Today was mostly a relatively quiet quadruple witching that was saw bears prevent US stocks from snapping its two-week losing streak. This morning’s Leading Index and Consumer Confidence data legitimizes the economic recovery up until now but does little to offer optimism over the mounting risks.
The University of Michigan Confidence report had better-than-expected readings on sentiment and current conditions but did note that the data indicated that the election has begun to have an impact on expectations about future economic prospects. The leading index declined slightly, indicating the summer economic rebound has lost momentum.
Mega-cap tech stocks are dragging everyone down right now. The outlook is foggy for big-tech as the latest TikTok developments continues to add further strain to US-China trade relations and as Wall Street needs to start pricing in a Blue wave in November that would trigger higher taxes and tougher regulations.
The US Commerce Department decision to ban Chinese-owned TikTok and WeChat from U.S. app stores on Sunday is bad news for tech stocks. TikTok has until November 12th, after the election, to address Trump’s national security concerns. The US-China trade war is evolving into a tech war and that will make it very difficult to like risky assets going into November.
The afternoon stock market selloff stemmed from concerns second wave of coronavirus in Europe is getting out of control and as investors grow skeptical over the outlook for Big Tech. Europe seems poised for renewed lockdowns and technology stocks have too many uncertainties regarding the brewing US-China tech war and potentially tougher regulations and higher taxes that could come with a Biden presidency.
Crude prices shrugged off earlier oversupply concerns from Libya as energy traders chose to remember Saudi Arabian energy minster’s very harsh words to OPEC+ cheaters and oil short-sellers. Saudis are showing they will defend oil prices, and no one wants to go against them. Energy traders will wait to see if Libyan military commander Khalifa Haftar confirmation to lift block on oil exports, will be accepted by the National Oil Co. It seems unlikely that Libya will quickly be back to producing 1.1 million bpd.
A wildcard for oil has been a very active hurricane season which has made forecasters run out of names for the second time in history. With over two months left in hurricane season, crude production may see further disruptions in the Gulf. The weekly Baker Hughes rig count report showed the US oil rig count fell by one to 179.
WTI crude tumbled after the demand outlook for crude was dealt a major blow following France’s reported daily virus update that showed new cases rose above 13,000, the most since lockdown. The second wave is hitting Europe hard an it seems inevitable lockdowns are coming back. The Saudis verbal threats only hold water if the demand outlook remains constructive.
Gold prices popped higher after reports that Congress is close to a deal on government funding, prompting hopes that a fiscal stimulus might not be far away. House Speaker Pelosi sparked some optimism that the pressure is growing on both sides to get another virus relief bill done. Democrats are currently seeking a $2.2 trillion package, while the White House has noted support for $1.5 trillion deal.
Gold is starting to look bullish again as the US-China tech war is seeing investors rotate out of the mega-cap tech stocks into cyclicals and safe-havens. The second wave of the virus is hitting Europe and the current wait-and-see approach with all the European central banks will likely be short-lived. Lockdowns are coming back to Europe and many US states are recording more infections on a weekly basis and that will require both more fiscal and monetary support.
Gold remains trapped in its tight trading range after bulls were disappointed that Fed was not dovish enough. If the tech-war risks continue to deteriorate and surging cases globally trigger renewed lockdowns, gold could quickly break back above the $2000 level next week.
Gold pared some of its gains as investors locked in profits following the stock market afternoon selloff.
Bitcoin is participating in today’s broader stock market selloff. Risk aversion has reasserted itself and no one wants to hold any major positions over this weekend.
Bitcoin news has been quiet for the past couple weeks, but a deteriorating global economic outlook could be positive for cryptocurrencies as Wall Street raises expectations for policy and lawmakers to deliver further fiscal and monetary stimulus. As coronovirus cases continue to rise in the US and Europe, fears of renewed lockdowns will bring back a key rationale for owning cryptos. The simplistic belief that fiat currencies will grow worthless as central banks continue to print money and balloon their balance sheets will like be accompanied with growing risks some central banks are closer to bringing interest rates to negative territory.