Mid-Market Update: Tug-of-war market, Continuing Claims bright spot, Trade tensions, Loonie rises, Oil volatility eases, Gold surges

US stocks initially traded lower as worsening fundamentals overshadowed hopes for fresh stimulus.  The US economy saw the initial jobless claim total over 8 weeks top 36.5 million, while continuing claims for last week rose to a 22.8 million, much better than the consensus estimate of 25.1 million.  The employment situation is disheartening, but some bright spots could be that claims are plateauing and that states that reopened are seeing large decreases with continuing claims.  It is unclear how much of impact Paycheck Protection Program loans have had over the data over the past couple weeks, but it still clear that lower-paid individuals or long-term unemployed have little reason to be optimistic.  Many low-paying jobs won’t be coming back and a return of normal economic activity seems distant as the staggered reopening success remains uncertain and over fears of renewed outbreaks.

Trade

The soap opera that is the US-China relationship continues to prompt fears that an unnecessary headwind in the fight against the economic impact of COVID-19 could derail a good part of the fiscal and monetary stimulus that have been pumped into the economy.  The number of back and forth headlines are plentiful, but I don’t think anyone believes this relationship will end.  President Trump’s strategy to shift the blame to China regarding the coronavirus pandemic will likely persist throughout the election, but any fresh tariffs will seem unlikely as that would cripple the fate for many multi-nationals. Trump’s re-election campaign wants to have both a strong stock market and economy, so any fresh tariffs seem unlikely as that would derail that as Americans head for the pollls (filling out mail ballots) in November.

Off the lows

US stocks have rebounded off the initial lower open as bargain hunters scooped up energy and financial stocks.  Energy stocks are still the leading decliner year-to-date with a 40.9% loss, while financials come in second with a 32.8% drop.  Wall Street is also expecting Republicans to eventually to come to terms with some form of Speaker Pelosi’s $3 trillion relief bill.  The economic outlook will remain uncertain until a vaccine is in place, but a complete selloff is unlikely when trillions of dollars keep getting put into the economy.  The next couple of weeks seem destined to be a tug-of-war market as economic uncertainty and long-term damage to the economy will be met with fresh stimulus. 

FX

The Canadian dollar is stronger against its major trading partners on higher oil prices and after the BOC’s review stated the financial system can handle the most severe economic scenario.  The pandemic remains a massive economic and financial challenge, but an already strong banking sector leaves the bank confident they can emerge from this in relatively good shape. 

Oil

Oil prices are higher on positive news that Saudi Aramco cut sales by roughly half to Europe and the US and optimism that states that reopened are seeing economic activity recover.  While the news flow has improved for crude, it is nothing that warrants significantly higher prices from here.  Saudi Arabia frontloaded many sales and their additional cut pledge had many energy traders expecting their shipments to drop off significantly for next month. 

WTI crude will struggle to break above the $30 level until both the economic outlook improves for the US and some of the downside risks ease.   WTI crude may be stuck around the mid-$20s a little while longer as the oil market continues to make its way to being balanced and as too much uncertainty remains about renewed outbreaks and progress with vaccines. Crude demand needs a vaccine in place for air travel to return to pre-pandemic levels and for Americans to drive or commute to work.

The expiring of the June WTI crude futures contract on May 19th should not see a repeat of what happened last month.  Negative prices forced the world to deliver deeper than expected production cuts and it seems energy markets are confident that rolling of contracts will go smoother this time. 

Gold

It appears that the fundamentals have shifted and gold prices cant’ be held down anymore. The amount of pessimism flowing through financial markets is constantly growing and that should help propel gold prices towards the $1800 level in the short-term. 

Gold is poised to climb higher as legendary investors are turning bearish on equities, US-China relations continue to head into a downward spiral, Americans continue to reel from COVID-19, and as unprecedented economic risks will likely keep trillions of dollars getting pumped into the economy. 

Bitcoin

You know Bitcoin has turned a corner when it has a substantial rally on no news and while US equities tumble.  Bitcoin seems ready to test the $10,000 level again and this time it has institutional interest that will likely be eyeing at the very least a 30% gain.  Bitcoin has survived the halving event and is ready to climb higher.  Bitcoin is not a safe-haven, but its bullish breakout alongside gold’s will spark some debates.  Bitcoin has a very bullish fundamental backdrop right now that could see it look to rally 20% over the next couple weeks.   

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