US Open – US stocks rally on vaccine hopes and 2021 bets, PPI decelerates, Brexit, Oil slides, Gold surges

US stocks are rising as investors anticipate President-elect Biden will have a conciliatory tone with China and on high hopes that any day Moderna’s vaccine trial will match Pfizer’s results from earlier in the week.  The last two months of President Donald Trump’s reign will likely see a wrath of executive orders that will make it difficult for the Biden administration to smoothly implement their initiatives and unwind Trump’s aggressive measures.  Trump’s order barring American investments in Chinese firms owned or controlled by the military is likely the beginning of the latest round of efforts to pressure China.  US-China relations are at all-time low and will not see any easy solutions to human rights, spying and IP theft, but a less confrontational approach is welcomed.  China’s delayed congratulations to Biden is positive to risk appetite as it signals a complete restart in trade negotiations, climate policies, and support in dealing with Iran and North Korea.  

European indexes are mixed as investors reduce bullish bets as virus lockdown efforts will likely remain in place throughout the holidays. 

USD

The dollar is on softer footing as Europe appears further along their fight against the latest wave of the coronavirus.  Europe’s COVID situation is possibly stabilizing or improving, while the US is just starting their restrictive measures.  The dollar will resume weakness once risk appetite is back in control and demand for Treasuries softens.

PPI

US producer prices decelerated in October, as the economy suddenly became frail due to the recent surge of the COVID pandemic.  The index for fresh and dry vegetables rose 26.8%, providing additional strain to many households.  The overall stance on inflation pressures is unchanged as today’s data will likely be the short-term high point for factory demand. 

The US consumer sentiment readings unexpectedly decline in early November, but many of the consensus estimates seemed rather high.  Given this week’s virus surge, not many people are surprised current conditions and expectations declined.

Brexit

The British pound rallied as hopes for a Brexit trade deal between the UK and EU improved after reports that Dominic Cummings, the mastermind of the Brexit campaign would leave PM Johnson’s inner circle by the end of the year.  Johnson just lost his second hard Brexiteer and some traders believe that could help negotiations, but it remains unclear that a deal will be reached by next weekend’s informal deadline. 

Oil

Crude prices can’t shake lockdown fears as coronavirus continue to skyrocket across the US. The US situation is very bleak as cases, hospitalizations, and deaths continue to rise sharply, likely raising expectations that they will follow the path of Europe and see regional lockdowns. Yesterday, the US had 163,402 new cases, 1,172 deaths, and over 67,000 hospitalized.

Oil prices are finishing the week on a down note but are still holding onto the Pfizer’s positive vaccine news from earlier in the week. The demand outlook is terrible for the next few months, but very optimistic for the second half 2021. OPEC+ continues to do their part to try to bring the oil market to balance after reportedly have 101% compliance with October’s production cuts.

WTI crude has been through worse this year and will likely remain trapped around the $40 level until Europe is on the other side of their current COVID wave. The US is a few weeks behind Europe, but regional lockdowns in America will not completely be devastating to the demand as Asia leads the way and Europe nears the easing of restrictions.

Gold

Gold prices are surging on safe-haven flows as coronavirus cases grow exponentially across the US.  The economic challenges are growing as US states and cities tighten restrictions, which should continue to put pressure on Congress to provide more aid.  Russia’s sovereign fund reportedly is considering investing into precious metals, a sign they see it as a more sustainable investment in the long-term.    

Gold has steadied following Monday’s rout which was triggered by surprisingly positive data from Pfizer’s experimental vaccine.  The vaccine news triggered the biggest weekly outflow for gold ETFs since March. 

Yesterday, three of the world’s top central bankers welcomed the vaccine news but highlighted the short-term risks to the global outlook should force them to provide more support.  The virus spread across the US will force Congress to provide more accommodation, but right now it doesn’t seem House speaker Pelosi and Senate Majority Leader McConnell are anywhere close to breaking the impasse. 

If gold can hold onto the $1,890 level in the short-term, prices should continue to consolidate higher.  The path to record high territory will be a bumpy one for gold, but it is still there because the reflation trade is not going away anytime soon.    

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