US Open – New month. No problem. Stocks rise, Oil and Gold thrive on dollar weakness

A new month can’t disrupt Wall Street’s love for the Nasdaq.  After the best August since 2000, the Nasdaq continues to outperform following robust Zoom results and stocks splits with retail traders’ favorite two companies, Tesla and Apple.  The Dow and S&P 500 had their best August in over 30 years and more gains are expected as uncertainties to the labor market outlook will likely see much more stimulus get pumped into the economy.  While September is off to a good start, it could be a difficult month to gauge as the success of back-to-school and the resumption of reopening efforts will closely be watched.  COVID-19 remains the primary driver and depending on when the second wave hits and how wide certain parts of the country go back to lockdown, should determine if the stock market rally takes a break and offers a pullback. 

FX

The dollar continues to tumble as investors anticipate a wrath of Fed speak that will confirm that the new inflation mandate will mean bond yields will remain lower for years to come.  Dollar depreciation is not going away anytime soon as the global economic recovery continues, interest rate differentials will eventually see the dollar widely become a funding a currency.

A wrath of European data shows the economic recovery is intact, with industrial production showing signs of life and the German labor market delivering another improvement with labor demand.  Germany, Europe’s largest economy exemplifies the need for furlough schemes and the recovery for the entire region will only continue if governments do not ease up with the use of salary support programs.   

The euro looks ripe for a breakout here as investors price in further dollar destruction due to the Fed’s new inflation mandate and as election uncertainty will drag down the US outperformance in stocks.   

Oil

Dollar destruction is sending crude prices higher, but nothing to get energy traders excited that the tight trading range is about to break.  WTI crude continues to maintain a constructive view as the global economic recovery continues with bright spots with Chinese manufacturing.  Oil will need better data from the US and Europe for prices to break out higher.  Up until now, their recoveries are showing signs of stalling and that suggest more support will continue to get pumped into their respective economies. 

Oil prices also seem to have underlying support from incremental updates with the fight against COVID-19.  AstraZeneca commenced their large-scale human trial of its vaccine in the US and investors are growing very hopeful that a couple of the 30 potential vaccines currently in clinical trials will get the greenlight.  Oversupply concerns have dissipated and the it seems oil is stuck playing the waiting game for the vaccine results. 

Gold

Gold prices are surging as the dollar’s demise seems to have much further to go. A wrath of Fed speak this week will confirm that Fed’s new inflation mandate means lower interest rates for years to come.  If history holds, September could be a trying month for equities and that could boost investor demand for bullion.  While the pace of gold holdings is slowing, the risks to the economic recovery completely warrant further stimulus.  Gold’s stimulus trade is benefiting from falling consumer prices in the eurozone which will likely keep the pressure on the ECB to deliver much more stimulus. 

The gold consolidation period could be nearing an end as prices look to break back above the $2000 level.  This is a critical week for the outlook for fiscal stimulus in the US.  Gold could sustain a sharper move higher if pressure grows for Capitol Hill to deliver a larger stimulus package.   A deal will get done in Washington DC this month as government funding needs to be addressed before month end.   

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