Transition time, housing shines, confidence misses, Dollar drops, Oil pops, Gold plops, Bitcoin eyes record

Wall Street is increasingly betting on cyclicals now that the Trump administration has given the green light to the formal transition process to President-elect Biden.  The General Services Administration (GSA) acknowledged President-elect Biden as the winner and will release the necessary resources and services that will allow his team to be prepared for national security threats and coordinate with Trump officials over several matters, including the coronavirus pandemic response. 

US stocks must be taking their Xanax as coronavirus anxiety levels continue ease on vaccine optimism and the beginning of the Biden transition.  The Russell 2000 index is leading the charge, while the Nasdaq is underperforming as investors anticipate a Yellen led Treasury alongside Fed Chair Powell will deliver an unprecedented coordination of monetary and fiscal policy that will pump up the battered sectors of the US economy.  Some investors are also breathing a sigh of relief since Biden did not appease progressives and choose Senator Elizabeth Warren to lead the Treasury.  

Stocks shrugged off news that the Trump administration will impose more limits on China and extended gains after Pennsylvania certified election results in favor of Biden.  

Housing

The S&P Case Shiller report provided the housing sector with another A+ grade.  The housing COVID trade was still running strong between July and September, so investors might not overreact to the strong spike in home prices.  With housing prices hitting a six-year high, this could be close to the peak.  Coronavirus vaccine optimism will likely derail the rush to the suburbs, but low interest rates will keep housing demand steady. 

Confidence/Richmond

The Conference Board consumer confidence reading for November missed expectations with a 96.1 reading, lower than the consensus estimate of 97.9.  Today’s confidence readings are a 3-month low that confirm pessimistic views that the labor market outlook is deteriorating.  Expectations plummeted from 98.2 to 89.5, the biggest drop since July.  The US consumer might not deliver strong spending this holiday-season and that could weigh on consumer stocks.  

The Richmond Fed manufacturing index disappointed with a 15 print, down significantly from the 29 seen in October.  Both the Consumer Confidence and Richmond Fed manufacturing index reflect weakness that could persist over the next couple of months.   Stocks showed little reaction to both data sets. 

FX

The dollar is declining now that the Biden administration can finally begin the transition process, somewhat removing a short-term risk.  The dollar’s slide however will likely run out of steam as traders enter holiday mode.  The key focus on FX will be Brexit over these next couple of weeks and optimism is high that a last second trade deal will get done.  

Oil

The rally in crude prices is accelerating as energy traders look beyond the pandemic, Asia leads the global economic recovery, and as the dollar’s days are numbered with a Yellen led Treasury raising the likelihood for increased policy coordination with the Fed.  

Too much of the crude demand focus has been on lockdowns across Europe and the US and not China’s economic recovery and travel rush, which outlines what the rest of the world can expect.  Some analysts are expecting China to recover over 95% of jet fuel demand from a year ago and the global outlook will greatly improve once COVID vaccine implementation begins.  

WTI crude finally surged beyond major resistance that has been firmly in place since the summer.  Bullish momentum is here, but the shortened trading week could see this rally fizzle around the $45 level.  The path for oil should be higher in 2021 as COVID vaccines will bring much of the world back to pre-pandemic life which will trigger a strong rebound for crude demand. 

Gold

It seems nothing can stop gold’s slide. Gold has fallen to critical support at the $1800 level even as the dollar is modestly softer and now it seems the Biden administration is poised to have Janet Yellen lead the Treasury which should support a coordinated stimulus response with the Fed.  Today’s weakness for gold is mainly the abandonment of safe-haven trades as US stocks soar due to coronavirus vaccine optimism and relief the formal transition process has begun for President-elect Biden. 

Bearish momentum can take gold another $50 lower in a blink of an eye, but longer-term investors will start to scale back in.  The Trump administration will likely unleash several policy actions against China that will be hard for President-elect Biden to unwind.  Many will say gold is a falling knife right now, but the longer-term bullish case of the reflation trade will keep longer-term investors interested.  

Bitcoin 

It could be only a matter of time for Bitcoin.  Some nervousness is growing for many crypto traders as thin liquidity could see Bitcoin have exaggerated moves once testing record high territory.  Bitcoin is enjoying today’s broader market risk-on session, but will likely see momentum remain the key driver.  The amount of profit taking and selling interest at $20,000 is growing and that could pave the wave for prices to overextend towards the $21,000 level.  Trading conditions are likely to be volatile for the remainder of the week and crypto traders should expect $1000 swings in the matter of minutes.