Gold prices plummeted after a potential coronavirus vaccine sent investors into buy-everything mode.  Around 94% of the S&P 500 stocks are higher today, which means even autos, transports, banks, airlines and cruise lines are rallying.  Massive stimulus measures have sent gold prices roaring to a 7-year high, but gold is not immune to a wide-range market rally.  Vaccine hopes and reopening optimism burst gold’s hopes for an immediate run to record high territory, but today’s selloff does not change the medium-term outlook for higher prices. 

Everything seemed to go right for risk appetite today and that will not likely be story going forward.  Today’s news on Moderna’s potential vaccine was on early positive Interim Phase 1 data, which means a lot of testing will still need to be done, with the Phase 3 trial beginning in July.  The reopening momentum in the US will be questioned for at least a month, because it will take at least two weeks to see if cases emerge, and then another two weeks for hospitalizations to occur. 

Vaccine hopes are somewhat priced into this market and gold should be able to stabilize over the next day or two. 

Bitcoin

Bitcoin is benefitting from the broader market rally and as the crypto space continues to attract new interest. JPMorgan’s extension of banking services to cryptocurrencies is quite the reversal for the nations’ largest bank. Once deemed a fraud, cryptocurrencies now seem poised to change banking forever. Bitcoin still is struggling to break out above the $10,000 level.

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