Mid-Market Update: Claims confirm downbeat assessments of economy, Housing remains one bright to the economy, Oil’s oversupply problem, Gold stabilizes

US stocks turned positive despite disappointing jobless claims data and more dovish Fed speak, this time from Powell, Rosengren and Kaplan.  The one bright spot in the economy remains the housing market, which saw new home sales surge to a 14-year high.  Despite another down day, investors are starting to scale back into mega-cap technology stocks and real estate.  With the S&P 500 index in correction territory, many investors are becoming constructive in hopes that enough stimulus is in play and likely after the election and that the current selloff doesn’t take us into a bear market.    

Risk-aversion remains in place as a pickup in virus cases raises expectations of another round of lockdowns and restrictive measures that will further disrupt the stalling economic recovery. Meanwhile, chances for another Congressional aid package seem unlikely despite all the reiterations of plans to resume talks.  Uncertainty to the outlook is not going away anytime as Wall Street prepares for the second wave of the pandemic and a likely contentious US election.   

Fed

The Fed stands united with their concerns to the outlook and need for more fiscal stimulus.  Powell highlighted that in the near-term the balance sheet will continue to grow.  He kept applying pressure on Congress after stating that evictions and mortgage defaults could increase soon without fiscal support.  Rosengren noted we’re not going to raise rates for several years.  Kaplan emphasized the need for infrastructure investment and noted that negative rates are not an option.  Kaplan forecasted Q3 GDP to expand 30% annualized and for the unemployment to end the year at 7.5%.  Bullard noted that lots of optimism but acknowledged downside risk remains substantial. 

Oil

Crude prices could remain vulnerable as skepticism grows that OPEC+ members will honor oil output cut commitments.  Iraq seems to be selling and possibly producing more crude after some oil traders reported a significant increase in cargoes.  If Iraq surpasses their new quota of 3.6 million barrels per day, this will give little reason for UAE, Nigerian and Gabon to follow through with their promises. 

WTI crude has been consolidating over the past few sessions and will likely take its queue if the dollar mounts another massive rally. 

Gold

Gold prices are stabilizing as the dollar surge appears to have run its course.  While global equities are capitulating, gold is starting to get its safe-haven mojo back. 

Gold’s long-term outlook remains bullish and will likely attract buyers at all the key technical levels.  Gold prices are tentatively holding the $1850 level as the dollar rally loses speed.  Gold will resume its safe-haven status once the dollar rebound is over. 

Gold’s 12-month outlook still warrants fresh record highs as lockdowns and restrictive measures from the coronavirus fall/winter wave will force central banks and governments to provide more accommodation.  Gold will have to wait a little while longer for the punchbowl of stimulus to grow but rest assured widespread global slowdowns will be met with strong accommodation by the first quarter of next year at the latest. 

Vaccine optimism is slowly fading too.  Even if we get a positive vaccine approved over the next couple of months, the forecasts from Good Judgement Inc. has declined from 70% to 52% that 25-million people will be inoculated before the winter wave is over.