Tue, Dec 01, 2020 @ 01:40 GMT
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Coming to Terms with Reality

Financial markets are getting a reality check, as investors come to terms with the failure of Congress to agree a pre-election stimulus package and surging Covid cases.

Just over a week to go until the US election, it was always likely we could see a little more risk aversion this week given the level of uncertainty that accompanies it, despite Biden’s still strong lead in the polls. But a stimulus package would have been a nice distraction and seen households and businesses through to the new year when everything will be much clearer. Alas, investors have far too much faith in lawmakers on Capitol Hill.

While it’s not impossible that something can be done at the eleventh hour, with Pelosi claiming she’s waiting for a counter-offer from the White House today, it’s a long shot now. I always thought markets were far too optimistic anyway so that could continue to weigh heading into the election.

The acceleration in Covid cases and hospitalizations is a big worry as this will undoubtedly lead to more restrictions as hospitals become overwhelmed. Governments are trying to take a more targeted approach this time around which will make any economic impact less severe than last time but the uglier it gets, the harder it’s going to be to resist. It could be an extremely tough few months during what is a hugely important time for some sectors.

Oil sliding as Libya ramps up production and Covid dampens demand

Oil prices have pulled back from their range highs in recent sessions, where they had traded despite the significant amount of downside risk. Some of that risk is now coming into play and weighing heavily on crude, with WTI slipping back below 40 and heading back towards the lower end of its post-summer range.

Libyan production has been rapidly increasing, hitting 500,000 barrels per day last week from less than 100,000 during the blockade. Friday’s ceasefire announcement has piled more pressure on oil prices and combined with the rising Covid numbers, is a massive blow on both the supply and demand side, as far as prices are concerned. A move below the post-summer lows may alert the attention of OPEC+ and force a rethink of January’s two million barrel increase in output.

Gold clinging on for now

The great gold consolidation continues, with price holding up relatively well this morning and clinging onto support, despite broader market sentiment turning negative and the dollar making decent gains. This hasn’t been the best combination for gold prices this year but they are showing some resilience in early trade.

The yellow metal is finding some support in the $1,890-1,900 region, with resistance forming around $1,930. The walls are continuing to close in but that may remain the case for the next week or so, unless the confirmed collapse of stimulus talks – whenever that comes – tips it over the edge and stops get wiped out. That could make for an interesting move, with the path of least resistance seemingly below.

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