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US election outcome poses potential downside risks to US equities

  
  Analysis
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Via HSBC, beginning with where we are at:
  • latest national opinion polls show Senator Joe Biden maintaining a healthy lead over President Trump
  • although lower than the double-digit gap reached in late June
  • Biden’s strong polling performance has coincided with a period of high US unemployment as the country grapples with the Covid-19 pandemic and a period of heightened social tensions earlier this summer
But, that could change:
  • A number of factors could materially shift either candidate’s standing in the coming weeks. 
  • Positive for Trump would be developments that lead to a faster economic recovery. This may include the potential for the pandemic to subside or further progress to be made with treatments and/or vaccines. Congress passing a new stimulus package that includes an extension to the unemployment insurance top-up will also be considered important. 
  • Other factors complicate the picture. There is uncertainty about the impact of increased mail-in voting due to the pandemic. Meanwhile, the US Electoral College system places greater importance on ‘battleground states’ to the final result, making national polls a less useful predictor. In the majority of these states, Biden is forecast to do worse than at the national level.
For markets:
  • The outcome of the election poses some potential downside risks to US equity markets. 
  • These include the possibility of a divided government and “deadlock” over fiscal policy support, while Biden may implement higher corporate taxes. 
  • For the time being, we maintain our overweight view on US equities as the “swoosh” economic recovery remains in play.”

This is what gold fever looks like

  
  Analysis
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Hungry for gold news?

Hungry for gold news?  
Last week I made one comment that submitted to one media outlet on gold prices. The take up was telling.
The below was the amount of publications it occurred in and the approximate circulation.
Remember the below came from just one comment.
This is what a mania market looks like.
Gold is buy on the dips and buy on the breakouts. If you could only trade one market this year – this would be it. 

Recap of the FOMC, “as expected” … but US Congress fiscal policy remains an unknown

  
  Analysis
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Via CIBC Research on Wednesday’s FOMC policy statement.

“Today’s FOMC announcement unfolded largely as expected, with policymakers commenting that economic activity and employment remain well below where they stood prior to the pandemic, despite picking up somewhat in recent months. Indeed, the outlook has become increasingly uncertain since the last meeting on account of the surge in virus cases and the re-tightening of social distancing in many states, with the Fed noting that the path forward for the economy depends significantly on the virus which is expected to weigh heavily on activity in the near term. While the Fed stands ready to do more to support the recovery, as shown by the extension in several credit facilities beyond their initial deadlines, the fiscal support package being discussed by Congress remains an unknown” 

“As a result, they appear to have opted to wait for the September meeting, when the next set of forecasts are due, to provide more concrete forward guidance on future rate hikes by perhaps tying them to the outcome of a macro variable. Tomorrow’s Q2 GDP report will provide a starting point for assessing the scale of the output gap” 

Oil to trade flat to lower through to the end of 2020

  
  Crude
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View for the balance of H2 from Rabobank, this in brief (bolding mine):

enormous stockpile of drilled but uncompleted wells (DUCs) amassed in the Permian Basin over the last number of years …  the latest figures showing an impressive 3,488 DUCs waiting to be tapped. In fact, nowhere else in the world that we know of holds such a vast stockpile of drilled wells that have yet to be completed. This is a huge buffer for crude oil supplies that can be called upon to meet demand needs for months and even years to come and this is in addition to the record amount of crude stockpiles sitting in onshore tanks and offshore tankers.
  • oil market still struggling to clear the massive surge of Saudi exports that resulted from the short-lived price and market share war back in April
  • data … shows a massive spike in Saudi oil exports to the US that have come onshore over the past six to eight weeks. In fact, there is still a large amount of crude oil on the water that is waiting to be cleared.
  • We continue to see limited upside to both flat price and calendar spreads as a result of fundamental and quantitative market pressures. As such, it would not surprise us to see a washout of the out-sized speculative “longs” that have built up in crude oil futures in recent months and specifically in WTI as retail investors continue to flee the space in droves. 
  • On the flip side though, we still expect any major dips in crude to be bought as oil still looks attractive on a relative basis to other asset classes and especially given the amount of stimulus flushing through financial markets, a dynamic we expect to remain in place for the foreseeable future.
View for the balance of H2 from Rabobank, this in brief (bolding mine):
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