Powell put affirmed, Fed’s Evans hawkish comments – Oil rebounds, Gold little changed

US stocks rejoiced and snapped a four-day losing streak after the Fed Chair affirmed the ‘Powell Put’, noting that further fiscal and monetary stimulus will be needed for the economy.  Treasury Secretary Mnuchin said the next stimulus needed should help travel and restaurants, also offering that the unused Fed facility money could be used for smaller businesses. 

It seems probable that a new emergency lending facility might be created to assist the commercial real estate market and that Congress will have a lot of pressure to extend the Paycheck Protection Program for targeted small businesses.  US stocks rallied across the board, with investors preferring to jump back in with technology stocks.    

Evans

Stealing Powell's spotlight, Fed Chair Evans Fed said they could raise interest rates before the average 2% inflation target is reached.  Evans also seems willing to discuss the phase-out strategy with QE. He noted that QE is even more complicated now than back in 2012 and that the Fed has more to discuss in terms of further quantitative easing.  Evan’s comments surprised many and provided a strong bid for the dollar across the board. 

SCOTUS

Democrats were hoping they could get four Republicans to oppose voting until January on the Supreme Court nomination.  After Senator Collins and Murkowski announced taking up the nomination until after the election, some hope was brewing that they could get two more Republicans. 

On Monday Senators Charles Grassley (R-Iowa), and Cory Gardner(R-Colo) announced support to vote for President Donald Trump’s Supreme Court nominee.  Today, Senator Mitt Romney also gave his support for a floor vote on Trump’s Supreme Court pick, essentially clinching consideration of Trump’s nominee this year despite the impending election.

President Trump tweeted that his SCOTUS pick will be announced on Saturday.   The Supreme Court drama may not have much of an impact for voters in November as it will likely be a wash and excite both bases. 

Housing Data

US existing home sales in August surged to the highest in 14 years as each of the four regions posted solid monthly and annual gains.  Low interest rates, millennials ready to make their first home purchases, and an improving outlook for the economy should keep the housing market running strong. 

Oil

Oil prices are directionless as energy traders struggle to assess the uncertainty with US production as we approach the last two months of hurricane season, how bad the demand outlook will get following the winter wave of the coronavirus, and as Libyan oil production slowly bounces back.  A strong dollar also weighed down on today’s initial risk-on rebound in crude prices that stemmed from slight rebound across the board for risky assets.  The selling pain might not be over for global equities and that does not paint a good picture for oil prices. 

It is hard to be constructive about oil prices as governments for most European advanced economies appear ready to reinstate lockdown measures to prevent the spread of the coronavirus.  The US coronavirus death toll rose above 200,000, bringing the weekly average to around 800 lives a day.  If production continues to show signs of increasing while the virus weighs on the demand outlook, oil prices could be in trouble. 

Gold

Gold prices softened after a strong dollar emerged following Fed’s Evans comment that interest rates could rise before the Fed’s inflation target is reached.  Gold is holding up nicely when you consider the near 10% slide that has hit silver.  Gold’s fundamentals remain intact and nothing will likely change that short of a policy mistake from Fed Chair Powell.  Virus and election uncertainty will continue to drive safe-haven flows to gold over the next couple of months.