Jobless Claims Continue to Rise, Oil and Gold Rally on Weaker Dollar, Bitcoin Party Continues

US stocks are rallying on COVID relief bill optimism and hopes that a post-Brexit trade deal will be reached by Sunday. Wall Street is completely focused on stimulus talks and ignored deteriorating US economic data, except for the robust housing market.
US data

US weekly jobless claims continue to head in the wrong direction. The labor market outlook is bleak as the winter wave of the virus is going to lead to more shutdowns. Jobless claims climbed by 23,000 to 885,000, a three-month high, much worse than the consensus estimate of 815,000. Continuing claims remain elevated but improved from 5.75 million to 5.50 million, but that might be mainly due to the expiring of benefits. The total number of Americans participating in any of the unemployment insurance programs rose 1.6 million to 20.6 million.

The Philly Fed index plummeted from 26.3 to 11.1, the lowest level since May, with all the components showing significant declines. The current indicators are positive but the loss of momentum in the region is worrisome.

The housing market remains robust after the November reading for housing starts and building permits rose more than expected. Low interest rates and a mass exodus from large cities continue to drive demand for the construction of new homes.

BOE

The BOE kept interest rates steady, maintained their total asset purchases at 895 billion pounds, and extended the loan program for businesses by six months. The BOE remains ready to act depending on how Brexit goes and how long the country remains on lockdown. The British pound was unfazed following the BOE rate decision that delivered no surprises.

SNB

The SNB kept rates on hold and reiterated their willingness to intervene in the FX market. The last rate decision of the year took a backseat to the US decision to add Switzerland to a watchlist for currency manipulation. The franc is highly valued, inflation is nowhere to be found, which should mean the SNB is not changing their approach to monetary policy.

Oil

Crude prices have been unstoppable the last several weeks as vaccine rollouts begin, oil inventories are starting to come down, Asian demand remains robust, and the dollar slide propels commodities higher across the board. A relatively quiet night on the oil front has energy traders continuing to ride the generally broader risk-on environment.

The only thing that could get in the way of oil’s rally is if any problems emerge with the coronavirus vaccine rollouts. Transportation issues and some slowness in getting people vaccinated may start to raise doubts that a return to pre-pandemic life will happen by mid-fall.

If Congress can get a virus relief bill done this week, that might be the last catalyst needed to help WTI crude make a run towards the $50 level.

Gold/FX

Gold prices are soaring as widespread dollar weakness accelerates thanks to the Fed’s commitment to keep the stimulus coming. The dollar is in freefall again since QE is not going away until “substantial progress” is made with the labor market and inflation goals. Gold traders initially got faked out following the Fed statement, which did not deliver any increases to asset purchases or adoption to yield curve control.

Gold is also battling Bitcoin’s massive bubble that is stealing away some longer-term bets. Gold’s path higher is clearly not going away as unprecedented stimulus will remain in place to fight off the winter wave of COVID and once we are on the other side of pandemic, inflation may quickly return.

Bitcoin

Bitcoin’s momentum strategy is not going away anytime soon as the world’s largest investors place medium to longer-term bets. Hedge funds who have resisted Bitcoin can no longer and need to show their investors that they are not missing out on what has become the best trade for the fourth quarter.

A sustainable level for Bitcoin to hit before the end of the year is the $25,000 level and possibly $30,000 by the end of January. Bitcoin will continue to benefit from the prospects of more monetary and fiscal stimulus, but volatility will remain heightened. The world’s largest cryptocurrency should have a strong first half of 2021, but the outlook might change once the world is ready to ease up on stimulus efforts.