US Wrap – We’re So Close

Negotiations into the final stretch

A decent day of trade in the US and Europe, with investors not concerned by the lack of a deal on US stimulus or Brexit. Asia is looking a little flat ahead of the open and may be shaping up for a quiet end to the week.

Lawmakers in Washington have agreed on one thing, the need for more stimulus before the Christmas recess so it’s highly likely final compromises will be made. There’s large parts of the package that are already agreed upon and it seems highly unlikely to fail this late in the day.

I can’t imagine the Fed would have opted for marginal easing had policy makers believed for a second that a stimulus deal wasn’t forthcoming. It has already taken far longer than expected and arguably should have. What’s a few more days. As with Brexit, by the time markets close on Friday, we may not quite be there. Come the open Monday, we may be full of festive cheer. Maybe that’s just me getting carried away with the festivities.

Traders not buying no-deal Brexit

Despite the best efforts of UK Prime Minister Boris Johnson, traders just aren’t buying his government’s assertion that no-deal is the most likely outcome. Progress is clearly being made but Johnson is keen for everyone to believe that the differences that remain are almost insurmountable. Whether it’s a negotiating tactic or a polital stunt, traders aren’t buying it.

Of course, thanks to the European Parliament we’re now faced with another Sunday deadline. That didn’t go down too well last week and had this been another set by the two leaders, we may be looking at another boy who cried wolf moment. The EP looks unlikely to budge and the fact that sterling is pulling off its highs suggests traders may be getting a little nervous as the weekend approaches. Tomorrow will be very interesting.

WTI has sights set on $50

Oil is making decent gains again today as WTI continues its pursuit of $50. It’s been an extraordinary run since early November, but it seems it’s not quite over yet. WTI could face significant resistance around $49-50, having been a very significant area of support and resistance in recent years.

With so much positive news priced into the oil market, it may be running on fumes in the near-term, although the outlook is certainly looking good. Covid-19 is wreaking havoc once again which is going to continue to take its toll on the economy into the new year, even as vaccines are rolled out. It’s going to take at least a few months for them to have an impact.

While OPEC+ has shown it’s ready and willing to adapt to evolving market conditions, which should protect crudes value in the longer term, near-term challenges may still weigh on recent bullish momentum.

Gold pushing $1,900

It’s been a great week for gold. The Fed may not have expanded its asset purchase program but it clearly did enough to keep gold traders onside. The yellow metal rallied to within a whisker of $1,900 on Thursday and while we have seen some profit taking since, the future is looking bright for gold.

The Federal Reserve has made it clear that it has no intention of raising interest rates or reducing bond purchases any time soon and will maintain them for longer than it would have previously committed to. What’s more, with tightening not projected for at least a couple of years and the dollar out of favour, the outlook is good for gold.

Time for bitcoin to mature

Bitcoin has pulled back since breaking $23,000, less than a day after breaking $20,000 for the first time ever. For some reason, I don’t think it’s done just yet. This is a volatile instrument. Who knows, it may test $20,000 again but equally, it could hit $30,000 before the end of the year. After the last few days, who would bet against it? A lot may have progressed in the crypto space, including bitcoin, since the last time it exploded and became household chat but there’s still plenty of reason to doubt it. That may not hold it back in the short-term but the faster it explodes higher, the more convinced I am that it will end badly. It’s time for bitcoin to mature.

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