US stocks seesawed after optimism with both stimulus negotiations and progress with antibody treatments with the coronavirus was countered by Fed Chair Powell’s reminder that recovery needs Congress to act soon. Powell comments at the NABE Conference highlighted that the rapid pace of the recovery is slowing and could trigger typical recessionary dynamics. Powell pointed out that the more realistic unemployment rate is closer to 11% and that the risks of overdoing it on stimulus is smaller than doing too little. His remarks did not reveal anything new, the recovery will weaken without fiscal aid and that the outlook is uncertain. Traders looking for any dovish surprises did not get any, especially after he stated negative rates are still not on the Fed’s radar.
Republican senators now have to decide if the presidential election polls hold, do they want to give Biden’s administration a boost right out of the gates. Partisan politics might hold here and we may not see a deal reached until after the election.
COVID
Risk appetite seems to keep getting support from incremental updates with the fight against the coronavirus. Today, Vir Biotechnology and GSK antibody drug against COVID-19 entered a phase 3 trial. Early data shows Vir, GSK antibody may neutralize the virus and kill infected cells. The first data on phase 3 with 1,300 patients should be by the end of the year, with the complete results in January.
Positive momentum for stocks will remain in place as progress continues to be made with both COVID-19 therapeutic antibodies and vaccines.
Oil
Crude prices are surging after a trifecta of stimulus hopes, coronavirus treatment optimism and possible disruptions of oil production in the Gulf of Mexico.
Fed Chair Powell and IATA chief economist continue to pile on the pressure for Congress to deliver more stimulus. Air travel has stabilized but many are expecting some tough winter months. The stimulus trade will likely keep the dollar on the ropes and that should provide a backdrop of support for oil prices.
This has been a very active hurricane season and it looks like further disruptions in the Gulf of Mexico are likely. Hurricane Delta, the 25th named storm of the year has already forced the evacuation of some offshore platforms.
Three days ago, WTI crude prices looked like they were headed for the mid-$30s, now it looks like a break of the $41 level might not see much resistance until the $43.50 region. The risk of disappointment with stimulus talks is still high, so energy traders might use that as an excuse to close out their bullish bets.
Gold
Gold prices softened after the dollar stabilized. Gold did not get much of a boost from Fed Chair Powell. Powell called out Congress again to deliver more stimulus. Gold seems to be tentatively consolidating despite a record surge into ETF holdings. Wall Street is starting to price in calmer waters regarding the election outcome and that is taking out some short-term bets.
Gold will have a choppy ride back above $2000 level as positive news with both coronavirus treatments and vaccines will unwind some safe-haven flows. Investors can’t deny the economy is about to see a lot more stimulus, the question is how much and if it will be accompanied with an easy path of massive infrastructure spending. If Wall Street becomes more confident that Biden will win and Democrats will win enough Senate seats, gold should remain bid leading up to the election.