US equities slipped again overnight but oil jumped with Brent contracts above $50 a barrel for the first time since March.

While the stimulus deadlock is proving to be the ultimate rally capper, it was the gnarliest of Main Street concerns that hurt sentiment overnight, which was weighed down by more signs of rising infections taking a toll on the US economy.

With a spike in jobless claims last week, up to 137k to 853k, the employment picture must be highly concerning for anyone who feels economics is driven by multipliers; this remains a huge drag on the global economy.

Of course, this cries out for more stimulus, which is the market default fallback position, as investors remain very hopeful of Santa’s sled landing with the US stimulus package in tow.

But so far, no breakthroughs on stimulus: sticking points remain, although some amalgamate in the package’s overall size at around $900bn is encouraging to a degree.

Overall, the US equity market is resilient, but away from capital markets activity, things are notably quieter. Mega-cap Tech, for the most part, remains a source of funds for rotation. I do not foresee that changing as we head into next year.

Brexit and the Pound

As the odds of a no-deal Brexit climbed, the UK curve continued to “bull-flatten” on Thursday, and there has been a greater tendency for more jittery GBP longs to hit the sell button, although market view remains that a deal is slightly more likely than not.

However, talks continuing into next week, which now not necessarily a sign of progress. As such, there is an increased element of time decay to the probability of a deal. Time decay is an easy concept to grasp via optionality but much more difficult to explain from a psychological perspective from the G-10 hot seat but often leaves traders in a disagreeable predicament.

The ECB and the Euro

Non-FOMC central bank decisions have been close to irrelevant in FX markets this year and today’s European Central Bank (ECB) meeting was consistent with that trend.

By any measure of central banks’ success, the ECB meeting was a flop. The euro strengthened slightly, bonds sold off, inflation expectations dropped, and bank stocks came under pressure.

Investors had speculated for weeks about the shape and size of today’s ‘recalibration,’ fuelled by various media stories based on official sources.

On the exchange rate side, I had suggested that mentioning the possibility of interest rate cuts might have had some currency impact.

Neither the introductory statement nor the press conference contained anything that could be characterized as increased concern about the stronger euro. Together with the overall slightly hawkish flavour of the communication, this pushed EURUSD above yesterday’s highs.

Taken at face value, the additional lending benchmark introduced to make the 12m extension could be viewed as marginally hawkish.

Commodity currencies

The commodity currency linkers are still high flyers. Nickel has broken $17,000, up almost 2.5%. The dollar sell-off helps metals with a sharp rally was also seen in copper. As such, the Australian dollar is holding sturdy above .7500 level.

The Canadian dollar shifted into overdrive with oil prices screaming higher, but pre-weekend profit-taking set in ahead of 1.2700

The Malaysian ringgit stands to perform well, being the beneficiary as Asia’s biggest oil producer as Brent crude soars above $50 per barrel. That move in oil should equate to the ringgit trading on the 4.5 handles.

And with the vaccine rollout, the ringgit also stands to gain from more exports heading west. Simultaneously, the thriving Malaysian travel industry should receive a huge bump in tourist activity once Air travel lanes finally open up more freely. I, for one, dearly miss my visits to KL

Gold Markets

As we move into 2021, I would expect gold will simply become an inverse reaction function of the US dollar, which prevailed from 2010-2018. If you think the EURUSD goes to 1.25, you unequivocally need to own gold.

In the meantime, the lack of progress on the US fiscal deal the next and possibly more powerful knockdown to gold and silver could come from growing optimism over the vaccine.

There is enough positive vaccine feel good to keep gold and silver pressured, near-term. The FDA approval could come as soon as Friday or Saturday, with the first US injections happening on Sunday or Monday, according to the chief adviser to the Trump administration on vaccine development.

The vaccine may continue to undermine gold and silver’s “safe-haven” demand as it is rolled out. Still, if we get a pre-holiday Christmas deal, gold fortunes.

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi