The S&P 500 index neared record high territory as the US continues to stockpile vaccine agreements and as stimulus bets remain high as Fed officials emphasize a slower recovery is here. Virus uncertainty feeds into the Fed’s concerns that temporary job losses could turn permanent. Today’s US stock market rally was led by tech utilities, and consumer stocks. Early signs of inflationary pressures will not derail the Fed’s whatever it takes approach to the economy, so demand for stocks should remain steady.
Vaccines
The US government landed a $1.5 billion contract with Moderna for 100 million doses of COVID-19 vaccine. The US already had over 700 million doses of potential vaccine bets spread across Pfizer/BioNTech, AstraZeneca/Oxford, Sanofi/Glaxo, Novavax, and J&J. The US economic recovery is heavily dependent on a vaccine and right now Wall Street is optimistic one or two of these bets will work.
Treasuries
Hotter than expected inflation data and no trouble with the largest 10-year Treasury auction helped drive Treasury yields to one-month highs. Yields are rising as Wall Street continues to see a ton of corporate and US government issuance and as concerns grow that lawmakers are nowhere near breaking the impasse over the next virus stimulus package. Demand for US Treasuries remains strong, with all eyes on Thursday’s 30-year auction.
Oil
Oil prices held onto their gains after a bullish EIA crude oil inventory report. Government data showed draws everywhere, with positive signs with gasoline demand and refinery runs. Oil prices are up against critical resistance that will likely hold as the battle for market share with oil producing nations will likely resume. The OPEC monthly report said US output would rise this quarter instead of the previous forecast of 7% decline. Higher prices have given the green light for many drillers to go back to work. Crude oil production will likely ramp up going forward and that should put a lid on oil prices.
This year total oil demand is now projected to reach 90.6 million bpd. For 2021, OPEC kept their forecast unchanged for world oil demand growth to rise by 7 million bpd to 97.6M bpd. The battle for market share will intensify going forward and that is why we probably won’t see WTI crude rise much further from the mid-$40s for the rest of the quarter. The fourth quarter could see much higher oil prices if the energy market starts to brace for a shortage of oil as many shale wells run dry.
Gold
Gold’s freefall has not deterred most bullion investors as skepticism remains high that resumption of reopening of the economy will not be enough to save large parts of the labor market. Historic stimulus efforts will continue, despite the current Capitol Hill impasse over stimulus. Gold’s rollercoaster ride is far from over as bond yields will likely remain volatile for the rest of the summer. The relentless pace higher for gold will moderate but the outlook still warrants a strong stretch of fresh record highs. If selling pressure returns, $1800 should strongly be defended, but it probably won’t come to that. Gold should continue to stabilize, but could tentatively struggle to recapture the $2000 level. The precious metal over the next few months should eventually see the upside target the $2300 level.
Harris
Senator Kamala Harris was the safe pick for former-VP Biden. A historic decision that will be embraced by Democrats. Harris is the first woman of color named to a major-party national ticket, a known quantity that will excite the party’s African-American base. Harris is ready for this moment; she was already the first woman district attorney of San Francisco and first woman attorney general of California. Harris is a centrist, who strived for free COVID-19 testing, free masks and vaccines, more economic aid to Americans, and protection over evictions. Her selection while historic will unlikely sway the polls.