Mid-Market Update: Markets react to Trump’s positive COVID test, Oil stumbles, Gold rally may continue

Many Americans woke up to the shocking news that President Trump and the First Lady have been infected with COVID-19. The initial reaction overnight was negative for stocks, crushing for the dollar, and supportive for both gold and oil. Investors were anticipating a quiet overnight with the focus on this morning’s employment report.

With 32 days until the presidential election, the President will have to quarantine and Washington DC will be on edge to see how bad the virus may spread in the very tight quarters of the White House. VP Pence and Treasury Secretary Mnuchin tested negative for COVID-19, but that hardly means they are in the clear.

It is crunch time for the President and this setback will force him to end in-person rallies and campaigning. The President is considered by many as high risk, possibly having a one in three chance for hospitalization and complications given his age and weight. The President will undoubtedly have the best care, so financial markets will remain mostly optimistic he will recover well before Election Day. In the event the President is incapacitated by illness, the 25th Amendment allows the temporary transfer of power to VP Pence.  There was enough uncertainty heading into this election with high fears we would have a significant delay in getting results or if it would be contested.  Trump’s positive COVID test brings about a whole new wave of uncertainty on how he will govern over the next couple weeks, are all his campaigning and debates at risk of not happening, and if this hurts the chances of a stimulus deal getting done before November.    

NFP

The labor market recovery is now at a crawling speed. The V-shaped recovery is over and sadly Americans should brace for more layoff announcements. The service-sector was dealt earlier bad news this week from Disney to the airlines about job losses and with no help from Congress, it seems it is going to get a lot worse. 

Oil

Crude prices accelerated losses after the news broke that President Trump tested positive for COVID-19. Trump attended a fundraiser last night and some people noted he exhibited cold-like symptoms and seemed lethargic.

A disappointing nonfarm payroll report was icing on the cake for weakness in oil prices today.  Oil prices rose off the session lows after reports that Trump was experiencing only mild symptoms and after some Republicans said they spoke to the President and that he sounded good and upbeat.  Trump’s fight against the coronavirus and potential spread across Washington DC will completely dictate which direction risk takes and that should be closely followed by oil prices. 

Oversupply concerns are creeping back as OPEC+ slowly starts to raise production ahead of what could be a winter wave that brings back sporadic lockdowns that will cripple the demand outlook.     

Gold

Investors once again believe gold is a safe-haven trade.  Overnight, gold prices surged after President Donald Trump and first lady Melania Trump tested positive for coronavirus.  After a steady rally this week, gold is now comfortably above the $1,900 level.  With just over a month until the election, Wall Street just got blindsided with a wave of fresh uncertainty.  Gold should thrive next week, as investors await to see how severe is President Trump’s coronavirus case, how many key officials have been exposed, if a disappointing nonfarm payroll report will push Congress to break the stimulus deadlock, and if the Fed and ECB minutes to their policy meetings show they almost ready to ready increase their asset purchases. 

Gold is starting to look very bullish and could see steady safe-haven flow as long as any dollar rally is somewhat limited.