The New York session started with fresh record highs as investors initially focused on the resumption of the cyclical rotation trade, incremental optimism that Washington DC is actively negotiating a holiday stimulus bill, and some signs the Thanksgiving COVID surge may not be as bad as feared. The S&P 500 and Russell 2000 hit made fresh intraday highs however the conviction behind the rally was waning. The success of the unicorn IPO parade will likely determine if stocks can get their groove back and continue this run to uncharted territory.
US stocks turned negative after Senate Majority McConnell maintained his grinch status after complaining that the Democrats are moving the goalposts with the aid bill. McConnell is not yet showing any signs delivering an olive branch to Democrats. The White House and many Republicans want to get a deal done, so it might be a matter of a few more days before McConnell pivots. Until a breakthrough is made on the next fiscal aid bill, stocks could remain choppy.
The IPO for DoorDash was priced at $102 and delivered a strong open at $182. DoorDash is the perfect COVID trade that is happening right as many large cities brace for further lockdowns, likely boosting the demand for takeout delivery services. However, some investors may choose to be optimistic for the return to pre-pandemic life due to vaccine breakthroughs and have a downbeat assessment for long-term value. DoorDash is unique in offering a reliable online platform for businesses that have struggled to compete with mega-cap tech giants.
The Bank of Canada rate decision went as planned with rates remaining at record lows and QE staying at least the $4 billion per week. The recovery is slowing down and that will get worse as new waves of infections occur. The Canadian dollar strengthened modestly following the policy meeting, but has pared most of its gains as the dollar stages a broad-based rebound.
It is crunch time for Brexit negotiatoins and expectations are high for the dinner between UK PM Johnson and EU Commission President von der Leyen to show talks are headed in the direction. The risks of no-deal Brexit are growing but the consensus remains mostly optimistic that a deal will get done. Talks have been at a deadlock and some progress needs to emerge for the British pound to remain supported.
Crude prices went into freefall after the most bearish EIA crude oil inventory since early in the coronavirus pandemic. No one saw this massive build coming and oversupply concerns could quickly resurface if this becomes a trend. The headline draw of 15.2 million barrels was the biggest increase in stockpiles since April and nowhere near the consensus estimate of a draw of 849,000 barrels. The consensus range was from a 4-million-barrel draw to a 2.3-million-barrel build.
COVID and some seasonal factors delivered the worst decline with crude exports ever. Crude exports historic plunge of 46.9% to 1.83 million barrels is shocking, but some of that has to be attributed to the closure with the Houston Ship Channel. With crude exports plummeting, the US became a net importer of petroleum for the first time since September.
Despite the very bearish EIA crude oil inventory report, WTI crude’s tumble found support from this week’s lows. Vaccine execution and the return to pre-pandemic life is still the primary driver for oil prices and any short-term pressure from the current holiday surges is still viewed as temporary roadblock for oil prices.
Gold prices are retreating as the dollar makes a comeback after Senate Majority Leader McConnell shows no signs yet of capitulating to the Democrats. Dated, but still important labor data showed that US job openings surprisingly rose to a three-month high in October. The Jolts job openings showed the labor market remained strong leading into the latest virus surge. Large parts of the US economy need stimulus, but better-than-expected economic releases will likely delay the urgency for Congress to act.
COVID vaccine approvals in the US appear imminent and a tense week of negotiations over stimulus talks will keep gold prices on shaky ground. Gold volatility is easing and until it makes a transition to the reflation trade, the long-term bullish outlook might take a while longer to reassert itself.
Bitcoin is unable to shake off today’s risk off move as the dollar appears poised for a rebound after falling to a two-year low. Bitcoin’s bullish thesis is intact for many institutional investors and it should come as no surprise demand emerges on the temporary break below the $18,000 level. Bitcoin’s mainstream acceptance continues to head in the right direction and unprecedented global stimulus efforts should drive the inflation trade alongside gold.
Bitcoin could be in the middle of broadening formation and that could translate to a wide $3000 trading range below the $20,000 price barrier.