Record November ends with profit-taking, Bitcoin hits record, OPEC+ strugglesto extend cuts, Gold pummeled, Soft US data

US stocks are lower on the last trading day of the month as hedge funds lock in profits for a record November.  Risk appetite is not getting help from renewed coronavirus restriction concerns, lack of stimulus urgency from lawmakers, softening US data, and as the Trump administration adds more firms to the list of companies blocked from American investment due to military ties.  Merger Monday provided a limited boost after S&P Global Inc announced the acquisition for IHS Markit in an all-share deal worth $39 billion.  The financial world is seeing two of the largest data providers combine in what is the second-biggest deal of the year.  

Today’s weakness will likely be a pause in the COVID-19 vaccine-led global equities record rally.  Wall Street will remain fixated on this week’s labor figures which could be the tipping point to make Congress deliver much needed relief as many unemployment benefits and loan moratoriums expire at year end.  Around 12-million Americans could lose unemployment benefits next month if the CARES Act is not extended.  

Central banks will also keep stock markets pumped up as investors are seemingly convinced the ECB will boost the Pandemic Emergency Purchase Program by at least 500 billion euros and that the Fed will tweak their bond buying program and buy longer duration bonds.  

US Data

The MNI Chicago report confirmed weakness is making its way through the Midwest.  The headline reading of 58.2 was much lower than the prior month of 61.1 and the consensus estimate of 59.0.  Business barometer, employment, and new orders all climbed at a slower pace, indicating the current expansion is losing momentum.  One data point won’t force Congress to act, but slowdown around the holidays is likely what is needed to get the stimulus relief bill pushed through.  

US pending home sales for October posted a rare miss for the housing sector.  October pending sales declined 1.1%, a second consecutive decline but was more likely a sign that inventories are the primary issue and not demand.  Contract signings to buy previously owned homes were anticipated to slow down in the winter and especially as vaccine progress could see some homebuyers focus getting back to the big cities.  

The Dallas Fed Manufacturing index also came in below expectations with significant declines in production, capacity utilization, and new orders.  The recovery is at stall speed and mounting COVID restrictive measures will raise expectations for softer prints over the next couple of months.  

FX

The euro tentatively tested the 1.20 level as dollar weakness returned as investors begin to price in a Biden administration that will see coordinated monetary and fiscal efforts early next year.  The dollar will become a punching bag over these next few months as the next wave of stimulus gets unleashed.  

The euro held onto gains even after ECB President Lagarde noted that the EU fiscal package “shouldn’t be allowed to be delayed significantly.”  Lagarde also reiterated that interest rates will stay low for quite some time.  The uncertainty for Eurozone stimulus is not as great as it is for the US and that should allow it to ride the euro wave until the ECB attempts to talk down their currency.  

Risk aversion has somewhat returned and safe-haven flows have helped the dollar pare losses.  

Oil 

Oil prices are sliding as energy traders anticipate OPEC+ will only slightly delay oil output hikes by a month or two.  Before the weekend’s meeting, the consensus was for a three-month extension of production cuts, but Iran and the UAE oppose delaying the output hike.  OPEC+ is not happy with the resurgence of US production and will likely settle on an agreement of only a one- or two-months extension of oil production cuts.   Committing to a three-month extension would provide a bone to US shale producers and allow them a chance at grabbing market share.  

WTI crude is softer for a second consecutive day but still comfortably above the $44 level as COVID vaccine progress has investors pricing in a much stronger crude demand outlook for the second half of the year.  

Also, important to note, the end of Hurricane season is here but history suggests we still could see some activity over the next month.  The tug-of-war between the short-term demand outlook with rising expectations for 2021 to deliver the return of pre-pandemic life should keep WTI crude around the mid-$40s for now.  

Crude prices returned towards the session lows after reports that Saudi Arabia was considering resigning its role as co-chair of OPEC+.  

Bitcoin

Bitcoin investors are confidently laughing at skeptics that call the latest rally another Dutch tulip mania-type event, citing this time is different and filled with long-term bullish institutional bets.  After the Thanksgiving slump which almost tested the $16,000 level, Bitcoin has steadily rallied back above the $19,000 level and has hit an all-time high as interest grows and macro arguments seem bulletproof in the short-term.  Monetary and fiscal support will remain elevated in the short-term and that is creating a diversification trade against not just the dollar but for gold.   

Bitcoin and all the major altcoins are rallying strongly, and it seems the momentum trade is strengthening as mass media outlets embrace crypto coverage.  Bitcoin rallied to an all-time high tpday and appears poised to take out the $20,000 level.  

Gold

Gold is in a rough patch as investors are fleeing to other risky assets as the dollar slide resumes.  Gold demand is fleeing as many investors are also preferring to dabble with cryptocurrencies and buy industrial metals, such as copper.  Gold has temporarily lost safe-haven appeal and is no longer rallying when equities selloff, but that should change.  Today’s stock market weakness is most likely a month-end story and not the beginning of massive year-end profit-taking.  

Gold will likely see strong support in mid-December as the stimulus trade will be boosted by the ECB and Fed.  Gold is vulnerable of a break of the $1750 level, which could see momentum support a drop towards the $1700 region.  Gold’s longer-term outlook is still bullish, but the short-term pain is having many abandon the trade for now.  Once the stimulus trajectory improves, gold should stabilize and target the $1,850 level.