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Another record high for US stocks? Brent at 9M high after OPEC+ deal

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By Han Tan, Market Analyst at FXTM

Risk assets are looking to end the week and the year on a high. US stock futures are edging into the green, indicating the S&P 500 could yet claim one more new record high before the weekend.

However, Asian stocks were mixed on Friday with the Nikkei 225 and Shanghai Composite indexes dipping into the red.

Risk appetite is being supported by the imminent rollout of the Covid-19 vaccine as the UK and Russia are set to receive their respective vaccines next week, while the US Food and Drug Administration is expected to approve Pfizer’s vaccine on December 10.

As the world population embarks on its journey towards Covid-19 immunity, that should also help the world economy get back on its feet.

 

Brent flirts with $50 on OPEC+ deal

Oil markets are also finding cause for celebration with OPEC+ agreeing to taper off its output cuts starting January, as opposed to restoring 1.9 million barrels per day (bpd) as initially planned.

The 500,000 bpd that’s due to be added next month is a more digestible chunk for the world economy, which is still trying to get back on its feet since the pandemic. The Covid-19 vaccine is expected to help the world expand its capacity to soak up the additional incoming supply, potentially helped further along by more fiscal stimulus for the likes of the US and the EU.

However, this support may be less effective in erasing consumers’ mental scars inflicted by the pandemic, which could prove to be a stubborn obstacle in restoring global demand to pre-pandemic levels. With virus curbing measures either looming or being extended from California to Germany, the continued upward trajectory for oil prices isn’t yet fully assured.

 

US jobs report to show waning recovery

While the health response to the pandemic is taking positive strides, major economies such as the US and EU are still struggling.

Those on Wall Street might be having the time of their lives with equity gauges posting new record highs, many on Main Street can only hobble along due to the pandemic’s impact on the real economy. Despite the euphoria seen in financial markets, Friday’s US non-farm payrolls report may serve as yet another sobering reminder of that fact.

The November US jobs print is expected to register a sub-500,000 reading, which would be its lowest since US states began easing lockdown measures in April. The recovery is clearly petering out as the number of Americans heading back to work stalls, with the unemployment rate still roughly double that of pre-pandemic levels.

The US economy clearly needs more fiscal support and the sooner the better. Markets are clinging on to the hope that a fresh round of US fiscal stimulus is in the making as the voices from within Congress continue singing that same hopeful song sheet, propping up the elation in equity markets.

 

Enough reasons to remain risk-on

While we wait, risk assets have enough going for them for the time being. Besides positive vaccine developments that promise to aid the world’s economic recovery, major central banks are not shying away from rolling out more monetary policy support for their respective economies, with potentially more to be announced by the Fed and ECB this month.

 

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