• Investors welcome a familiar voice in Janet Yellen appointment
• Oil languishes as OPEC+ disagreement prevails
US stocks rose broadly overnight with the S&P 500 pushing toward another record high as investors focused on a bullish assortment of reflation libations.
Markets also cheered when they heard Janet Yellen’s voice in an official capacity again when the former well -respected Fed Chair accepted President-elect Biden’s offer to join his economic team in the official capacity as new US Treasury Secretary.
Markets are trading off their intersession highs but remain on stimulus watch. However, caution should be exercised after all. We have had this stimulus carrot dangled in front of us before.
Still, it was one of those healthy risk-on days that may have set the market’s wheels in motion for a December to remember.
Strong manufacturing data boosts sentiment
The better sentiment came amid robust global manufacturing PMIs for November, notably in China, and optimism that coronavirus vaccines could soon help usher in a faster global economic recovery with the Moderna candidate applying for FDA emergency approval.
Still, the cherry on top is the possibility of stimulus before year-end, helping rocket-fueled the reflationary tone to markets.
The next leg of the rotation into the re-open trade is underway as rates move higher, a December to remember kicks off, and stimulus hopes grow.
Price action overnight is yet another confirmation that folks are willing to look yonder and beyond the bounds of lockdowns (forced or self-imposed) and instead are eager to focus on a vivid post-vaccine world.
Santa rally on its way?
Santa has come early for the markets, and even if it is a very unusual version of consumer Christmas- lite this year, “happy days are here again ” as the world is now hoping the festive mood music never ends. Still,
I would be surprised if the move today at the Index level turns into a straight line higher for the Value/Cyclical trade. Instead, it would expect more single-stock dispersion again as investors become more selective.
The cross-currents of positive vaccine news and an improving outlook vs. slowing data and weaker sentiment kept the VIX in a 21-25 range for three weeks even as the S&P 500 tested the upper end of its recent range and the Russell 2000 surged 20% in November.
The VIX fell below 21 during the Thanksgiving holiday week, but the belly (approximate 3-6-month VIX futures) has remained stable at about 25 as growth/virus risks persist.
Oil slips on OPEC disagreement
With various moving parts to manage and some justifiable fatigue setting in among OPEC+ policymakers attempting to find common ground to extend historically high production curtailments, OPEC/OPEC+ process is proving to be an exceptionally delicate affair.
And even if we compromise to defuse a bitter dispute over the current quota cuts, it does not bode well for the OPEC compliance cooperative in 2021.
The timing could not have been worse for OPEC+ to drop the ball given the moon shoot reflationary unfolding in what could very we be the start of a December to remember. While cross-assets are revelling to the beat of vaccine and stimulus news, oil markets are still languishing in OPEC + meeting deferment sulk.
And rubbing salt in the OPEC+ fissures, oil sold off further as US inventories balloon. Analysts pencilled their Thanksgiving oil demand guesses on the wrong side of the ledger. The American Petroleum Institute reported on Tuesday a build in crude oil inventories of 4.146 million barrels for the week ending November 27 against analysts’ expectations for a draw.
Oil prices were trading down on Tuesday afternoon before the API’s data release despite daily news of Covid-19 vaccine progress, after OPEC on Monday ended its meeting without a resolution.
OPEC finds itself in a slippery situation again—and make no mistake, it is compulsory for them to present a united front for whatever plan it hatches.
The small slip in oil price on Tuesday is only a curtain warmer of what will happen to prices should the deal fail.
Indeed, it is worth keeping an eye on oil markets while the wrangling over OPEC+ production cuts continue.
Equity and Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi