Written by: Edward Moya | OANDA
Republicans shift focus to 2022, COVID spread intensifies, Oil slides on outlook, Gold’s back, Bitcoin surges
Stimulus talks between House Speaker Pelosi and Treasury Secretary Mnuchin continue to edge closer to a deal, but skepticism remains high that Senate Majority Leader McConnell will not support one before Election Day. McConnell has not offered any positive signals that Republicans are willing to abandon their fiscally conservative beliefs and support another couple trillion dollars in stimulus. He noted that Democrats want a 'wheelbarrow of cash' for states and if no progress is made today, the Senate turns to Judge Barrett's nomination.
It seems for many Republicans, now is the time to start planning for life after Trump. While the presidential race is tightening, early voting signs suggest the deficit is too great for the President to make a comeback. The odds also seem slightly in favor that the Republicans will lose the Senate and they need to decide if committing to a stimulus deal will alienate their base. Republicans might be starting to focus on what gives them the best chance of taking back the Senate in 2022. Some could make the argument that it would be better for Republicans to capitulate now on a big-spending bill so they could have a clean slate with the next administration. The problem for many Republicans is that they are up for re-election and a vote before election day could alienate their base by either supporting a near $2-trillion bill that has many concessions to the Democrats or by going against the president.
An agreement could be reached by Pelosi and Mnuchin but doubts should remain that any bill near the $2 trillion price tag will die in the Senate. If the election yields a blue wave, stimulus talks might have to wait until Biden is in office, but it will likely be much larger than what is being discussed. A surprise Trump victory would mean a smaller deal would be reached before the end of the year.
Choppy markets will persist until the presidential election as US stocks continue to hang on every stimulus and coronavirus vaccine headline.
COVID
The race for a COVID-19 vaccine was dealt some disappointing news after one of the front-runners, AstraZeneca had a patient die in their vaccine trial. AstraZeneca shares fell to the lowest level since April on the news but pared losses after it was reported the patient didn’t get the vaccine. Over the next couple of months, the first round of COVID-19 vaccine phase 3 results will occur. Hopes are for a vaccine or two to get the greenlight before the end of the year.
The virus spread continues to worsen. For the first time since May, New York City reported over 2,000 new cases, an increase of 0.4%, modestly higher than the 7-day average of 0.3%. The trajectory of new cases is looking ugly for Election Day. The mid-west continues to see a surge of cases in the Dakotas, Montana, Wyoming and Nebraska.
Except for Spain, it is looking ugly in Europe. Greece hit a daily record in new cases and Italy saw a huge spike in cases to a record 15,199. Outbreaks in the UK, France, Belgium and the Czech Republic will likely trigger a wave of lockdowns in the coming weeks.
Oil
Crude prices didn’t have a chance of rallying today given the choppy stock market session and disheartening virus news across Europe and America. A somewhat bullish EIA crude oil inventory report couldn’t help oil prices at all. The headline draw was smaller than expected but still provided some relief that it wasn’t a small build like what API reported yesterday. The EIA report supports the notion that US production continues to decline, albeit some of that was due to hurricane season.
Oil prices will struggle to break free of its Autumn range until demand improves for refiners, the consumer is supported with stimulus sooner than later, a couple vaccines get the greenlight, and for the northern hemisphere to get the current virus spread under control.
Gold
Gold is thriving now that dollar weakness has resumed, and a plethora of risk events will trigger safe-haven flows. The biggest short-term risk is election certainty, Wall Street has gone from fearing a contested election to pricing in a blue wave. The results will likely take a few days to get finalized and what might end up getting contested is tight senate races that could control the balance of power. Fears of a no-deal Brexit will likely mean talks will go down to the wire which right now seems to be the middle of November. Lastly the coronavirus spread, phase 3 vaccine trial results, and extent of lockdowns will be the biggest factor in determining the future size and timing of both fiscal and monetary stimulus efforts.
Gold correction calls will end once it breaks above the $1950 level. The election is the biggest driver for gold as that will ultimately determine if we get a few more extra trillion dollars of stimulus. Gold bulls will eagerly hoping for a blue wave.
Bitcoin
Bitcoin is back! The consolidation phase appears to be over and Bitcoin has enough rejuvenated interest to make this rally exciting. Earlier in the week, the Fed punted a decision on digital currency, so no bad news is very good news for Bitcoin. Cryptos are catching fire off the news that PayPal will embrace cryptocurrencies at the checkout.
Paypal will now allow clients to buy, hold and sell select cryptocurrencies, initially featuring Bitcoin, Ethereum, Bitcoin Cash and Litecoin, directly within the PayPal digital wallet.
Bitcoin could have an easy path towards $15,000 if the dollar remains on the ropes over the coming weeks.
Related: The Final Countdowns To Stimulus and Election