Equities up on revival of stimulus talks
US equities rose on Friday with a revival of sorts on US stimulus hopes, despite President Trump shutting down negotiations earlier in the week.
On Friday, the President said he wanted a “bigger stimulus package … than either the Democrats or Republicans are offering.”
Maybe the walk back approach on foreign policy was fine in the midst of the US-China trade war. Still, stimulus flip flops at this time of the election race point to a White House in disarray and can’t be good for picking up undecided voters.
US earnings season kicks off and will provide investors with a corporate look-see at the real impact of COVID-19 on S&P 500 fundamental drivers as weak and patchy sales growth and a collapse in profit margins should typify 3Q results.
Investors remain focused on the implications of a “Blue Wave” election, given that the probability of a Democratic sweep has climbed to 60% from 47% one month ago. But with much of the street thoroughly drenched in the Blue Wave, I would expect global drivers to reassert their influence, with the path of the global economic recovery, COVID-19 case counts, progress towards a vaccine, and broader trade issues.
The market remains zeroed in on optimism focusing on a likely pick-up in government spending, notably on infrastructure and “green” initiatives.
However, it requires one to ignore the prospect of higher corporate taxes and also potentially massive shifts in the regulatory backdrop for some sectors, notable tech.
These elements point in vastly different directions for risk appetite, and I expect “risk-off” to win out, in part because of timing.
Changes to the tax code are likely to be implemented more swiftly than what the stimulus and infrastructure plans will be rolled out as individual state representatives will endlessly bicker to get their piece of the pie.
Oil prices slip
With the expected return of exogenous supply and as short-term constraints begin to ease, oil is slipping back to WTI $40 at the open as New York futures fell as much as 0.9%, after declining 1.4% on Friday.
Oil prices fell as operations in the Gulf of Mexico began to resume following Hurricane Delta. Libya is taking significant strides to rejuvenate plans to restart production, and oil workers in Norway called off a strike.
According to local drillers, Libya’s Sharara field will initially pump 40,000 barrels of crude a day before reaching its capacity of almost 300,000 barrels in 10 days.
The permanency of these barrels returning to the market will worry oil bulls and provide a nagging pain in the neck to OPEC.
Still, prices are gingerly pushing back ahead of WTI $40 as some oil traders are holding on to their US stimulus lottery tickets while taking some comfort by the fact the OPEC could extend production curtailment into 2021, nearer when a vaccine becomes available, that will kickstart global travel.
With coronavirus cases accelerating in many countries, the cartel faces a dilemma next policy meeting on Nov. 30-Dec. Undoubtedly, OPEC will be contemplating the need to extend the current quotas into early 2021 rather than follow the scheduled ramp down of curtailments – this would help in normalizing global inventories.
Prices are gingerly pushing back ahead of WTI $40 as some oil traders are holding on to their US stimulus lottery tickets while taking some comfort by the fact the OPEC could extend production curtailment into 2021, nearer when a vaccine becomes available.
As the order of importance for the oil market recovery it is vaccine first and the US stimulus second.
Equity and Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi