Risk appetite is waning as the coronavirus continues to deliver staggering numbers across the US and as Senate Majority Leader McConnell continues to show no signs of warming up to a bipartisan $908 billion stimulus package. US stocks are softer, but optimism is sky-high that Pfizer’s vaccine will get the greenlight later this week, after the FDA staff report confirmed the vaccine is highly effective with no safety issues. The report also showed that the vaccine starts to work 14 days after the first dose. The UK also launched their vaccination campaign, marking a key turning point with the fight against COVID-19. Wall Street will now focus primarily on vaccine execution and how soon countries will reach herd immunity.
The S&P 500 index is paring losses as lawmakers continue to work on updating their stimulus proposals. While McConnell has signaled no willingness to budge, some investors remain optimistic a deal will get done before the holidays. Republicans have made the Democrats concede a lot this month, so now they should be able to give in a little on liability protections and state and local aid. Each day that passes, however traders become more skeptical that a relief package along with a spending bill will get done.
The UK is making progress towards reaching a trade deal with the EU after they withdrew a bill that was breaking international law. The British pound pared most of its losses against the dollar following the UK’s small concession to the EU. Today, the pound is weaker against all of its major trading partners as investors continue to pile on hedges against a no-deal Brexit. Irish deputy PM Varadkar stated that he thinks PM Johnson wants a deal and that chances of one getting reached are 50:50.
Crude prices are declining as COVID-19 rages on and as energy traders shift the focus from vaccine optimism to vaccine execution. The big cities in the US are getting hit hard again by the virus and that could translate into longer lockdowns that will deliver a bigger hit to fuel demand over the next couple of months. Vaccine implementation across the US and Europe will be key for how quickly the crude demand outlook improves next year. Today was a big day as the UK became the first western nation to start COVID vaccinations for its population. The US is expected to start after the FDA’s review at the end of the week.
WTI crude’s outlook is still for significantly higher prices next year and that is probably why we won’t see any major pullbacks. The COVID-19 impact to oil and gas CAPEX will deliver supply shortages at some point next quarter and that could be the catalyst to help oil break out of its trading range.
Gold trade is getting volatility as safe-haven flows remain steady on virus angst, but stimulus prospects remain mixed. The coronavirus over the past week has delivered some of the deadliest days in American history adding to pressure for Congress to act. The full impact from the Thanksgiving surge will be found out over the next week, with the likelihood of more lockdowns and restrictive measures becoming the base case. A few months of terrible economic activity during a peak period for many small businesses could lead to deep scarring from bankruptcies.
The dollar is a tad firmer today, but that has not really gotten in gold’s way. Gold is itching to get back above the $1900 level, but it may need to see Senate Majority Leader McConnell offer an olive branch to Democrats. Democrats have already come down from an over $2 trillion stimulus proposal to roughly $900 billion. Gold is ready to rise even further, but it may struggle until the stimulus stalemates shows some signs of ending.
Tesla shares tumbled after the electric-vehicle company announced the sale of common stock, with the proceeds of up to $5.0 billion. Last week, Michael Burry, famously known for betting that the real estate bubble would collapse in 2007, said he was shorting Tesla and recommended that CEO Elon Musk issue more shares. Tesla has become one of the favorite stocks for millennials and that has been the primary driver for the move above the $500 level. A key top could be in place for Tesla and this correction will truly test the will of the Robin-hood trader.
US small business optimism is fading faster as major uncertainties, including COVID-19 and how much aid the Biden administration is able to deliver, will weigh on the outlook. The headline NFIB reading fell from 104 to 101.4, the sharpest decline in 7 months, and a big miss of the consensus estimate of 102.5. Only 12% of employers feel it is a good time to expand, while 89% of companies who are hiring are finding few or no qualified employees. The labor market recovery has hit a wall and the latest trends with capital spending, inventories, and credit conditions will likely continue to see hiring deteriorate over the coming months. A dark winter due to the latest wave of COVID is crushing small businesses and the uncertainty of the Senate will weigh on how optimistic companies will be in expecting assistance.
Bitcoin continues to struggle to break the $20,000 level. Yesterday, MicroStrategy’s proposed private offering of $400 million of convertible notes was another vote of confidence for Bitcoin. MicroStrategy intends to invest the net proceeds of the sale in Bitcoin. Today’s risk-off session on Wall Street is dragging Bitcoin down and momentum selling could grow on the break of the $18,000 level. Bitcoin’s institutional interest is eyeing a bigger move higher, but the short-term outlook is starting to look dicey.