Earnings galore, US data, Italian politics, Oil softens, Gold trapped until Fed, Bitcoin drops

Today is the calm before a tech earnings storm and an FOMC policy decision that attempts to avoid any communication mistakes.  Investors don't expect the Fed to give any reason to think they are getting closer to talking about when they will consider scaling back QE, but nervousness is brewing on Wall Street.  Some economists are thinking that a reduction in asset purchases could start as early as Q3.   

US stocks are struggling for direction following a wave of mixed earnings results and as investors put Biden’s $1.9 trillion stimulus plan on the backburner.  Stimulus expectations have been pushed back at least a month and that is allowing traders to solely focus on earnings and the Fed.  Some of today’s optimism came from Regeneron’s prevention study that showed one of their antibody cocktails could be used as a passive vaccine.  The exploratory analysis of 400 individuals showed a reduction in overall infections seen within the first week, with 100% prevention of symptomatic infections. 

Earnings

The Good earnings came from J&J, Raytheon, and 3M, while the Bad was Lockheed Martin and American Express, with Verizon primarily slumping on ugly subscriber growth.  Overall, Wall Street saw most of the big earnings come in at or much-better-than estimates.  Johnson & Johnson was a standout with solid results and upbeat guidance that was not pricing in anything from their potential COVID vaccine. J&J reiterated their data COVID phase 3 study details will be coming out soon.  

After making the rounds on the major news networks, J&J CFO seemed optimistic about the vaccine and noted that we could finally get their late-stage trial data by early next week.  The single dose easily stored COVID vaccine from J&J could be a game changer in the fight against COVID and would do wonders for the global growth outlook.  

Fed

The Fed’s first policy meeting of the year should be a dovish affirmation that signals they are nowhere near talking ready to talk about tapering bond purchases.  Considering the overall robustness of the US economy despite the COVID winter wave, financial markets seem firmly convinced is not budging if you take a look at the 10-year Treasury yield , which remains relatively depressed at around the 1.04% level.  The Fed’s bruises from the ‘taper tantrum’ of 2013 have not fully healed and will likely allow them to convince Wall Street they will be the last major central bank to scale back accommodation.  Considering all the froth in the market, a tantrum seems inevitable, but that should not be until next year.  

US Data

The S&P CoreLogic Case-Shiller housing price data for November confirmed what we already knew about the housing market, it is the bright spot of the economy and remains hot.  Property values in 20 US cities jumped 9.08%, the largest increase since May 2014.  Low mortgage rates and millennials looking to buy their first homes continue to keep this sector booming.  

Consumer Confidence in the US continues to slowly stabilize and remains very distant from their pre-pandemic levels.  The present situation component declined from a revised 87.2 to 84.4, while the expectations survey improved from a revised 87.0 to 92.5.  

The US consumer became a little more optimistic in January after the government signaled, they will be sending more checks.  Expectations will grow for the consumer confidence to rebound sharply once vaccine rollouts improve and if virus variant concerns ease.     

Italy

Italian politics are not having much of a negative impact on the euro.  PM Conte offered his resignation after losing his Senate majority, complicating the government’s effort to provide the country with more support during a recession that is plagued with lingering COVID concerns.  Conte’s resignation appears to be motivated by avoiding a parliamentary defeat.  He is positioning for a third attempt at forming a government, but it is unclear if President Mattarella will opt for someone else.  The risks are growing that Italians will have to go to the polls and this political uncertainty will weigh on Italy’s economic recovery.  

Oil 

Crude prices drifted lower as the dollar strengthened and as the latest restrictive measures in China will deliver a huge hit with Lunar New Year travel.  China’s crude demand is the backbone to the current recovery with prices, so any deeper restrictions should provide some selling pressure for Brent and WTI crude.  

OPEC Secretary General Barkindo’s bullish comments at Iran’s IPEC conference had little impact with oil prices.  Barkindo reminded energy traders that the worst is over for the global oil market and that oil investment fell by 30% in 2020.  The most impactful comment he delivered was that virus rates will continue to drag on the recovery.  Barkindo stuck to the script and did not offer any new insights to the demand outlook.  

The big story in the energy space was S&P Global Ratings' decision to put most of the major oil companies, such as Exxon and Royal Dutch Shell, on negative watch.  The rating agencies are always late to the game and this warning seems long overdue.  President Biden’s clean energy initiative was well telegraphed and will likely see him deliver most of his promises via executive order.  Margins should improve and lack of investment will provide some opportunities for more drilling this year.  

Gold

Gold traders are in wait-and-see mode until the Fed can signal, they are nowhere near ready to slow asset purchases.  The next 24-hours could be very boring for gold traders if the precious metal is stuck between $1845 and $1865.  Gold softened slightly in early trade after positive news from Regeneron’s antibody cocktail that could be used as a passive COVID vaccine.  

The current short-term situation is pretty bleak for Europe and virus variants should keep the demand stable for safe-havens such as gold.  In order for gold to reassert its longer-term bullish trend, it needs the Fed to punt taper talk deep into 2022 and can’t have a complete unwind of safe-haven bets after J&J’s delivers their late stage COVID vaccine trial data.  After this week’s Fed fireworks and massive tech earnings, risk appetite should have enough of a catalyst to send gold either to $1800 or $1900.  

Bitcoin

A new wave of retail traders may have decided to put a pause on their crypto trades and jump on the adventures of GameStop gambling.  Bitcoin volatility has somewhat eased and it seems all the fundamental stories keep on getting recycled.  Bitcoin is not rallying on recycled news of ballooning deficits and inflationary pressures will drive traders to seek refuge from fiat currencies, or that Treasury Secretary Yellen and SEC head nominee Gensler are likely to be crypto-friendly early in their terms.  

Bitcoin did get hit with a wave of bad press at the end of last week when South Africa's Direct Selling Association of South Africa (DSA) asked the African Union (AU) to initiate a continent-wide effort to stamp out Ponzi schemes that could target cryptos.  Bloomberg reported today that South Africa’s finance-industry regulator would like to be able to fully prosecute perpetrators of fraud and oversee dealing in cryptocurrencies.  The regulatory headaches for Bitcoin have not gone away, but for now no longer seem to send prices sharply lower.  

Bitcoin seems poised to consolidate a little more, but if the Fed is not dovish enough and the dollar rebounds, the $30,000 level could easily break.