The Recovery Continues, Claims Dip Below 1 Million

The recovery continues, claims dip below 1 million, Oil softens, UAE/Israel historic deal, Gold’s tentative rebound

US stocks edged closer to record high territory after jobless claims fell below the 1 million level for the first time since March and after House Speaker Pelosi signaled she is willing to negotiate, offering they restart talks with a $2 trillion stimulus package and that they negotiate how to spend it. The economy is trending in the right direction and Wall Street is convinced that Washington DC will get a stimulus deal done. The longer talks last, the likelihood the stimulus package will need to be bigger.

Jobless Claims

Initial jobless and continuing claims both came better-than-expected, but still paint a bleak picture for the labor market. Initial claims dropped to 963,000, an improvement over the prior reading of 1.191 million and the consensus estimate of 1.1 million. Continuing claims declined to 15.5 million, the lowest reading since early April. The $600 benefit did go away and that might have disincentivized some people from filing claims. The total number of people claiming benefits in all programs was 28.3 million Americans, an improvement of 3.06 million from the prior week.

Initially stocks and Treasury yields moved higher as the economic recovery continues to head in the right direction. Capitol Hill is not getting any added pressure from this weekly jobless claim release. The S&P 500 continues to wait for a catalyst to take it to record high territory.

Oil

Crude prices softened after better-than-expected US economic data failed to be a catalyst for oil to break above the upper boundaries of its very tight trading range. Earlier, Russian Energy Novak noted he doesn’t expect any hasty decisions on output cuts when the OPEC + meet next week. Right now, crude prices remain in doldrums of a stabilizing oil market. The demand outlook continues to improve, albeit at slow pace, while supply seems to be dictated on a month-by-month basis. The oil market is headed to balance and right now that just means stable prices that seem trapped in the low-$40s.

Oil prices extended their decline after President Trump announce Israel and the UAE agreed to normalize relations, a historic breakthrough in advancing peace in the Middle East. This will be Israel’s first diplomatic relations with a Gulf Arab country and will likely put a damper on Iran’s regional influence. The Israel and UAE announcement just removed a little geopolitical risk off the oil table.

Gold

Gold prices are bouncing back as the Treasury selloff seems to have ended. Real interest rates declined, with the 10-year TIPS falling back below -1%. Gold’s rebound is somewhat hesitant as investors are unsure if the Treasury curve will continue to steepen and that might limit dollar weakness.

Gold’s bullish momentum checklist remains firmly intact: more stimulus is coming, inflation-hedging, retail and institutional interest remains strong, and geopolitical and pandemic risks are not going away anytime soon.