US Stimulus Talks Drag With Virus Cases Rising

OK, very good morning. It's Thursday, 22nd of October, so I hope you're doing well. Just a quick word before I begin the regular briefing. As you can see to the side of me here, we will be hosting a US election preview event on Friday the 30th of October, so the end of that week. then within the following week we'll get the US election live, of course. So it's going to be a really great event. We're going to cover everything you need to know, both for short-term intraday trading perspective and also the medium and long-term implications as well. If you are managing a portfolio of different assets, we're also going to go through things like retrade using our own technology to relive actually trading the S&P 500 over the 2016 elections. I think that'd be interesting for you guys to to see. And then also we've got a few other special guests as well that are going to be joining us, giving their insight as well. So check out that registration page. I'm going to drop it into the various different chats and onto the YouTube channel, and hopefully I look forward to seeing you then. But more details on that page. But look, let's get stuck into what have we got driving markets this morning. And overall, I'd say it's a fairly, fairly neutral open as far as my perception from sentiment. There certainly is a few things for me to update you on in regards to the US stimulus talks, the COVID situation, and now some apparent, uh, Iran-Russian interference in the US election. And so a few things in focus, but overall I'd say despite those factors, things are fairly flat from a sentiment perspective. And US index futures are marginally lower at this point, predominantly due to the things that I've just mentioned, but there's no real drastic movement being seen as yet as far as the Europeans' perception has been concerned so far. T-notes are flat. Gold's down slightly, but has been just edging up ever so slightly, but down around $9 at $1,920. And in the currency markets, the dollar did gap up a little bit in what otherwise I would say was kind of during the initial part of the US close, which was negative by around 0.1% to 0.3% across the major US indices. DXY. There was a little bit of flight to quality to the dollar, bumped it up, but don't forget the dollar was very weak yesterday, so naturally then a bit of a pullback. And we were up around 0.2%, a quarter of 1%, but we've eased back to just a 0.1% gain now on the DXY. So both EURUSD and Cable have just edged up a touch. And Cable obviously consolidating after its biggest rally we've seen since March. Uh, after I'd say the inevitable. Basically, Europe and UK are back on in talks for Brexit now going forward. But let's just have a quick look at what we've got here. And starting off with the main stories, I'm going to look at the stimulus situation. This is kind of the ongoing main focal point for markets. It remains a particularly sensitive issue which is moving market price in a day trading environment. So Where are we at? Well, House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin apparently made a little bit more progress yesterday. We can— we continue to hear this pretty much every day. They're going to meet again and continue their discussions today. However, a couple of things to be aware of. Pelosi did say she believed negotiations with the White House could produce a deal on a fresh COVID-19 relief bill despite Senate Republican opposition. But she did say that it may not happen until after the election. So that's point one in terms of timing. Uh, Trump's chief of staff, Mark Meadows, said yesterday the White House is now looking at $1.9 trillion in relief. So remember, they're getting ever a little higher toward that kind of Pelosi goal of $2.2 trillion, but not close enough that they're going to get a deal, of course, because no one really wants to do a deal. And as we're going to discuss This is a lot of the political strategy we've been discussing throughout this entire week. According to Fox News last night, there's almost no operational way that the House and Senate could move such a stimulus bill before the election. Remember, it's not just that Pelosi and Mnuchin agree and therefore there comes stimulus. There's a procedure that needs to happen in Congress for these things to get congressional approval. Several congressional sources have told Fox News that they believe this is an effort by both sides to give the appearance they're trying to get a deal just before the election, and so therefore defined as political posturing. So again, it's very similar to what we've been discussing throughout this whole week for the various different reasons I won't go into because we've covered at length. But again, I don't foresee US fiscal stimulus coming before the election. I stand by that call at this point in time. But that, as I've always said, doesn't mean that the market still might not be sensitive to some of this commentary as we continue to remain vigilant as it comes out throughout today. So, so again, no set time for those discussions. Usually though, it comes around London time, late afternoon, early evening, when we start to see some real movement towards the close on Wall Street is when typically the batch of comments have come out. And if you think about it just logically, that's because then that kind of bookends the day of negotiations and conversations that these guys I have been having. So that's the latest there. Uh, gonna go through the news from a chronological perspective. We did have Tesla last night. Not going to spend too much time on this because we're going to focus more on the macro perspective. Tesla, yes, from a single stock perspective, their shares did move up around 3.25%, actually fairly small as far as Tesla is concerned in aftermarket trade in, in terms of their variance of share price after earnings release. The company reported its 5th consecutive quarterly profit on record, revenue of $8.8 billion USD, boosted by an uptick in vehicle deliveries and sales of environmental regulatory credits to other automakers, which led to a rise in their share price. Elsewhere, oil is trading around a $40 handle at the moment. It did briefly dip below there during the Asia-Pacific session. It has just perked its head back above though, that, that kind of level. We're currently flat, but you remember yesterday we had a pretty decent down day in crude oil. Obviously domestic gasoline inventories rising the most since May. US fuel demand weakens because of coronavirus. And let me just give you a bit of an insight there. In the US, for example, hospitalizations for COVID-19 have reached a 2-month high. Led by the Midwest, that area we've been focusing on for the last couple of sessions. New York State's new virus cases have now exceeded 2,000 as well for the first time since May. And perhaps that's also another key area, of course, given how populous it is, that tri-state area, and given the movement of people due to, to work and, and other things in that, of that nature. That could be a real area of contention if those numbers start to elevate in a fairly steep fashion. So worth keeping an eye there. Otherwise, higher COVID cases are being seen pretty much globally at the moment. Travel restrictions, of course, being imparted in the likes of the UK ever more so. Now I think it's Yorkshire to follow up with, like, Manchester that we had yesterday. And now Western Europe, various different countries are imparting ever more stricter movement rules Infections in Germany are at a record high at the moment, uh, and so on and so forth. So all of this, of course, is going to impede general perception of future demand. And what we are seeing is the EIA have reported a 5th straight weekly build at the nation's biggest storage hub in Cushing, Oklahoma. Obviously, this is much more due to US fuel demand concerns and weakening on that regard, but what that's led to then is that crude inventories in Cushing are now over 60 million barrels for the first time since May. And you remember what was happening in crude oil in April, May. I mean, we're nowhere near that at the moment, don't get me wrong, but that was when we had that real crisis point, uh, about the, the overcapacity situation that was happening in Cushing that led to that negative futures price at the time. The spread between WTI's nearest contracts has now weakened to its widest contango structure in nearly a week. And that would be indicative then of these— of general market perception of concerns of oversupply going into weakening demand at this point in time in the future ahead. Otherwise, this was the other thing. Bloomberg making quite a big deal out of this. Um, I think that they're— personally, I think they're doing that because it's their story, and so they're giving it a pump I don't believe that this is personally too surprising. Russia interfering in an election seems to me like just the status quo in modern politics. But let me get you up to speed exactly what's been going on here. So a top American intelligence official has said that Russia and Iran have attempted to interfere in the presidential election. The voter information obtained though this is on the Iranian side— was publicly available. So no hacking was involved here. Iran apparently has been sending threatening emails to Democratic voters that pretends to be from right-wing Proud Boys group in attempt to intimidate voters, incite social unrest, and damage Trump's political efforts. Remember, of course, Iran and Trump have never really got on. Harping back to the various sanctions, many over the course of his presidency in his first term in the White House, for example. And so Iran very much at center. But separately, Russia is said to be using a range of measures to primarily against Joe Biden, and Kremlin-linked actors are also seeking to boost Trump's candidacy on social media. Now, to give you a bit of context, in September, Facebook and Twitter found social media accounts linked to a Kremlin-linked control farm that was used in 2016. And if you remember, this is one of the most contentious issues when we look back to that memorable kind of twist that we saw with the EU referendum and Cambridge Analytica and Russia interference with Trump getting elected in 2016. So that's Facebook and Twitter. Microsoft has also reported that Russia and Iran have attempted to to hack into political targets ahead of the election as well. So, you know, this could be one of the points that does come up if we do find ourselves in a particularly contested, close-run race with no immediate outcome. That idea then of a protracted long period of uncertainty on who actually has won the election is what's leading to then— this will complicate it by giving someone like Trump then ammunition to say that the election is rigged and so on and so forth. So, um, yeah, a couple of things to be aware of there. One thing then, talking about the election and polls, has been, uh, something we've been talking about for a while, which has been the convergence now between the two lines, that is Biden and Trump, where Trump has been gaining and Biden has been losing some of his lead. National polls, which were have been as wide as 10 points, have now narrowed to 7.5 in Biden's favor. Uh, the battleground polls have remained in terms of the gap about the same, 4 to 4.2, both candidates picking up a little bit. Um, but in the betting markets, it has seen some fluctuation, uh, having gone from extremes of 70-30 to 60-40. We're now around 63 to 37 at the present point in time. So one thing to bear in mind, of course, is tonight— I think it's 2 AM for London time— going into Friday morning is the final presidential debate happening in Nashville, Tennessee. The first round did draw over 70 million viewers, and just given the timing, you would imagine that it could even top that this time around. So that's something we'll be talking about, of course, in the the briefing tomorrow and to see how those two candidates got on. But again, the kind of theme from round one, actually, that's what created this divergence in the polling that really saw Biden start to take a lead. And it wasn't so much that Biden really smashed the first presidential debate, it was more down to the fact that the whole, the whole event in itself was a bit of a debacle in the fact that Trump was just trying to just jump in on every single word. And with that point, they've now looked to stop that by imparting 2-minute silences on the mic for candidates to speak in tonight's debate. And then separately, expectations were exceedingly low for Biden to perform against a confrontational president, uh, and actually he did okay. And so okay is great when it comes to then very low, uh, base expectations. Um, okay. Brexit is the other final thing just to talk about. Obviously, the pound saw a really strong rally yesterday. I mean, just having a quick look at the chart here, this was the sterling move. This was the best move that we've had in a number of months for sterling. Did come into context as well of a weakening dollar, which helped exacerbate the move. And if we look here on a daily continuation, um, we've broken out what was an area of kind of consolidation, I guess, from around 1.29 to around the mid-1.30 area, and we found a bit of natural resistance. I put a rectangle colored box here to define that. I think that's a pretty solid level of resistance now where the price ran up and kind of ran into an area of fatigue, which was just around 132 in the futures. But you can see that was the peak of price back in early March. The market respected that as well in late July, early August, as well as finding support points in the latter part of August and early September. September before the break lower when Johnson put out his first credible threats of leaving the EU. So yeah, I think a lot of the, the news that came out yesterday is now priced in. I'd expect that to be a strong level of resistance on the upside going forward because now it goes back into— we're in negotiations once again. And as far as that is concerned, for me, I don't think they're going to make any type of headway anytime soon. Soon. So we've gone through this whole kind of pantomime show of absolutely zero credibility, I always thought. And hopefully, if you've been following my explanations over the last couple of weeks, I pretty much thought that this is exactly what was going to happen. Uh, the whole Friday blowout of Boris looking to walk away is purely political kind of leverage in order to just continue on with the negotiation and manage his kind of domestic political angle at the moment. So things continue. I don't really think that there's going to be too much more now that's going to move the market in the short term. If anything, I think sterling could well be susceptible to a little bit of a pullback, certainly if the dollar starts to pick up, if people do start to kind of become a little bit nervous about the lack of stimulus, the increasing COVID numbers, if that starts to fire up the dollar a little bit, which was particularly weak yesterday because I really don't buy into this weaker dollar Biden sweep kind of narrative because I really don't think that that's going to be the case. Oh, I've got a special guest here. Can you say hello? Say hello. Hello. Okay, off you go. Um, so yeah, the dollar, if that comes back, I think that Even the euro as well, which obviously has seen some decent rallies of late, I think is susceptible to, to a decent downward move under the right conditions. So if I'm looking at euro here, you've got a pretty nice level of a setup which is looking at the overnight Asia-Pacific low. You've also got those previous highs that were seen back 2 days ago as a kind of structure of key levels to look at if that support line is taken out. And in the short term term here. You can see cable on the 30-minute, uh, is just testing the range that defined this lower base of the Asian price activity. Any breakdown here in sterling, I think we go straight down to 1.31, which would be that previous high here. I think that would definitely be on the cards. The pivot level is just residing just below because I think the market's a bit overstretched from yesterday's price movement. Okay, quick look at the calendar. What's the summary of the, the session ahead? Uh, we have pretty quiet UK European open. It's really very much a US-centric session, and everything I've been talking about really, at the moment, Europeans seem fairly comfortable with the UK mainland European restrictions and COVID situation. The US numbers do worry me slightly because they are heading in the wrong direction. And I do believe that if it wasn't for the fact that there's a US election at the moment, then actually I think the market would be in quite a negative state right now, given the fact that the, the numbers are increasing. And this has troubling signs because at this point in time there's obviously no real restrictions happening in the US. So that would lead to the notion then that these numbers have still got some way to go to the upside. So I think that's really a key theme to look out for. Obviously, ongoing headline noise around the stimulus package, which typically tends to come towards the end of the US session. So really quite late, 7, 8, 9 PM London time. Data-wise in the US, you've got your jobless claims. You've also got existing home sales. I wouldn't really worry too much about the flash consumer confidence reading out of eurozone. That rarely moves the market. And speaker-wise, there are a few interesting things. Chief economist of the Bank of England, Andy Haldane, and the Governor Andrew Bailey are speaking at 9:30 and 10:25 London time. Two real key members. Obviously we've had some very dovish commentary come out of some MPC members this week, and they continue to be fairly mixed actually in their comms at the moment over the notion of negative rates. I still think that from a sequencing point of view, from monetary policy from the bank. It's still very much an increasing QE asset purchase program, or before then they embark on this route of will they or won't they do negative rates. And remember, the next Bank of England rate decision's not that far off now, so we are really looking for some continued guidance on these matters. Then we've got Fed's Barkin, Fed's Kaplan speaking later. Fixed income, got some UK auctions coming out. And then from an earnings perspective, perspective, the bigger ones to be aware of: AT&T, Intel, a couple of the airline firms, American Airways, Southwest, and they've got Dow Chemical, Coca-Cola as well, which will be coming out pre-market. Okay guys, just going to leave it at that, let you get on with the session. As I said, don't forget to check out the link for the US election preview. We're going to run 6 to 7 PM London time on Friday, 30th of October. Everything you're going to need to to know to get ready for the, for the main event. So hopefully I'll see you there as well. Okay, thanks very much, guys. Have a good day.