Merkel’s cautious comments at EU Summit, oil anchored, almost time for gold to shine

US equities fluctuated after German Chancellor Merkel’s cautious comments suggested EU leaders might not be able to reach a compromise at the EU summit.  Her comments may have been posturing, but they did sink stocks to their session lows.  Negotiations are expected to be tough from the frugal four, but optimism is high that a breakthrough will be made at the two-day summit. 

On the virus front, the spread of the coronavirus rose in some hot spots, with the highest daily jump in cases so far.  At least 39 states reported increases from the week before, with Florida remaining the current epicenter.  Virus deaths appear to be showing signs of stabilizing and hospitalizations are slowing.     

Blackrock, the world’s largest asset manager delivered promising results with strong earnings and a 7% rise with assets under management.  The firm’s long-term inflows rebounded to $62.2 billion but was short of the $78.6 billion consensus estimate.  Investors are piling back into ETFs and mutual funds and that it seems that there is still more cash on the sidelines waiting to get into this market. 

Netflix’s disappointing outlook will likely keep the rotation trade going strong.  The technology stock rally seems like it is ready to come slowly back to reality, possibly boosting cyclical stocks.  US stocks are looking for a positive open but that could quickly change if EU leaders show signs an agreement won't be reached this week.  

Oil

Oil prices dropped as investors assess whether a steady string of downbeat crude demand headlines will persist over the coming weeks.  Asia was expected to lead the crude demand recovery trade, but fuel consumption is not rebounding strongly.  The virus situation is still bad in the US, but it doesn't seem like a return of harsh coronavirus lockdowns will happen.  WTI crude seems like it will continue to consolidate until a clearer picture of the demand outlook emerges. 

Gold

Gold prices are steadily rising as investors start to raise their stimulus expectations on coronavirus second wave fears.  Gold is also starting to benefit from election risk, as Wall Street can’t ignore the polls anymore and start to price in the risk of a Biden Presidency. 

The fundamentals for gold have not changed at all this week, so the current consolidation phase seems very constructive for prices to make that run to record high territory.