US Close – Stocks lower as data shows recovery is stalling, Oil lower on travel restrictions, Gold volatility eases

A lackluster Friday session has US stocks treading water as the economic recovery loses momentum.  Consumer spending habits are slowing down as COVID-19 continues to trigger renewed restrictions.  The economy remains on life support and Congress going on recess is bad news for large parts of the economy.  Stocks will not selloff due to the extraordinary policy support that central banks and governments have put in place. 

US and Chinese negotiators have delayed their review of their phase-one trade deal, due to scheduling issues.  A potential risk of event for the weekend is off the table and it is probably a good idea given Beijing’s desire to widen the agenda to discuss the recent actions toward WeChat and TikTok.   

President Trump’s White House briefing did not trigger any major moves. Mckesson shares jumped on Trump’s announcement the US will partner with them on vaccine distrubution. Trump did not waver on his actions toward WeChat, noting that he will do what is needed to protect US security. Regarding funding for the US postal service, he said he would be willing to reach an agreement over the $25 billion that is for universal mail-in voting.

Oil

Oil prices are stuck in end-of-summer mode as the global economic recovery shows signs of slowing.  China’s recovery is uneven, and the US outlook is dwindling as widespread joblessness persists and an ineffective Congress is failing to deliver much needed aid to the economy.

Crude demand was also dealt a blow after the UK announced visitors from France, the Netherlands, Monaco, Malta, Turks & Caicos & Aruba must quarantine.  Resurgences of the coronavirus will likely thwart the travel plans for many individuals until a vaccine is readily avaiable. 

Next week’s OPEC+ JMMC meeting will largely focus on compliance and not discuss any changes of the ongoing production cut pact.  OPEC + will try to stay nimble until they have a better trajectory of the global crude demand recovery. 

Gold

Gold prices edged lower as real yields rose and after Washington DC failed to end the stimulus stalemate, prompting many to believe it won’t be resolved until September.  Investors were disappointed Congress went on recess without reaching a deal, but that means the longer the delay the larger the size of stimulus.  Gold’s stimulus trade is not going away anytime soon as economic recovery is slowing in both Europe and the US.  The G-4 central banks (Fed, ECB, BOE and BOJ) will continue to see their balance sheets skyrocket and the fiscal measure efforts will exceed the $10 trillion level. 

Gold’s first weekly decline since June is just another chance to get in on Wall Street’s favorite trade. Gold could stabilize next week as tensions between the US and China could worsen over the weekend, virus uncertainty for the winter remains high, and permanent labor damage to the economy will keep the stimulus flowing deep into 2021.    

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