US equities were weaker Friday, with the S&P closing 0.7% lower. Weighing on sentiment was US Treasury Secretary Mnuchin's announcement, after the close on Thursday, not to re-authorize several of the Fed's emergency credit facilities beyond December 31 – despite the Fed requesting a full extension. For his part, Mnuchin said the decision was "not a political issue," and there was a "lot of firepower left." US10Y yields fell 1bps to 0.82% and oil was up 1% on Friday.
With just over a month to go until Christmas, attention will remain fixed on the Covid-19 pandemic as governments worldwide continue to impose tough restrictions on their citizens to contain the spread of the virus.
Economic data will likely get worse before it gets better. The impact of continued lockdowns will be felt for some time before vaccines become widely available. The market is having a tug of war right now, trying to establish whether it can look through nearer-term negative data and news.
The enthusiasm to buy risk-on positive vaccine headlines last week has somewhat tempered with the limited good news this week (improved Pfizer efficacy, Moderna efficacy, AstraZeneca positive signs for immune response in elderly). With Europe seemingly at the peak of the second wave of infections, investors are reassessing the European reallocation story and the short USD story.
Oil ended the week up 5%, with the market pricing in a return to normalcy from the middle of 2021; this is visible in the time spreads tightening further. The WTI Dec21/Jan22 spread traded in backwardation today, a clear move in tightly supplied markets.
US oil rig count fell by five this week, after eight consecutive weeks of gains.
Total oil rigs now stand at 310, from 803 this time last year. Dec20 WTI expired today at USD42.15.
Gold is trading a touch better on US stimulus hopes and temporary USD declines, but demand is weak and may test USD1,850/oz.
It was a tough week for gold. It ended the week pretty much in the middle, between USD1,850/oz support and USD1,900/oz, but is well down from the pre-vaccine news November high of USD1,965/oz.
The US Treasury decision really complicates the view. On the one hand, Mr. Mnuchin cut emergency funding and called for getting funds back from the Fed, but on the other hand he signaled renewed efforts to pass more fiscal stimulus, reaching out to Republicans in Congress. On face value, the impact on gold of these two contradicts and, to a degree, the offsetting of developments is mixed and hard to discern.
As we count down to the meeting of OPEC on November 30th, the Axi Expert Series is pleased to welcome Henning Gloystein, Director of Energy, Climate & Resources at Eurasia Group, to discuss his views and insights in what’s an important week for oil markets.
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US stocks appear to have reached a mini cyclical fatigue point, but the pace of vaccinations remains the key driver for risk markets