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Written by: Edward Moya | OANDA
Pelosi holds ground on broader bill, Trump counting on debates, Oil rises on disruptions and delayed OPEC+ production increases, Gold teeters on stimulus talks
US stocks rallied after weekly jobless claims showed the labor market recovery has flatlined, raising expectations that Congress will need to reach an agreement on stimulus before the election. Earlier, President Trump signaled fiscal relief talks have reopened and are starting to be productive. Equities gave up a good portion of gains after House Speaker Nancy Pelosi said there is no standalone airline bill without a bigger aid plan. With President Trump trailing significantly in most polls, the pressure is on White House and Pelosi is holding her ground on securing a bigger relief bill. Any stock market weakness that stems from failure to break the impasse will be short-lived. The election is 25 days away, so it should come as no surprise Wall Street is already pricing in a blue wave that comes with higher taxes but also a massive $5 trillion spending plan that will provide a strong boost for the economy.
Jobless Claims
With coronavirus cases rising across the country, it is hard to get excited about a meager improvement with US jobless claims. The total number of people claiming benefits in all programs was 25.5 million, a decrease of 1 million from the prior week. Pandemic unemployment assistance is still being used by over 11-million Americans and the small decline is being attributed to the exhaustion of the additional 13 weeks of aid. It’s very concerning that the US is this deep into economic recovery and the employment market rebound has hit a wall. More needs to be done otherwise the risk of a double dip recession will grow.
Election
The VP debate did not get a full news cycle of coverage because President Trump announced he would not take part in next week’s debate with former-VP Biden if it will be conducted virtually. President Trump is trailing too far in the polls to pass up a debate. The President is still recovering from COVID and would probably benefit in having the debates delayed. Trump’s campaign is advocating for the 2nd debate to occur on October 22nd and the third debate on October 29th, days before the election.
Many undecided voters have given the edge to VP Pence last night, but it will not likely make a big difference in the polls. Senator Harris played it safe and did what was needed to make sure Biden remains a heavy favorite.
Oil
Supply disruptions from the Gulf of Mexico and Norway are sending oil prices sharply higher. Hurricane Delta is strengthening across the Gulf of Mexico and has halted 80% of oil output. Over in Norway, a widening strike movement is threatening almost a quarter of oil and gas output. Non-OPEC production is going to take a big hit over the next couple of weeks and this will continue to drive re rebalancing of the oil market.
Crude prices are also benefiting from optimism over a stimulus deal. The airlines especially need more support otherwise massive layoffs will disrupt an already vulnerable labor market rebound. Even if Congress is unable to reach an agreement before the election, financial markets are confident something will quickly get done after the election aftermath settles. If the economy must wait for stimulus, it will likely be a much larger package in late January if the polls are right and the US sees a blue wave.
Oil extended gains after reports that Saudi Arabia is considering reversing course over the planned OPEC output raise at the end of the year. The demand outlook has been diminishing as the virus spread intensifies, albeit before the winter surge. The planned 2-million-barrel hike will likely be delayed until the demand outlook improves.
Gold
Gold remains in a tug of war between optimism and pessimism over fiscal stimulus talks. Gold can’t rally until the US government is able to push through a significant stimulus package. The back and forth on stimulus between House Speaker Pelosi, Treasury Secretary Mnuchin, and President Trump is frustrating traders. It is very obvious the economy (especially airlines and small business) need this aid ASAP, but it seems that the odds are 50/50 that some aid may get passed before the election.
The Fed has been amazing during the economic recovery, but even Dallas Fed President Kaplan is acknowledging that they don’t have the tools to replace fiscal policy. Gold needs both monetary and fiscal policy to increase for the longer-term bullish trend to reassert itself. Gold seems poised to dance around the $1,900 level until a clearer sign emerges on fiscal aid.
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