Stimulus doubts grow, Vaccine Optimism, Nike crushes, Oil steadies, Gold down on dollar’s rise

US stocks initially were boosted by the standard pandemic trading playbook, which calls to expect bullish momentum from incremental positive coronavirus vaccine news and a blockbuster earnings report, this time from Nike. The rally was short-lived as it was not enough to overcome growing fears that the economy is poised to see widespread shutdowns and that Congress is nowhere close to reaching an agreement for more fiscal stimulus.  President Trump said the US would not be implementing a second round of lockdowns, but Wall Street remains skeptical. 

Nike

Nike crushed earnings expectations and sent shares to a record high.  Nike’s online business is booming, surging 82% during the fiscal first quarter.  Nike has figured out how to sell successfully online and rely less on wholesale channels.    

Fed

Another day of testimony for Fed Chair Powell highlighted the immediate risks to the outlook: the need for more fiscal support and that the path f the economy will be determined on the ability to control the virus. 

Fed’s Evans followed up yesterday’s hawkish comments with a more downbeat outlook for fiscal support, stating that Fed will keep rates where they are until full employment is reached and that they will consider bigger bond buys down the road.  When asked about how his comments were interpreted yesterday, Evans noted he felt he was pretty much sticking to the statement from the last meeting.  Evan’s added that the Fed’s fund rate can still be accommodative when they are in position to be tightening. 

The dollar pared some of its gains following the dovish rhetoric from both Powell and Evans. 

J&J

COVID-19 vaccine optimism is growing after the fourth major Phase 3 coronavirus vaccine trial is underway.  J&J’s trial of a single dose vaccine is a larger trial, up to 60,000 volunteers across 215 locations in the US and other countries.  High hopes are growing for J&J’s vaccine as it is a single dose and easier to store but might not be potentially available until early 2021. 

A vaccine is a big part of the outlook for 2021, but it might not be a holy grail for risky assets as the erosion of confidence with vaccines has many Americans skeptical about taking the first vaccine that gets the greenlight.  All eyes will be on Pfizer as they could have results by end of October.    

Oil

Crude prices tentatively rallied after a bullish EIA crude oil inventory report showed noticeable draws with gasoline and distillate inventories and as exports bounced back.  The headline crude oil inventories draw of 1.64 million barrels was less than the consensus estimate of 2.5-million-barrel decline, and smaller than the prior 4.4 million decrease in stockpiles.  No one is surprised US production declined following the massive disruptions that stemmed from Hurricane Sally.  Jet fuel demand remained steady and that is somewhat positive for the demand outlook considering all the recent surges with cases across Europe. 

Oil prices were unable to hold onto their gains after the latest developments with the virus from London to New York City signaled tougher virus restrictions will likely cripple the demand outlook. 

WTI crude spiked higher after a Dallas Fed poll noted two-thirds of executives believe US oil peaked and that US oil rig counts will only increase if prices trade between $51-55 a barrel.  

Gold

Gold is tanking as the dollar rallies for a fourth consecutive day.  Gold remains on the ropes as the prospects of fresh monetary or fiscal stimulus is not imminent and as the virus situation in both Europe and the US continues to deteriorate. 

Gold is getting beat up as many investors run to the sidelines after the breach of some key technical levels.  The unwinding of bearish dollar bets continues but this is unlikely the beginning of a new trend.

Gold will likely see buyers emerge on the next major decline as the economic outlook will warrant further monetary and fiscal stimulus around year end.  Gold’s $1800 level will likely be defended as the bull case remains intact and as this dollar move appears to be temporary.