ADP impresses, Crude rally continues, Gold stumbles on strong US data

US stocks initially pushed higher on big-tech earnings, expectations Senate Democrats will pass Biden's stimulus plan on a party-line vote, and after the ADP private payroll report shows the labor market rebounded in January. The morning rally fizzled at the open as some investors quickly headed for the sidelines and cashed out on their FAANG stocks now that tech is done with all their major earnings results. Adding to the market nervousness was the nice pop that the Reddit-fueled retail army gave to GameStop, AMC, Koss, and silver bets. The conviction behind these social-media driven retail trades look more like a dead-cat bounce, except for silver. Silver has strong fundamentals given the industrial demand outlook for the remainder of the year.

Amazon

Amazon's record $125.6 billion revenue in the fourth quarter was the perfect exclamation point to one the top pandemic trades of 2020. Taking the focus away from a great quarter was the announcement that Amazon Web Services CEO Andy Jassy will replace Jeff Bezos as CEO in the third quarter. Bezos will become Chairman but will still be focused on new initiatives and products for the company. Amazon is firing on all cylinders and the Jassy announcement did not surprise anyone and should not alter long-term views of the direction of the company.

Google

Alphabet had a strong quarter and the new disclosure on their cloud business shows their commitment to larger growth opportunities. Alphabet delivered beats with EPS, revenue, Google cloud, and YouTube ads. The cloud division reported a $5.6 billion loss in 2020, but that was mainly due to investments on data centers and product portfolio.

Biden's Stimulus Plan

Stimulus is coming soon after a party line vote paved the way for the reconciliation process. While the Biden administration wants to work with GOP Senators, they can't have drawn out discussions that delay implementation. Republicans can breathe a sigh of relief that Democratic Senator Manchin does not support the $15/hour minimum wage proposal and is in favor of targeted stimulus checks. Large parts of the US economy are on sound footing and that is why the final deal that gets agreed upon will be closer to a $1 trillion price tag.

ADP

A surprisingly better-than-expected ADP employment report suggests the economy might not be in terrible shape. Private payrolls posted a 174,000 gain, higher than the consensus estimate of 50,000, and the revised -78,000 prior reading. With January being the expected worst of the virus, the labor market should steadily improve from here on out. Even leisure and hospitality showed some gains, an increase of 35,000 jobs in January, which was an improvement from the 58,000 jobs lost in the prior month.

Prior to COVID, the ADP report was not a reliable indicator for predicting the nonfarm payroll number, but over the past four months it has done a good job. Friday's January nonfarm payroll report is eyeing a 70,000 increase in jobs, but I would not be surprised if the street expects a much stronger number.

Oil

Crude's fundamentals continue to support higher prices. For oil to steadily rise, stockpiles across the US and China need to continue to fall and so far, they have been. The crude demand outlook has been mixed since COVID vaccine rollout has been disappointing in Europe and improving in the US. Now that more COVID vaccines have posted strong efficacy numbers, confidence is the crude demand outlook will improve dramatically in the second quarter.

The OPEC+ production strategy is working, and today's JMMC meeting was a nonevent. Going into the meeting, compliance was not a concern, so it came as no surprise they left alone the February and March production commitments. A delegate reportedly said they won't discuss what production they will aim for in April. The demand outlook will change dramatically over the next couple months now that the worst of the virus appears to be over.

Yesterday's API draw of 4.3 million is expected to be followed up by a smaller draw with the EIA crude oil inventory report.

WTI crude is comfortably above the $55 level and will likely remain there unless the dollar rebound ends dramatically. Brent crude will have trouble breaking above the $60 level.

Silver

Silver is bouncing back now that the retail disruption is behind us. Silver will thrive this year as expectations are high for the Biden administration to drive green capex with solar panels getting support via presidential executive orders.

Gold

Gold is struggling as demand for safe-havens ease following better-than-expected US economic data. The ADP employment change, final Markit Services reading, and ISM Services index all improved from a month ago and topped expectations. January was supposed to be a bad month for the economy as the country battled the worst of the virus.

Gold's fundamentals still support higher prices but the failure to maintain the $1,850 level has opened the door for some short-term technical selling. Gold should see investors come in and defend the $1,800 level if selling pressure picks up.

BTPs

Italian bonds rallied on expectations Mario Draghi, former ECB head, will bring stability for Italy as the next prime minister. The 10-year yield on Italian debt fell 7.3 basis points to 0.576%. Draghi brings calm to a tense situation as Italy battles a recession and struggles with the fight against COVID.

Bitcoin

Bitcoin is rallying after Visa announced their next major step in expanding their digital currency roadmap. Visa partnered with First Boulevard in what will help them enable their customers to purchase, custody and trade digital assets held by Anchorage, a federally chartered digital asset bank.

Bitcoin's acceptance continues to improve, and Bitcoin is once again making a run towards the upper boundaries of its current consolidation phase. Bitcoin's next attempt at $40,000 could easily trigger a wave of momentum trades that target the $47,500 region.