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Mid-Market Update: OANDA – Pelosi “Just about there”, Claims improve but still high, Housing Sales on Fire, Earnings recap, Record cases in Europe, Oil rallies, Gold at $1900

Mid-Market Update: OANDA – Pelosi “Just about there”, Claims improve but still high, Housing Sales on Fire, Earnings recap, Record cases in Europe, Oil rallies, Gold at $1900




US stocks are having a rollercoaster trading session.  Early earnings reports from Southwest Airlines, Freeport McMoran, Coca-Cola, and AT&T mostly provided strong earnings and revenue beats.  After the morning’s economic data, a confirmation that recovery is slowing, equities gave back most of their gains. 

In what was possibly going to be an update with minimal focus on stimulus, enter Nancy Pelosi.  S&P 500 futures surged after House Speaker Pelosi said they are ‘just about there’ with the stimulus deal.  Pelosi’s comment indicates more progress has been made, but what is also needed is Senate Majority Leader McConnell’s blessing.  The biggest hurdles remain state aid and liability provisions, which means optimism should be minimal. 

Trump was hoping to have a stimulus deal in place by now to keep voters optimistic that the government has their back.  Each day that passes, more Americans have casted their ballots (over 40 million as of yesterday) and the impact of a stimulus deal for President Trump is less.  Tonight, Americans will watch the final debate between President Trump and former-VP Biden and see if it will have a definitive winner for the roughly 8% of undecided voters.  This debate is not expected to be a circus like the last one, but an opportunity for Americans to hear more from Biden. 

Jobless Claims

The good news is jobless claims improved significantly, posting the lowest reading since mid-March.  The bad news is that Pandemic Emergency Unemployment Compensation (PEUC) program rose over 500,000 to 3.3 million Americans.  The ugly news is that over 22 million Americans are still participating in one of the unemployment insurance programs. Jobless claims finally broke below the 800,000 level but still nowhere near the pre-pandemic 200,000 area.  President Trump will view this report as progress the economy is headed in the right direction, but the argument can easily be made that this trend won’t last and that stimulus is very much warranted now. 


The housing market is still on fire.  Existing home sales surged 9.4% in September, the highest level in 14 years and just before the housing bubble popped.  Inventories remain lean but it seems the American dream to own a home remains firmly in place.  Despite the move higher in Treasury yields the average 30-year fixed rate is still historically low at 3.02% (from yesterday’s MBA mortgage application report). 

Despite a robust housing report, homebuilders are under pressure following today’s broader stock market weakness.  LGI Homes, Lennar, DR Horton, and Toll Brothers are down anywhere from -6% to -1.5% as investors feel the surging housing market is about to run out of steam heading into the winter.   


The Fed for now is clearly signaling the recent rise in yields does not require action now.  Yesterday, Fed’s Mester noted that it is important price expectations anchor near long-run goal.  Fed’s Bullard reiterated low interest rates for a while.  The Beige Book highlighted economic growth expanded at a slight to modest pace across the US over the past seven weeks.  The Fed is waiting on fiscal support from Congress, but in the end it seems pretty likely they will need to increase their asset purchases or adopt yield curve control. 

The 10-year Treasury yield is higher by 1.5 bps at 0.838%.  It is hard to imagine Treasury yields are ready to make that run towards 1% since this could be the peak for housing market, the Conference Board leading indicator shows momentum is slowing down and jobless claims remain elevated, still close to 4X pre-pandemic levels.  The Fed seems comfortable with rates at the current levels, but if yields continue to rise that will change.  If the 10-year Treasury yield tests 90 basis points, the Fed will likely talk up increasing purchases or yield curve control if the recovery continues to slowdown. 


It looks like the high-beta currencies are on water break and the punching bag that is the dollar is mustering up a bit of rally.  The record rise in COVID-19 cases in Europe is disastrous for the short-term outlook for the euro and that should keep the dollar from weakening. 


Crude prices are rising higher after airlines become more optimistic on travel demand and after House Speaker Pelosi signals they are ‘just about there’ on a stimulus deal.  Earnings reports from American Airlines and Southwest Airlines highlighted modest improvement in travel demand and painted some optimism over improving holiday travel plans. 

Today’s oil price rally is very impressive given the stronger dollar and the record surges in new coronavirus cases across Europe.  Spain’s new cases top the 1 million count and France is practically there, while Germany and Poland posted record rises in coronavirus cases, which strongly suggests quarantines, curfews and lockdown efforts are about to cripple crude demand in Europe. 

Russian President Vladimir Putin also provided supportive comments about the cooperation with OPEC+ to stabilize the global oil market.  Putin is reinforcing that Saudi/Russian unity is firmly intact and that they will continue to keep the oil prices firm. 

WTI crude is practically at the ceiling of its recent trading range, it will be difficult to break above $42 unless Senate Republicans also voice House Speaker Pelosi’s optimism, which at the time still seems unlikely. 


Gold prices pared losses and recaptured the $1900 level after House Speaker Pelosi stated that they are ‘just about there’ on a stimulus deal. Gold prices initially were sharply lower on strong US economic data that took away some urgency from Congress in needing to deliver stimulus. 

Gold has a tough week ahead if the virus situation continues to deteriorate in Europe and stabilize in America.  A stronger dollar could emerge if Europe announces more lockdowns, prompting expectations for the ECB slightly ahead of the Fed.  The end result is more stimulus from both the Fed and ECB and that in the long-term is very positive for gold.  Gold seems like it will pivot quite a bit around the $1900 level in the very short-term.      

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