US Close – S&P turns positive for 2020, Fed expands Main Street Lending Program, Oil’s rally ends, Gold rebounds

US stocks extended gains and wiped away all of this year’s losses after the Fed expanded its Main Street Lending Program to allow more small and medium-sized businesses to be able to receive support.  The S&P 500 index has been quickly recouping its losses on the year on falling infection rates in major economies as lockdown restrictions are eased globally. 

Dollar fell against its major trading partners, with steepest losses to the Japanese yen as profit-taking was triggered after failing to reach the 110 level.  Treasuries advanced as investors say “not yet” to yields rising towards the 1% level.  The 10-year Treasury yield has now returned back toward levels before last week’s shockingly good nonfarm payroll report. 

Fed

The Fed’s loosening of terms for the Main Street Lending Program signals they are not deviating away from the playbook anytime soon.  The Fed is focused now on the recovery and they want to show they are going to remain aggressive in supporting the economy.  

Oil

An oil top in place is in place after Saudi Arabia removed their voluntary additional cuts and as Libya, which holds Africa’s largest crude reserves, restarts production.  Libya’s NOC lifted the force majeure on both the Sharara field, the largest field and the El-Feel deposit over the past two days. 

The OPEC+ deal over the weekend certainly looks like it will be their last deal as consumption forecasts seem to be slightly overly optimistic as refining margins remain dismal.  If refiners are struggling to make profits now, we could see oil prices be ripe for a strong pullback now.    

The oil market is headed toward balance but a slightly slower recovery in crude demand will end the recent rally.  Libya’s output was not expected, and oil traders will remain skeptical that Iraq, Nigeria, Angola, and Kazakhstan, the production cut cheaters will hold true to their part of the deal. 

Gold

Gold prices pared gains after the Fed expanded their Main Street Lending program.  Gold softened as the Fed announcement put a bid in stocks and helped them continue to erase their 2020 losses.  The Fed is still expected to maintain fixated with the risks to the outlook and that should keep the stimulus trade in place for gold.  The path higher for bullion will be hard this week, but the economy still needs more support and by the end of the week, gold should settle higher.   

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