US Close – January stimulus will be Huge, OPEC+ punts output increase decision, Gold steady

US stocks declined after another futile attempt at getting a stimulus deal before the election failed and as COVID-19 concerns grow as several states with large populations are seeing rising positivity rates. 

Risky assets are losing their mojo after disheartening virus updates, countless stimulus banter that will not yield anything until after the election, and as central banks remain stuck in wait-and-see mode. The QE for life trade appears like it is not going away anytime soon, but that is not enough of reason to buy stocks now.

Stimulus

Stimulus negotiations are not yielding any meaningful progress. Treasury Secretary Mnuchin, President Trump’s negotiator has had countless interactions with House Speaker Pelosi, with little to no progress to show.  The next round of aid for the US economy is critical for several pockets of the economy, but big hurdles remain on testing, state aid, and liability limits.  The complexity of this deal comes with the Republican controlled Senate who have many members that will oppose any large stimulus package.  Stimulus before the election or even the New Year will ultimately be determined by Senate Majority Mitch McConnell.  All signs point to no deal until January.  McConnell does not want to do the President’s deal because it will cost him political capital.  It seems politicians are determined to show that they are trying to get the next additional stimulus package done, but no one should count on action this year. 

Oil

Crude prices remained heavy after both the OPEC+ JMMC meeting did not discuss any changes to the tapering plan and as stimulus disagreements remain and the prospects of getting a deal done fade into next year.  For now, everyone is playing nice in OPEC+ and emphasizing compliance.  The Saudis and Russians are getting along, but it will get ugly real fast if the fall surge/winter wave of the virus delivers a greater hit to the demand outlook.  OPEC+ needs to signal soon that they will delay the reduction of 2 million in production cuts. 

The news was not all negative for oil, the energy market saw a key milestone reached:  1 million passengers were screened on Sunday.  Jet fuel demand is coming back but is still significantly lower than the 2.6 million travelers from a year ago.  Air travel is the slowest rebounding part of this recovery and any fresh restrictive measures will kill any momentum that is building.

WTI crude remains trapped around the $40 level but could slide further as the risks to recovery grow.  OPEC+ is not going above and beyond in squashing oversupply concerns so oil could plummet if the demand outlook crumbles.  The next big meeting for OPEC+ will be held on November 17th. 

Gold

Gold wants to go higher but it can’t.  False hopes of a stimulus deal were quickly faded, and gold found itself once again around the $1900 level.  Gold’s longer-term bullish outlook will require a blue wave which means massive infrastructure spending alongside steady monetary easing.  While the US polls still strongly point to a Biden presidency, the Senate races are still too close.  The stimulus trade for gold could get disrupted if the Republicans hold onto the Senate and that is a growing risk. 

Gold has plenty of safe-haven demand reasons on why the outlook is still bright:  COVID-19 coronavirus cases and hospitalizations continue to rise in the US and are soaring across Western Europe.  Brexit is back on everyone’s mind and the risks of this dragging out till the end of the year will attract some safe-haven flows.   Widespread permanent layoffs will keep central banks globally generous with stimulus.

Gold seems stuck in a range for now, but the bullish case remains fairly intact.  

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