Investors are still inoculated from iffy data this week, revelling in the vaccine pipeline. Still, they might need to be concerned with more days like this as the virus hits the economy faster than the vaccine roll-out evolves.

US equities moved sideways overnight, likely a much need hiatus after the record close the day prior.

Rotation into the re-open trade takes a breather with Momentum/Growth/At Home back in the driver’s seat. There has been a bit more profit-taking and some fresh shorts on the broader matrix’s Cyclical and Value side.

The shift seems to be driven by iffy data out of the US sending equities into mild profit-taking mode. It is not like the data was that bad.

The two primary low lights of weakness (initial claims and personal income) feed into market concerns that the pent-up bounce seen earlier in the year will go into reverse as virus cases pick up and fiscal support ebbs.

Still, similar to last week, investor confidence in US equities has been holding up. The relentless and enduring bid from retail combined with corporate buybacks and institutional short covering has been enough to offset the expected pension selling so far.

It will be interesting to see if the leaderboard holds over the Thanksgiving holiday or if pension rotation selling finally takes over as we head for year-end.

Forex markets

Despite oil prices going moonshot this week, due to the liquidity draining nature of the US Thanksgiving holiday on FX markets, we should expect ringgit inflows to be all but a drip from international flow concerns suggesting it could be a slow day in MYR and FX in general in Asia trade today. With nothing untoward on the outlook, the ringgit should remain on stable footings.

Focus on Brexit and Energy

The next week could be decisive for Brexit, but there is no hard deadline except for the end of the transition period on Dec. 31, which cannot be moved.

From my understanding, most of the agreement’s legal text seems ready, and chief negotiators Frost and Barnier will likely present what they have to their political headmasters next week.

The question then will be whether the UK and EU leaders will agree on the remaining, most difficult ‘brackets.’ Markets seem to broadly anticipate a deal, suggesting that the knee-jerk market reaction could finally offer up the opportunity for the biggest wave of profit-taking on sterling the world might ever see.

The energy sector is going full out bonkers, the oil market rally is a huge positive tell, and it screams increasing optimism around the global 2021 outlook. Such an outcome would be consistent with the US dollar downside.

S&P Energy is still 15% lower than it was in June and down 35% on the year. Energy is always a favourite value and means reversion play.

And with the month-end corporate dollar buying getting soaked up easily overnight in NY, the USD dollar downside should start to open up a bit more into year-end provided energy holds an even keel and Brexit talks do not fall off the table.

The medium-term outlook for the dollar is about as bearish as one could get. The analogue to the 2009 post-GFC recovery remains the obvious historical comparisons. China’s credit creation leading to a V-shaped global recovery triggering reallocation of assets abroad from an overweight US position is about as clear as a whistle sell dollar signal as one could get.

Gold slides further

It is difficult to find a silver lining amid all the bearish clouds. Gold prices continue to defend the key $1800 level. It is much of the same overnight – transfer of ownership continues into stronger hands.

But with the inability to even reclaim $1825, it is hard to argue the downtrend does not remain in the play.

The positive correlation between gold and the SPX since March flipped after Pfizer’s vaccine announcement on Nov. 9, while negative real yields are not having a positive effect on the precious metal. A transition from disinflationary to inflationary support for gold could take time and ultimately leaves prices vulnerable to more profit-taking and the establishment of more shorts in the near-term.

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi