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Precious Metals & Energy - Weekly Review and Calendar Ahead

Commodities Oct 11, 2020 12:27
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By Barani Krishnan

Investing.com -- Is it really happening? After all the back and forth worthy of a Wimbledon duel, the stimulus showdown between U.S. Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi is on to another match. 

By the time it reaches its third set Monday - starting with Friday’s call phone between the two, then Saturday’s ominous Senate Republicans’ session that balked at the White House’s new $1.8 trillion plan - the whole affair might be back to where it began: nowhere.

Just to be sure, this stimulus is super important to gold if bulls in the haven are hoping to get back into the $2,000-per-ounce territory. It will also help oil to steady somewhat in the $40-per-barrel region. But more than the markets, millions of jobless Americans need help right away, while tens of thousands of airline workers need paycheck assistance if they aren’t to join the ranks of the unemployed.

For now, what’s apparent is this thing is no longer a tussle between the White House and Democrats. It’s evolved into a game of wits between the Republican-controlled Senate and Donald Trump. Senate Majority Leader Mitch McConnell, who decides what goes to its floor, has no interest in convincing his lot that a “bigger” stimulus package is better as the president thinks. 

With just weeks to go until to the Nov.3 U.S. election, Trump needs to badly deliver something good to potentially undecided voters. That - and tanking markets - are what convinced the president to swing from a no-deal to must-conclude position on the stimulus, just within 48 hours. He partially got what he wanted: The best weekly performance in months for the S&P 500 and Nasdaq.

Yet, Trump’s chief ally in the Senate isn’t willing to play ball with him on the stimulus, ostensibly because McConnell has his eyes somewhere else: to be precise, the hearing and confirmation of Supreme Court nominee Amy Coney Barrett. Talk about mixed priorities.

This explains Saturday morning’s conference call that Mnuchin and White House chief of staff Mark Meadows had with GOP senators, where many denounced the proposal by attacking the price tag as too big, questioning the overall direction and criticizing individual proposals. These come from several people who participated in the call or were briefed on its contents and spoke to the media on conditions of anonymity.

Sen. John Barrasso, Republican senator from Wyoming, also called a proposed expansion of Affordable Care Act tax credits to the unemployed “an enormous betrayal” of the GOP’s long-standing opposition to Obamacare.

It remains to be seen whether Trump will be able to use his persuasion, or raw power, over McConnell to achieve a triumphant third set on the stimulus. It will be easy for the whole thing to fall apart, considering that the Democrats’ demand itself is for a deal of at least $2 trillion.

Friday’s full-on restart of COVID-19 relief talks were what brought gold to a positive close for a second straight day and also bolstered its gain in as many weeks.

“Gold prices skyrocketed … after the White House blinked first over the stimulus deadlock,” said Ed Moya, analyst at New York’s OANDA.  “Gold looks like it will benefit from a stimulus deal before the election.  It is unclear if Democrats will accept the latest … offer, but it seems the White House is determined to get something done.”  

The restart of the Mnuchin-Pelosi talks also figured in oil’s return to the green lane after two weeks in the red, though the bigger catalysts were supply disruptions from the evolving Hurricane Delta and a brief Norwegian oil strike.

Despite a near 10% gain on the week, the outlook for crude remains suspect in the near term given the typically slower demand period in the fall season, and the escalation of coronavirus infections in several U.S. states as well as in Europe, analysts said. 

Also, with the Norwegian Oil and Gas Association and industry union Lederne reaching an agreement Friday to end the oil strike in the Scandinavian state, market bulls may need to find a bigger price mover in the week ahead.

Precious Metals Review

U.S. gold for December delivery last traded at $1,936.40, after officially settling Friday’s session at $1,926.20 an ounce on New York’s Comex — up $31.10, or 1.6%, on the day. For the week, it rose about 1%.

Spot gold, which reflects real-time trades in bullion, last traded at $1,930.23 — up $36.37, or 1.9%. For the week, it rose 1.6%.

Trump told a radio show on Friday that he wants a new and bigger coronavirus relief approved for the American people than what was negotiated previously in Congress, an apparent U-turn from just days ago when he ordered such talks canceled.

"I'd like to see a bigger stimulus package than either the Republicans or Democrats are offering," the president told the Rush Limbaugh radio show referring to both his party as well as the opposition. "I'd like to see money going to people."

Earlier in the week, Trump shocked the nation and caused the stock market to plunge by announcing that he was terminating negotiations for a new COVID-19 stimulus. He blamed House Speaker and leader of the Democrats in Congress, Nancy Pelosi, for the aborted talks, saying she demanded an outsized $2.4 trillion package versus the $1.6 trillion offered by the Republicans. Pelosi didn’t respond directly to the accusation and questioned instead the mental capacity of the president, who was still on drugs for his COVID-19 treatment.

The stimulus talks appeared back on track Friday after White House Economic Adviser Larry Kudlow told Fox Business that Trump had approved a revised package to negotiate with Democrats. The Wall Street Journal later reported that the White House was working on an $1.8b trillion package, citing people familiar with the discussions. 


Energy Weekly Review

New York-traded West Texas Intermediate, the key indicator for U.S. crude prices, last traded at $40.55, after officially settling Friday’s trade at $40.60 per barrel — down 59 cents, or 1.4%, on the day. For the week, WTI rose $3.55 or 9.6%.

London-traded Brent crude, the global benchmark for oil, last traded at $42.80, after finishing the session at $42.85 — down 49 cents, or 1.1%, at $42.85. For the week, Brent was up 9.1%.

Oil closed off Friday’s lows after government data showed that nearly 92% of oil production and almost 62% of gas output in the U.S. Gulf Coast of Mexico have been shut as precaution ahead of Hurricane Delta.

While President Donald Trump pushed Congress for a large new COVID-19 stimulus on Friday that marked a complete U-turn from the talks he ordered canceled earlier in the talks, concerns about the growing pandemic in the United States as elsewhere still weighed on the market, said analysts.

The other uncertainty hanging over oil: the outcome of the Nov. 3 U.S. election where Republican president Trump faces a resurgent Democrat candidate Joe Biden, according to polls.

“Positioning from CTAs in the market is very short currently and additional macro shorts may have added some support into a market as it's pretty clear that the pain trade was/is up as COVID is worsening,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina. 

“The U.S. elections are turning into a carnival and quite frankly, the oil fundamentals look pretty dire.”

Energy Calendar Ahead

Monday, Oct 12

Private Cushing stockpile estimates

Wednesday, Oct 14

American Petroleum Institute weekly report on oil stockpiles.

Thursday, Oct 15

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

EIA weekly report on natural gas storage

Friday, Oct 16

Baker Hughes weekly survey on U.S. oil rigs

 

Precious Metals & Energy - Weekly Review and Calendar Ahead
 

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