US Close – Light at the end of COVID tunnel, Record highs, Oil’s demand outlook improves, Vaccine news KO’d gold

A historic rally for US stocks stemmed from presidential election clarity and Pfizer’s COVID vaccine breakthrough.  The two biggest risk events seem to be off the table.  Despite a wrath of tweets suggesting a long, drawn-out battle certifying the election results, Axios reports that President Trump told advisers he is considering running for president again in 2024, that would imply he knows the results will stick.  Wall Street is content with a Biden presidency that does not come with higher taxes and more regulation.  Control of the Senate is still up in the air, but the runoff races in Georgia will likely go in favor of the republicans.

After the close stocks gave up a good portion of gains after the Fed warned in the near term, risks associated with the course of COVID-19 and its effects on the U.S. and global economies remain high.

Vaccine 

Before Pfizer and Biontech’s vaccine news, many health experts were hoping for a vaccine effective rate between 50-75%, which would put it roughly in-line with the flu vaccine.  Both Dow Jones Industrial and the S&P 500 surged to a record high after Pfizer reported their COVID vaccine’s phase 3 trial showed no safety concerns and was 90% effective in preventing infection.  The two-dose vaccine will have only 50 million doses available in 2020 which means only 25 million will get a vaccine before year end, which was down about half of what was initially anticipated.  Next year, Pfizer expects 1.3 billion doses available.   

Optimism is high for Moderna to have similar news in a few weeks since they use a similar technology to Pfizer’s vaccine, while J&J should post their single dose vaccine results by the end of the year. 

Right out of the gate, coronavirus phase 3 vaccine results are having everyone start to bring forward their forecasts for pre-pandemic behavior.  Asia stocks will soar at the open as optimism grows for the global economic recovery to accelerate despite the northern hemisphere’s current battle with COVID-19. 

Oil

Crude prices skyrocketed after Pfizer’s promising vaccine news, but pared gains after New York City Mayor de Blasio said NYC is coming dangerously close to a second wave.  The vaccine news gave a big boost for the crude demand outlook in the long-term, but the short-term view is still bleak with distribution being months away and the current spread of the virus suggesting lockdowns will be the theme for the winter. 

Saudi Arabia oil minister Abdulaziz continues to deliver hints that they could tweak their production agreement.  New lockdowns will keep the pressure on OPEC+ to deliver more production cuts. 

Russian energy minister Novak was promoted to deputy prime minister, but will still retain his vital role as OPEC+ negotiator.  It is expected for Rushydro CEO Nikolai Shulginov to become the new energy minister. 

With the virus situation getting worse in the US and mildly improving in Europe, short-term headwinds will have WTI crude trade between the $38 and $43 range. 

Gold

Gold prices got hit with a vaccine right hook as demand for safe-havens disappeared as investors rushed to value stocks.  Pfizer’s vaccine news was so positive investors had to overlook the short-term headwinds that are hitting the economy.  The next six months will be a tough time for the US economy as small businesses will not be able to survive the return to lockdowns and restrictive measures.  Gold appears very vulnerable, but the short-term stimulus trade remains intact as central banks will increase accommodation over the next several months. 

Gold found tentative support at the $1,850 level, but massive support will come from the $1,800 level.  The path to $2,000 just got a lot harder, but gold should benefit from a weaker dollar thanks to the Fed and see strong Diwali and Lunar New Year holiday demand.  

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.
Ed Moya