Mid-Market Update: Downbeat Claims and Trade data keep risky assets heavy, commodities slide on strong dollar

Wall Street’s rally is running out of steam amid worries the labor market recovery has stalled.  The headline beat for weekly jobless claims needs to be taken with a grain of salt.  After seasonal adjustments, initial jobless claims for last week came in at 881,000, better than the consensus estimate, and the slightly higher revised prior 1,011 million reading.  The unadjusted claims data told a different story, rising 7,591 to 833,352.  Overall, the report was disappointing as Pandemic Unemployment Assistance surged over 150,000 to 759,482 and total persons claiming benefits in all programs rose over 2 million to 29.2 million. Too many Americans need benefits and this will likely remain the case for the rest of the year.

The US trade deficit also expanded to the widest level since 2008, a troubling sign that US-China tensions are about to heat up even further.  President Trump campaigned in 2016 that trade wars are good, and easy to win, so financial markets will look to see if he turns up the pressure against Beijing.

The Nasdaq is getting hit hard with the continued rotation into cyclicals and expectations big-tech will ultimately pay the cost to a further deterioration with US-Chinese relations.

Oil

Oil prices continue slump on a strong dollar, a bleak US labor market outlook suggest the crude demand recovery will stall, and as production resumes in the Gulf of Mexico.   WTI crude is tentatively finding support at the $40 level as no one anticipates a complete collapse with prices as energy markets are primarily optimistic on the COVID-19 vaccine front.  The impact of storms Marco and Laura is fading as Chevron announced that five of its six platforms are restored.

Crude prices seem destined to remain rangebound until optimism grows that reopening momentum will not get completely derailed with the next wave of the virus.

Gold

Gold prices are hanging in there as risky assets get pummeled across the board.  A strong dollar put a tentative wrench in gold’s plans to recapture the $2000 level, but the move seems close to be over.  The rotation trade in stocks is about to see investors go for gold and remain neutral with cyclicals.  Gold will benefit from the global stimulus outlook, as it is about to get another injection from both the ECB and eventually from Capitol Hill this month.  Gold’s $1900 to $2000 trading range might last a little while longer, but little doubt remains that prices are poised to make a return to record high territory.