Vote count continues, focus on Fed, oil softer on outlook, gold rallies on weak dollar and stimulus outlook
US stocks continue to ride the unwinding of ‘blue wave’ bets, sending big-tech and healthcare stocks sharply higher. The US presidential election race is getting closer to calling it for Biden, but a drawn-out election fight with recounts and legal disputes could mean final results won’t happen until early December. Regardless of who wins, it seems Congress will be divided, and Wall Street does not have to plan for corporate tax hikes, single-payer healthcare, sweeping clean energy initiatives, and massive infrastructure spending.
Biden continues to inch towards 270, Fox has him with 264 electoral votes, with a 49.3% to 48.7% lead (estimated 87.2% of vote count) for Nevada’s crucial 6 votes. The path for re-election for President Trump is difficult as he still needs to win the remaining (4) states and will need to win some legal fights and have the Wisconsin recount go his way.
Fed
The focus shifts back to the Fed and on how many clues they will give that they are closer to doing more. The Fed will reiterate the need for fiscal support, but given the divided Congress outcome, expectations will be for less aid. The need for more support is growing since the next couple of months could see a significant spread of the coronavirus and that will likely be met with further restrictive measures. No major changes are expected today, but they should help signal that the risks to financial conditions and slower economic activity will likely warrant further action at the December policy meeting.
Oil
A deteriorating outlook for crude demand is preventing oil prices from following the post-election stock market rally. The demand outlook might take a big hit if health experts are right that the coronavirus outbreak in the US will get so bad that 1,000 COVID-19 deaths per day will happen for a sustained period of time.
Energy traders are also trying to figure out how soon and how much extra oil will come out of Iran if a Biden administration rejoins the 2015 Iranian nuclear deal. A million barrels per day could be free to leave Iran by the end of next year or early 2022, but by that point hopefully large parts of the world should be returning to pre-pandemic behavior.
With no ‘blue wave’, Biden will struggle to push through his clean energy initiatives, likely resorting to executive actions to push environmental goals. US production will not drop off significantly under Biden and that should somewhat have oversupply concerns linger until the northern hemisphere has the virus under control.
WTI crude seems destined to remain rangebound between $35 and $40 in the short-term.
Gold
Gold traders are quickly moving beyond post-election reality that they will not see a big fiscal stimulus package and focusing on central banks. The Congressional election races showed the stimulus stalemate over the last several weeks saw many Americans side with the Republicans and that should reinforce their fiscally conservative stance. Despite all the election aftermath, the coronavirus outlook over the winter months will likely trigger further restrictive measures and see many state and local governments struggle for funding, thus forcing Congress to deliver some fiscal support before inauguration day.
As the US and European countries continue to fight COVID-19, lockdowns and strains to financial conditions will force the central banks to become much more accommodative. Today, BOE acted swiftly alongside the government in delivering more support to businesses and households. The Fed will likely telegraph that it will do more soon and the ECB is expected to boost their asset purchases in early December.
With the dollar rebound appearing to be over, gold has formed a solid base at $1900 and seems poised to make a run here as a gloomy COVID-19 winter will see central banks open the stimulus floodgates.
