The week sees another packed calendar for markets. However, participants will most likely be glued to Washington's developments as we enter the November 3 US Presidential election home stretch.
But just as concerning is the rising number of coronavirus cases, where further restrictions being imposed will continue to compete for attention in the background. And for concerns well beyond oil markets, it’s 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 even force additional business closures, 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. Still, this morning's jittery sell-off looks like a directional case of the Covid 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.
That’s not to mention the question of just how long the Biden stimulus dividend will 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 trillion-dollar question the stock market will face.
Still, 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 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 yuan will be in the spotlight on Monday as the Communist Party Plenum kicks off today, with China's top lawmakers meeting 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.
Oil has extended Friday’s decline this morning on the gnarly combination of surging virus cases and the stimulus impasse; at this stage of the demand cycle recovery, that’s probably the most toxic elixir for the oil markets to kick off the week. When you view the oil market through the Covid microscope, the risk becomes enormous and so very real.
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, it said on Friday, 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. Still, traders are fretting that the uptick in case counts could lead to more legislated lockdowns.
From here, OPEC + decision branches are relatively straightforward: if demand contracts and the price/curve deteriorate further, OPEC+ might choose to delay (not cancel) the two mbd tapering decision to April 1. If demand growth stalls, rather than pivots lower, OPEC+ might opt to wait to taper by a month to get a better read on markets. However, OPEC+ will not make deeper cuts unless there’s unequivocal proof that global demand is contracting, which could only occur if draconian lockdown style measures get reintroduced in major oil consumption economies.
Of course in the backdrop – and just as worrying for longer-term oil – is Biden's unattractive green oil and gas policies.
I think you look to buy Aussie on this deal: Australia's Coca-Cola Amatil has agreed to an AUD9.23 bn takeover offer from its European counterpart, Coca-Cola European Partners. (Reuters). Expect some AUD buy flow to accompany the deal if it eventually proceeds.
The Plenum will bring yuan longer-term ambitions in the spotlight, but for immediate concerns there’s 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 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. Unequivocally would be the next catalyst for the yuan and FX Asia from both a policy and an actual stimulus perspective.
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" is 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 and 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.
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 gave back 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 on November 3, 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.
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Today’s key charts focus on oil, where the recent rally has stalled amidst talk of a lift in sanctions and speculation of a production boost.