US Close: Debate Aftermath, January Stimulus, PMIs, Euro rally faded, Oil declines, Gold slightly higher

US stocks gave up early gains after White House Advisor Kudlow provided no optimism a stimulus deal would get done before the election or even by the end of the year.  The Markit PMI readings showed the US economy remains on strong footing.  Manufacturing PMI ticked higher while the services component rose more-than-expected.  The slowdown in hiring and weaker new order inflows was attributed to election uncertainty.  Choppy markets will likely persist until a clearer picture emerges for the Election Day outcome.   Equities turned negative after Treasury Secretary Mnuchin voiced pessimism over reaching a deal, noting that there are still significant differences.  

Debate Aftermath

It is all about the Senate Race.  President Trump had a strong performance in the final and civil debate, but it was not likely enough to move the needle.  Former-VP Biden did not have any major slip-ups, although will some argue his oil statement was an unforced error.  Biden did a good enough job to keep his lead intact.  President Trump will likely see a bump in the polls but with almost a quarter of the vote likely in and the number of undecided voters being in single digits, Wall Street can continue to price in a Biden victory.  Prior to the debate 47 million Americans already voted and today the total is over 50 million, which is more than 36% of the 136 million that voted in 2016.  

Just as important is the Senate race and that will likely take a big queue after the confirmation of Amy Coney Barrett to the Supreme Court.  Biden has stated he will come out with a clear position before Election Day about where he stands on expanding the Supreme Court.  This could be the biggest risk to the blue wave.  Republicans who disapprove of President Trump may want to vote red for the Senate to keep the conservative majority on the Supreme Court.   Several Senate races are up for grabs and it appears we won’t have a clearer picture until after Election Day.

Euro

The euro got an early boost after better-than-expected flash eurozone PMIs. German manufacturing remains robust and leads the recovery for the eurozone.  The virus spread in Western Europe continues to worsen as cases, hospitalizations and deaths climb.    

Risk aversion is creeping back and taking away most of the euro’s gains.  Until we get past the election, the euro should remain trapped between 1.16 and 1.20. 

Oil

The oil industry may have just determined the outcome of the US Senate.  Last night’s presidential debate delivered a key moment when Democratic presidential nominee Biden said, “I would transition from the oil industry.”  Biden added that he would not ban fracking but get rid of emissions by 2025.  What Biden did was provide a moment of truth for the energy industry, the world is moving to more climate friendly policies, even the oil giants are moving toward renewables.  His clash with Trump on the energy might not play well in New Mexico, Oklahoma, Texas and Colorado, possibly providing an edge to the Republicans in those Senate races. President Trump is hoping Biden’s energy position will be enough to help him secure Texas, Pennsylvania, and Oklahoma. 

A blue wave means a Biden presidency would accelerate the tapering of US production, which in turn would be supportive for oil prices.  If the Democrats only win the presidency, Biden’s clean energy plan will not pass the Senate.

WTI crude will continue to seesaw until the results from Election Day give a clear path on the energy outlook, fiscal support, and infrastructure spending. 

Gold

Gold prices benefited from better-than-expected eurozone data that sent euro higher and the dollar lower.  Gold still remains stuck in its stimulus limbo range.  Stimulus optimism faded after National Economic Council Director Kudlow noted that negotiations still have policy and numerical disagreements.  He noted the ball is not moving much with the relief proposal and did not provide any real optimism that stimulus would happen this side of the election or even before year end. 

Gold’s fate will be determined on Election Day, a blue wave signals huge stimulus and hello $2000, while a Biden victory with the Republicans keeping the Senate suggests a slower grind higher.    

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