Thought For A Day
Archives of “October 2020” month
rssGerman DAX snaps 3 day slide
Major European indices end the session mixed
The German DAX is snapping a 3 day slide with a modest 0.13% gain. Overall the market results were mixed and European equity markets. Provisional closes are showing
- German DAX, +0.13%
- France’s CAC, -0.19%
- UK’s FTSE 100, -0.22%
- Spain’s Ibex, -0.8%
- Italy’s FTSE MIB, unchanged
The German DAX fell close to 13% from its October high, best concerns about growth with Covid cases rising.
Looking at the daily chart below, the German DAX price fell down to test the 38.2% retracement of the move since the March low. That level came in at 11472.94. The low price today reached 11458.56 just below that level, but could not sustain momentum. Keep that level mind going forward. Stay above is more bullish, move below and we could see further probing to the downside.
Pres. Trump: Going to have a very big stimulus package
Now that Republican Senators are outta town
Pres. Trump is back saying:
- Going to have a very big stimulus package
- He wants and aid package bigger than Pelosi’s
The Republicans have been sent home until after the election earlier this week. They have been opposed to a bigger stimulus package. On the other side, Speaker Pelosi has not been looking to compromise from her wishes.
Pres. Trump is speaking on a Jon Taffer podcast.
Other comments:
- Pelosi doesn’t want stimulus until after election
- Republicans will win house, do fine with Senate
- going to do big aid package as soon as election is over
S&P index is currently up 21 points. The NASDAQ index is up 129 points and the Dow industrial average is up 12 points.
Full text of the October 29 ECB rate decision
Oct 29, 2020 monetary policy decision
In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate. The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path. This will foster the convergence of inflation towards its aim in a sustained manner, in line with its commitment to symmetry.
In the meantime, the Governing Council of the ECB took the following monetary policy decisions:
(1) The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
(2) The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over. The Governing Council will reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.
ECB main refinancing rate 0.00% vs 0.00% expected
Highlights of the ECB decision:
- Deposit rate -0.50% vs -0.50% exp
- Marginal lending facility +0.25% vs +0.25% exp
- Says risks clearly tilted to the downside
- ECB will carefully assess incoming information, including pandemic and prospects for vaccines and developments in the exchange rate
- New round of forecasts in Dec will allow a thorough reassessment of the economic outlook and balance of risks
The ECB didn’t deliver the surprise that some were expecting after the late-breaking lockups but they certainly put December in play.
US Q3 advance GDP +33.1% vs +32.0% expected
The first look at US Q3 GDP:
- Best US quarter on record (following the worst quarter)
- Q2 was -31.4%
- Ex motor vehicles +26.3% vs -29.0%
- Personal consumption +40.7% vs +38.9% expected
- GDP price index +3.6% vs +2.9% expected
- Core PCE q/q +3.5% vs +4.0% expected
- Inventories added 6.62 pp to GDP
- Business investment +20.3% vs -27.2% prior
- Business investment in equipment +70.1% vs -35.9% prior
- Exports +59.7% vs -64.4% prior
- Imports +91.1% vs -54.1% prior
- Inventories added 6.62 pp to GDP
These are all breathtaking numbers but were largely expected. The consumption number stands out as a pleasant surprise but the business investment number is marginally negative, especially since those high investments in equipment were partly due to one-off covid changes (like installing dividers).
Oil falls to fresh four-month low amid renewed supply concerns
WTI down by another 4% to $35.80, its lowest since mid-June
The drop in oil yesterday was bad but things are looking worse from a technical perspective today, as we see price break below its 200-day MA (blue line) and now threatening a fall below its 8 September low @ $36.13.
Price is down another 4% after the sharp fall yesterday as the resurgence in virus cases across the globe is hampering the demand outlook, bringing back concerns regarding too much supply in the market as we look towards the year-end.
Tighter virus restrictions across Europe and particularly Germany and France only adds to the souring narrative, and the potential breakdown in the technical picture is exacerbating worries in the oil market over the past few days.
The greater-than-expected EIA inventory build yesterday, 4.3 mil barrels compared to estimates of 1.5 mil barrels, is also not helping with sentiment this week.
Looking at the technical picture, there is little in the way upon a break below $36 to the mid-June lows around $34.36-48 next. But beyond that, it is a slippery slope for oil with a potential fall towards $30 on the cards.
Looking ahead, the US election also presents added risks for the oil market next week. A Biden victory may spell a knee-jerk reaction lower considering his stance on wanting to ban fracking and amid virus jitters, it could exacerbate the downside potential.
That is something to expect in the near-term and unless OPEC+ is planning to step up its game going into its final meeting on 1 December, the risks are skewed to the downside for oil barring an upset where Trump steals the election again.
But if the latter does happen next week, I would expect virus jitters to continue to keep a lid on prices and fade any short-term reaction to the election result as such.
What’s the trade if Trump steals the election this year?
re we looking at a repeat of the dollar melt up in 2016?
As Biden leads in the polls, almost everyone has been talking up the case for a ‘blue wave’ and what scenarios may take place should that happen.
The straightforward one being “buy everything, sell the dollar” of course, but there are some risks associated with that once the euphoria begins to fade.
Over the past ten months, I grew from thinking Trump would easily win this election to thinking that Biden should have this in the bag, judging by the lead in the polls. But now, I’m less confident of that outcome as we approach the home stretch.
I would still argue that the base case remains for a ‘blue wave’ but Trump winning once again and stealing this election is not within the realms of being unworldly, if you ask me.
As a trader, it’s best to be prepared for all outcomes and eventualities, so what is the trade if we do see another four years of Trump in the White House after next week?
Is it going to be the total opposite of the reaction if we see a ‘blue wave’ outcome?
China’s major state-owned banks said to be buying dollars to limit yuan appreciation – report
Reuters reports on the matter
The report says that big state banks in China have been buying dollars in the onshore spot market during late night trading sessions to effectively prevent the yuan from strengthening too fast, citing two traders familiar with the operations.
Adding that they also have been swapping dollars for yuan in the swap market this week i.e. causing the yuan to fall in the forward market, and making yuan borrowings more expensive; suggesting that authorities are trying to limit the yuan appreciation.
Biden win to boost gold prices
Biden’s good for gold?
The medium term fundamental situation for gold remains very strong despite yesterday’s sell off. The Fed is expected to keep interest rates at current low levels until 2023. When inflation is taken into account rates are negative, so cash is unattractive to hold. The US dollar, which has a huge impact on gold prices, faces a period of weakness over the medium term. The expectations of large stimulus packages still to be released into the market also favours gold. With Biden firmly ahead in the polls, a Biden presidency could boost gold prices even higher.
- Biden would walk back President Trump’s ‘America first’ protectionist policies. This would weaken the USD and boost gold.
- Biden is ahead in the polls, but gold has been subdued. A Biden victory is not yet priced into the precious metal and the chances of an explosive reaction higher is real.
- Gold has been trading as a ‘risk-on’ commodity. So, when the US stimulus package finally gets passed this will boost risk assets and lift gold along with it.That should happen soon after the US election.
- Gold has been more resilient over the last few sessions even as equity markets fall. This shows that strong bids are underpinning gold.
- Technicals are supportive. See previous post here.
If a vaccine is able to be rolled out before year end then Chinese lunar New Year demand for gold should rapidly pick up.