October 19, 2020

Stocks terrible week ends on a positive note, Last-ditch stimulus bubble pops, Business investment looks durable

US stocks are bouncing back as investors jump back on the mega-cap tech trade and after a couple battered cruise companies got upgraded.  Optimism that stemmed from the restart of negotiations between Democrats and Republicans is quickly fading.  It seems the last-ditch stimulus bubble is already popping because they are not any closer to a deal.  Democrats have restarted negotiations with a $2.4 trillion stimulus proposal, almost a trillion more than what President Trump hinted with what he would be willing to support. 

It was a bad week for stocks and Friday’s buying does bring much confidence. 

Durable Goods

US orders for durable goods rose at a slower pace confirming the leveling off with the economic recovery.  A better-than-expected business investment reading was a bright spot in today’s report.  Capital goods rose 1.8%, better than the 1.0% consensus estimate and lower than upward revised 2.5% prior reading. 

Sales of computers, machinery, and equipment rose, while electrical equipment and fabricated metal product orders declined.  The economic recovery could strongly continue if Congress were to get something done before the election, but that seems unlikely right now. 

Oil

Crude prices took their queue from a sea of red with global equities.  The crude demand outlook is unlikely to get a bump until concerns over growing coronavirus restrictions in both Europe and the US ease.  The dollar story has been overdone but it is still weighing on oil prices.  The dollar rebound should be nearing its end if the real rates rally has run its course. 

The Norway Petroleum Directorate (NPD) reported August oil production at 1.722M bpd, which was 0.2% lower than their forecast.  The oil market will still work its way to balance as long all the major oil producing neighbors continue to reign in output. 

Gold

This was a week gold bulls will want to forget, the worst one since the scramble for crash that took place when the coronavirus unraveled financial markets in March.  Higher real rates is keeping the dollar bid and that is preventing gold from bouncing back. 

Gold is now over $200 lower from the August record high and currently respecting the 100-day simple moving average.  The longer-term outlook remains positive for gold as the global economic recovery will warrant more stimulus as the northern hemisphere battles the winter wave of the virus.  Gold will likely attract buyers from here on out as investors start scaling back their bullish bets.  

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