The US Data Dump Ahead of Thanksgiving

Written by: Craig Erlam | OANDA Europe

It's been an impressive November so far but the rally is running on fumes as we near the end of the month, despite the Dow breaking 30,000 for the first time in its history on Tuesday.

Europe has given up earlier marginal gains to trade slightly negative a couple of hours into the trading day, while US futures are treading water ahead of the open on Wall Street. A lot of positive news is now priced in which will make the next couple of weeks interesting. 

Thanksgiving holiday tomorrow means two things; firstly we basically get a three day data dump today as well as the FOMC minutes so it's going to be a lively session. Secondly, the rest of the week is basically a write-off for the US which should make for a chilled end to the week for the rest of us. That said, it is 2020.

The second reading of US third quarter GDP is expected to be unchanged but, of all the releases, it's arguably the least important given how out of date it already is. It would take some revision - and probably a positive one at that - to pique investors interests. 

Jobless claims could be the big one after it reversed course last week. The increase was the first in almost two months as the recovery took hold. Given the rapid spread of Covid across various states and the restrictions that accompany it, the number is likely to start heading in the wrong direction once again, albeit to a far lesser degree than earlier this year. Another significant increase could take the shine off the rally at a time when it is already lacking momentum.

Income, spending, consumer spending and inflation data will come out in a flurry after the open and should provide some interesting insight into how households are coping at the most basic level. Senate Majority leader Mitch McConnell recently cited labour market figures as being reason for not needing massive fiscal aid but the data may make for very different reading soon if Congress fails to act. The income and spending data has been volatile but disappointing numbers combined with weaker sentiment will be a concern.

The inflation data isn't particularly interesting at this point. Not only is the Fed going to have no desire to tighten monetary policy any time soon, it's likely to ease again in December as the economy suffers under the weigh of the Covid restrictions. With Congress still MIA, the Fed is once again going to be left to do the heavy lifting.

The question is whether the temptation is going to be there to try their hand at yield curve control or if other measures, including more bond buying, are going to be preferred at this point. That's something we could learn more about from the minutes later on in the day. 

The economic calendar is heavily dominated by US releases, the only other noteworthy event being the spending review from UK Chancellor Rishi Sunak. The UK has already seen a sharp rise in unemployment since the pandemic hit and that's expected to increase significantly higher, even with the extended furlough scheme in place.

The focus of the spending review is expected to be around employment as the UK seeks to bounce back strongly from the pandemic. Unfortunately, given the significant increase in government spending this year, there is already talk of how the country is going to pay for it, which will be another focus of the Chancellors speech.

Oil creating OPEC+ buffer

Oil prices are back at levels not seen since earlier in the pandemic, when the market was contending not just with brutal national lockdowns around the globe but also a price war between two of the world's largest producerts, and now leading allies in the OPEC+ cartel. With Brent now within a whisker of $50 and WTI above $45, producers will feel a lot more comfortable with the balance of the markets, as traders begin to factor in a vaccine-induced spike in demand.  

The question now become whether members of the OPEC+ group will still consider postponing output increases in January, given that prices have rebounded more than 30% from the levels that were making them anxious. Of course, the rally could also be factoring in a delay and the group will want to be careful not to cause a negative shock in the markets but at the same time, they have a healthy and growing buffer and further gains could well be on the cards.

Gold consolidating at $1,800

Gold prices are a little flat today but the yellow metal continues to hover around $1,800 support having only broken below $1,850 a couple of days ago. It's been at risk of such a correction ever since it plunged on the Pfizer vaccine news and the announcements from Moderna and AstraZeneca since have only piled further pressure on it.

We may be seeing the re-establishment of gold as a safe haven, with the correlation with stock markets now well and truly broken. A steepening yield curve is the main culprit despite the dollar not performing particularly well. That may make life challenging in the short-term for gold, depending on how the Fed respond.

Bitcoin is such a tease

Bitcoin is teasing us now, coming within a whisker of new highs yesterday only to pull back as profit taking once again kicked in. Perhaps today is the day. The question is whether new highs will be the catalyst for another explosion higher, at which point, how far can it go. Back in uncharted territory, bitcoin has previously shown an ability to make staggering gains in a short period of time. It will certainly be an interesting watch.

Related: How Much Further Does This Rally Has To Run This Year?