The week will see another packed calendar for markets.
Participants will most likely be glued to Washington’s developments as we enter the home stretch to the November 3 US Presidential election.
But just as concerning is the rising number of coronavirus cases, and further restrictions being imposed will continue to dominate attention in the background. And for concerns well beyond oil markets, it is significant to watch for additional mobility restrictions near-term as those could be a real wet blanket for stocks.
Markets are struggling for traction out of the gates this morning on familiar themes. The US stimulus stalemate is now getting amplified through concerns about rising virus cases that could ultimately result in more stringent mobility restrictions and could even force additional business closure, which will most certainly put the economic recovery on the back foot into year-end.
Intraday index choppiness last week was testimony to heightened investor nervousness.
This morning’s jittery sell-off looks like a directional case of the Covid-10 headline Monday blues. And with nary a stimulus balloon in the sight finder to help ease the fall, it could be the start of yet another choppy week before next week’s US elections compounded by the lack of liquidity as more and more investors will be inclined to move to the sidelines.
Not to mention just how long will the Biden stimulus dividend hold up until investors start to return focus on corporate tax hikes and the real dividend worry, the Democrat increase in capital gains taxes, which is the ultimate one trillion-dollar question stock markets will face.
Once the Monday morning blues lift and we head for turn around Tuesday, stimulus and reflationary price action could provide a floor on stocks. The reopening basket remains in buy mode despite rising Covid-19 cases and hospitalizations, suggesting that vaccine hopes are still a big market driver.
Ultimately, it’s the systematic Cyclical bid that should offer support on the Blue Wave stimulus impulse’s hope.
China’s Community Party Plenum kicks off
China’s Yuan will be in the spotlight on Monday as the Communist Party Plenum kicks off today. China’s top lawmakers will meet in Beijing amid expectations it will provide a roadmap for the economy’s development for the next 15 years amid policy to further internationalize the Yuan to attract more capital market inflows. (How big of an event is this ?)
Oil has extended Friday’s decline this morning given the gnarly combination of surging virus cases and the stimulus impasse. At this stage of the demand cycle recovery, that is probably the most toxic elixir for the oil markets to kick off the week.
When you view the oil market through the Covid-19 microscope, the risk becomes so very real and enormous.
Oil prices ended last week on a down note after Libya lifted its force majeure on exports from the ports of Es Sider and Ras Lanuf, adding that output would reach 800,000 barrels per day (bpd) within two weeks and 1 million bpd in four weeks.
Saudi Arabia’s unwavering support and Russian President Vladimir Putin’s comments that Russia would be prepared to extend the current level of production cuts beyond December 31 are offsetting some concerning news on the demand-side as the number of Covid-19 cases continue to rise sharply in Europe and the US.
Traders are fretting that the uptick in case counts could lead to more legislated lockdowns.
Australia’s Coca-Cola Amatil has agreed to an AUD9.23 bn takeover offer from its European counterpart, Coca-Cola European Partners. Expect some AUD buy flow to accompany the deal if it eventually proceeds.
The Communist Party Plenum will bring Yuan longer-term ambitions in the spotlight, but for immediate concerns, there is still a lot of short-term activity in the Yuan hotpot.
Despite removing the reserve charge ratio on long USD/CNY transactions earlier this month, RMB appreciation persists, given the lack of resistance from the People’s Bank of China (PBoC) compared to 2017.
However, I remain cautious in chasing the move lower in USD/CNH, particularly into the US election, given a lot of the good news is in the price.
Regardless of the Senate composition, a Biden Presidency should materially reduce the geopolitical risk premium around trade and foreign policy. And while a split Congress might make a significant fiscal deal less likely, it should cooperatively reinforce the Fed’s accommodative stance and help Asia/EM carry.
Still, traders could wait for the election outcome before adding more RMB to the portfolio. They try and digest how much of the “Biden Premium” is already in the price, not to mention where the new “line in the sand ” for China currency policymakers.
Malaysia’s King has rejected a proposal by Prime Minister Muhyiddin Yassin for a state of emergency because of the coronavirus crisis. Still, political risk will continue to bubble under the surface.
The market has begun positioning for a potential rate cut in November. BNM has remained dovish; the second virus wave, loan moratorium & political uncertainty could push BNM to ease again and help anchor the front-end rates and support the Ringgit.
But for today’s concerns, local traders could be a bit more defensive with risk trading wishy-washy and oil prices veering lower and a slightly stronger US dollar. But remain positively perched for a good read in China. Communist Party Plenum which is likely to provide a most upbeat delivery for local markets
Gold still struggling
It was a frustrating week for gold investors caught between the desire to buy on the inflationary stimulus impulse but getting anchored by higher US yields.
Gold is trading sub-1900 on the pre-election stimulus impasses and a slightly stronger us dollar.
Gold struggles a bit and gives back all the gains after some of the positive-sounding US stimulus headlines earlier in the week. There seems to be a bit of risk reduction taking place ahead of the US election, but I think the fear of the inaccurate poll syndrome clears up a bit this week and the path higher for gold could open up a bit.
International market analysis from Stephen Innes, Chief Global Market Strategist at Axi