US equities nudged higher Tuesday as tech stocks led the gains, recovering from losses early in the session.
The sentiment was helped by reports suggesting US Republican Senate leader McConnell had offered the Democrats and compromise. Also supportive of Main Street concerns, White House officials asked Senate Republicans to include a $600-holiday stocking stuffer check for households as part of any stimulus package.
With the markets starting to exhibit some year-end fatigue, any stimulus holiday stocking stuffer will come at a most welcome time and ensure that well-subscribed equity markets will cross the year-end finishing line on a positive note.
But who cares for negative news or confirmation for economic fundamentals anymore? The narrative is one of ‘looking through it’ and expecting yet more of the warm fuzzy feeling that comes with policy accommodation.
It seems like ‘bad news is good news’ remains embedded in investor sentiment, and momentum could not be stronger. The bulls remain very much in the driving seat; every time the word stimulus gets a mention, investors immediately start feeling like Popeye after sucking down a can of spinach.
UK first to roll out vaccine
The great news on the healthcare front is that the UK began its vaccine roll out Tuesday, which is a critical first step to reopening the economy and de-clogging the hospital to better deal with more severe COVID-19 cases and broader health care issues.
Stimulus and the Popeye effect
Of course, the stock market is making new highs even though poor employment numbers irate the street’s fundamental side. If ever, I seldom look back at data that has been well in flight, and I have mostly focused on Europe this week. Still, it is difficult to shake the payroll heebie-jeebies even if the miss does scream to congress, “main street needs more stimulus.”
And while endless columns on nonsense get written debating the world of Bitcoin, and I’m surprised stocks haven’t painted with the same brushstroke, the potency of the stock market signal is hitting new lows when it comes to providing a macro tell for investors, beyond one of liquidity, leverage, and momentum, in addition to the heavyweights of tech in some instances.
One can only conclude stocks are 80% sentiment and 20% signal, while the bond market is the reverse. Indeed, this is the macro tell of all tells, a frothy sentiment-driven stock market rally perched on precarious easy money house of cards, so tread carefully.
Oil prices slipped a touch after the American Petroleum Institute (API) reported on Tuesday a build in crude oil inventories of 1.141 million barrels for the week ending December 4 versus a predicted draw of 1.514 pencilled in by analysts.
Oil followed equities lower overnight but was unable to replicate the equity move higher later in the day. And I do not think the API print will help bullish matters today either.
This is surprising given that stocks are pushing higher on the stimulus effect, which should be positive for oil, but clearly, COVID-19 concerns continue to sully the landscape. Oil is simply one of those assets that can’t look through the real-life COVID-19 lens and ignore the fact e the gnarly flu is currently ravaging the population on the ground.
The severity of the ongoing COVID surge (particularly in the US, where daily deaths have surpassed the level seen in April this year) is tempering some of the optimism that followed last week’s OPEC+ meeting.
And while the compromise achieved by OPEC+ has limited the downside in oil price, action will struggle to push higher even with good news on the COVID -19 vaccine front.
Can the vaccine pave the way to a normal oil demand level?
The UK approving Pfizer’s version’s rapid deployment suggests there is a clearer path towards a normal oil demand level. Still, uncertainty on the global vaccine distribution speed; hence, the demand recovery pace means the near-term upside is also limited. The vaccine is of itself will not help the economic recovery, but vaccinations will.
Even though worst-case scenarios for oil have all but evaporated, the main driver for oil markets within an increasingly tighter range between now and a wider distribution of the vaccine rollout will be the vaccine rollout speed versus the relentless surge of COVID-19 during the winter months.
Still, the outlook reads inoculated bright of the oil market. As more folks in the general population get vaccinated, mobility will increase substantially. And if the oil price is to be measured by mobility from point a to b, we might have to add to the equation as travel demand will most certainly see more planes in the sky post-global immunization.
International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi