Stocks rally vaccines, stimulus hopes, and robust iPhone demand, Dollar softer ahead of Fed, oil rises, gold steadies
US stocks are rising on optimism that Moderna’s vaccine will take a step closer toward FDA authorization, lawmakers will pass a compromised stimulus package, and as Apple raises their iPhone production goals for the first half of next year.
Moderna’s path toward FDA authorization is expected to mirror what Pfizer did last week. If all goes as planned, today Moderna will have positive news from FDA briefing documents. Tomorrow, the FDA advisory will meet, with expectations for the FDA to grant EUA on Friday. Wall Street has firmly priced in the successful launch of both Pfizer and Moderna’s COVID vaccines, so any supply disruptions or problems with execution will weigh heavily on the short-term outlook.
Stimulus
Inevitable lockdowns should be the needle that breaks the stimulus stalemate’s back. Congress will have to vote on two bills before the end of the week. The first is a $748 billion package that is mostly agreed upon covers additional unemployment benefits, rent assistance, and the extension of PPP. The second bill has all the sticking points, liability protection for businesses and aid for state and local governments. The government avoided a shutdown last week with a temporary funding bill that expires on December 18th. Optimism is fairly high something will get done since Democrats seem willing to drop state and local aid for now.
Apple
Now is not the time to give up on FAANG stocks. While cyclicals embrace the beginning of COVID vaccinations, the current COVID world we live in could last 3-6 months and that will likely keep demand high for the stay-at-home stocks. Apple is expecting to make 96 million iPhones for the first half of 2021, a 30% increase from a year ago. Nikkei Asia reported that Apple might sell 230 million old and new iPhone models in 2021. Apple’s stock peaked in early September and could finally be getting its groove back here.
FX
The dollar is slightly softer ahead of a wrath of the central bank rate decision later this week. The Fed begins their two-day policy meeting and some traders are expecting them to provide more easing via yield curve control. The consensus trade for next year is for the dollar to become a punching bag and for that to happen the Fed has to remain ultra-accommodative. The Treasury market seems to be expecting the Fed to keep interest rates in check as the 10-year Treasury yield remains stubbornly stuck around the 0.900% level.
Oil
Oil prices are in wait-and-see mode as virus restrictions rise and vaccine rollouts begin. The short-term crude demand outlook remains bleak. New York is at risk of a second full shutdown, the Netherlands will have a five-week lockdown that includes school closures, and Sweden had hospitalizations surge to an all-time high.
Crude prices did not react much to the IEA monthly report that lowered the demand outlook for 2021. The IEA noted that crude’s glut problem would likely last till the end of the year. Always the following the act to the OPEC monthly report, the IEA report did not provide anything new.
WTI crude extended gains alongside US stocks as prospects for another COVID relief bill grow.
Gold
Gold prices are rising on optimism that lawmakers are closer to passing a compromised stimulus package. The political pressure is hitting a critical level as the virus spread over the holidays is likely to trigger more lockdowns that force many businesses to close.
Gold ETF selling appears to be slowing down, despite the fourth consecutive daily decline. Gold investors reduced holdings on COVID-19 vaccine breakthroughs, presidential election risks, and as no-deal Brexit seems less likely. The reflation trade and rising inflation risks towards the latter part of the year should provide enough reason for the ETF investor to increase their holdings.
Gold is hovering once again around the $1850 level and should look to extend gains if Congress continues to take strides towards passing the compromised COVID relief bill.
