• Macro Dragon: VP Debate = The Future President of the United States
    by Kay Van-Petersen on October 6, 2020 at 11:00 pm

    Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime. (These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.) Macro Dragon: VP Debate = The Future President of the United States   Top of Mind… Touched on this wk in the Dragon’s New Month = New & Final Quarter = New POTUS piece Yes folks, there are a number of very high probability pathways of where the future POTUS is one or even both of the speakers that we will see in today’s VP debate Trump falls to Covid-19 – passing the Torch to Pence, who either wins or loses to Biden Biden wins & steps down/moves on – passing the Torch to Harris Few of the standouts from o/n were Powell again warning about the need for Fiscal & even more spectacularly… Trump calling off any stimulus discussions until after the elections – which again is something that we could see one of the many 180s that we have seen Trump pull off again & again! Obviously this was not something the bulls were throwing a party for, as we saw the S&P plus Nasdaq pull back by c. -1.5%. Lagarde will also be speaking again today (which will be 3x for the week so far) at 20:10 SGT. Here is an overview of VP debate schedule & format wise, should again be kicking off at the same 2100 ET Wed (0900 SGT Thu) - Not Enough of KVP?   From c. 52min in KVP talking on DollarYen on Bloomberg’s Daybreak This will resonate with the 4Q20 piece, where a high conviction structural trade view from KVP’s camp is being short DollarYen, seeing 85 – 95 range by back-end of 2021 & potentially 100 to high 90s by end of 2020. Naturally this gels with the multi-year dollar bearish regime view Have already flagged this great podcast, Insert: Human before from a friend, mentor, great soul & clear independent brilliant thinker Chris Colbert – do please check it out, if it makes you think, please follow plus leave a 5-star review. Feel free to drop Chris a line   - Dragon Must Reads...   We keep hearing about “K”, catch the latest Steen’s Chronicle: Beware the implications of the K-Shape future (hint more divergence than we have seen so far!) Why the letter K defines society, economics, politics and markets - plus how this new macro model impact the construction of your portfolio going forward. John Hardy dropping a roadmap US Election Primer: The Final Sprint to November 3rd We sort through important dates in this final sprint phase of the absurdly long US presidential election cycle. Historically, we have seen significant shifts in the polling in the final weeks leading up to the election. As well, we consider factors that can change the odds between now and Election Day on November 3rd. Saxo’s US Election Cheat Sheet Which cuts into the three potential pathways into the elections, probabilities around them, as well as short & long-term positions across equities, bonds, commodities & currencies.   - Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea This is the way  KVP Kay Van-Petersen Global Macro Strategist Saxo Bank Topics: Macro AUD JPY CHF EUR GBP NZD Bonds Gold Apple USDTRY USDNOK EURNOK USDMXN FX Technical

  • The bond market is telling us that inflation is coming, but the Federal Reserve keeps ignoring
    by Althea Spinozzi on October 6, 2020 at 1:30 pm

    The rapid rise in Treasury yields yesterday was most likely provoked by higher market inflation expectations. At this point, the Federal Reserve is making a huge mistake to ignore inflation threat. Increasing the bond purchasing program or engaging in yield curve control is going to reduce liquidity in the market, ultimately causing a liquidity squeeze. Yesterday we saw the US yield curve steepening fast. The 30-year Treasury yields have risen by 14 basis points, which is the biggest move we have seen since the end of August. The market was quick to blame the move on Trump's better health conditions. However, we believe that at the bottom of the sharp rise in long-term Treasury yields, there are higher inflation expectations. Inflation is expected to rise even faster now that Biden is leading the polls. A democratic win together with a fiscal stimulus package means that there will be higher money supply, putting more and more pressure on inflation. The Federal Reserve is blind and the market will pay the consequences We need to keep in mind that we are living in a Modern Monetary Theory (MMT) world where central banks have the last word to say. This week is full of speeches from various US federal reserve members. So far we can say that the one thing they agree on is that that the Fed bond-buying programme is there to stay. What they cannot agree on is whether it should be expanded or if there should be changes in the investment method. The President of the Federal Reserve Bank of St. Louis, James Bullard, today said that if the economic weakness continues, the FED would need to provide more stimulus. Yesterday, the President of the Federal Reserve Bank of Cleveland, said that she doesn't see the FED increasing the bond purchasing program. She would rather see the FED moving the focus towards longer-term bonds. Basically, what she is talking about is yield curve control, which can ultimately push the market into a liquidity squeeze as inflation rises. Although MMT implies more money supply, in reality, it is killing the market with a gradual decrease in liquidity. As a matter of fact, what is happening right now is that the Fed is printing money to buy assets. Once these assets are in the Fed's balance sheet, it is like if they do not exist any longer: the Fed will hold them until maturity. Therefore asset prices are not high because of healthy market demand and supply; they are high because the Fed holds a big chunk them. This contributes to lower liquidity in the bond market because the Fed doesn't actively trade the assets it owns.  Eventually, we are running the risk that the FED will be too slow to hiking interest rates if inflation rises. Theoretically, volatility should be under control because of the Fed's large balance sheet. Still, in reality, if inflation rises suddenly and the Fed doesn’t hike interest rates, the burden of repricing will fall entirely on the bond market, making it even choppier than what it is now.  Althea Spinozzi Fixed Income Strategist Saxo Bank Topics: Bonds Government Bonds Federal Reserve US Election

  • Q3 earnings preview; small caps are shining; Rolls-Royce roars back
    by Peter Garnry on October 6, 2020 at 11:40 am

    Q3 earnings must deliver against very high expectations in order for equities to remain positive. Small cap stocks have outperformed the past week in a sign that investors are betting on reflation and higher growth. We also take a look at Rolls-Royce up 10% today as its senior unsecured bonds are launched. Global equities have settled in a trading range and could stay there for until the US election. Market participants need a new narrative. Yesterday, a new narrative was forming as reflation trades were put on again (growth stocks, small caps, long-term yields higher, gold etc.) partly driven by a positive spin on a Biden victory and higher probability of Democrats delivering a clean sweep. In that case, the recent House bills of $2.2trn could move through the Senate and deliver a sizeable boost to the US economy. Q3 earnings must deliver That is a strong narrative, but in the meantime equity markets need to see Q3 earnings rebound. Elevated equity valuations are discounting a significant rebound in earnings and analyst estimates are also reflecting this with expectations looking for a 49% q/q increase in Q3 earnings per share in the S&P 500 Index. In other words, there are steep expectations going into the Q3 earnings season which really kicks into gear next week with US financials. Despite a strong rebound in earnings analysts do not expect earnings to soar past pre Covid-19 earnings until Q2 2021. We remain quite bullish on the Q3 earnings season. Many recent earnings releases (those ending 31 August) from companies not following the calendar year have been much better than estimated with positive reactions in the stock price. Yesterday’s record August retail sales in Europe and better than expected ISM Service Index for September in the US are bolstering our view that most companies are well ahead of expectations and that earnings estimates are mostly too conservative. Small caps are feeling the love The reflation we have covered today on the back of yesterday’s cross market price action has also been reflected in small caps. Expectations of more stimulus in both the US and Europe will naturally lift the part of the equity market that suffered the most during the severe lockdowns earlier this year and that was certainly smaller companies. The stronger than expected macro figures lately are also underpinning a growth surprise and investors seem to be betting on this theme through small cap stocks. As the chart below shows small caps in Europe started outperforming last week and has accelerated this week. The same pattern shows up in US equities. Rolls-Royce starts tapping bond market Rolls Royce shares are up 10% again today extending the gains to 35% from the lows on Friday. The jet-engine maker is starting its senior unsecured noted in USD which is part of its $6.5bn rescue plan to get the company through its demand shock due to Covid-19. Analysts expect revenue to decline 34% in 2020 and delivering negative free cash flow of £4bn which is quite significant since the company’s enterprise value is only £7.2bn. The current net debt is around £4.5bn and expected to rise another £1bn under the new financing plan. To not lose grip of the situation Rolls-Royce has to keep its net-debt-to-EBITDA at no more than 3x which implies that EBITDA should quickly get back to £1.8bn which is where the company was in 2016 before things came apart. Rolls-Royce is a very high risk opportunity for investors, also reflected in its 9.2% 1-year default probability (Bloomberg’s default risk model), but carries an attractive risk-reward ratio if the economy heals faster than expected and commercial aviation can come back. But that is a very big unknown. The five-year chart is EU compliance requirement.   Peter Garnry Head of Equity Strategy Saxo Bank Topics: Equities Corporate Earnings Rolls-royce Holdings Europe United States

  • Biden win scenario drives reflation and gold focus
    by Ole Hansen on October 6, 2020 at 11:00 am

    The strong performances seen in gold and silver so far this year look set to continue into the final quarter and beyond. A gold and commodity supportive reflation trade is once again receiving a great deal of attention with long bond yields and small cap stocks on the rise while gold has returned back above $1900/oz. Driving these expectations are an increased chance, according to the latest polls, that Joe Biden will defeat Donald Trump on November 3 What is our trading focus? XAUUSD - Spot gold XAGUSD - Spot silver XAUXAG - Gold-Silver ratio IGLN:xlon - iShares Physical Gold ISLN:xlon - iShares Physical Silver ____________________________________________________________________________________________________ The strong performances seen in gold (+21%) and silver (+27%) during the first three quarters increasingly look set to continue into the final quarter and beyond. The risk of rising inflation has been one of the major themes behind our bullish outlook for gold, and one that has increasingly been grabbing the attention following the events in Washington during the past week. Trumps dismal performance at the first presidential debate and the subsequent Covid-19 illness have seen Biden pull away in the polls. As my colleague John Hardy writes in his latest FX Update:  “The argument here is that the Democrats are set to take back the presidency and the Senate, therefore paving the way for a massive multi-trillion stimulus passed in the first one hundred days of a Biden administration, taking US inflation much higher while leaving the Fed policy rate pegged near zero. The US dollar has clearly been driven by the market’s pricing of future inflation. The Biden argument seems the more plausible driver here, and US rates spiked all along the curve, but most aggressively at the long-end yesterday, with the 10-year trading above 0.75% resistance and the 30-year above 1.50%, a notable chart level. Also, the stronger the apparent edge that the Democrats are achieving in the polls, the less likely that Trump’s claims of a fraudulent election will be able to drive “contested election” uncertainty for any appreciable length of time after Election Day.” The recovery back above $1900/oz following the recent correction to $1850/oz is signaling the rally could have further to go, not least considering the continued and strong demand for exchange-traded funds backed by bullion. Investors, asset managers and pension funds are increasingly waking up to the need for tail-end protection against inflation and it has led a continued increase throughout the year to the current record above 111 million ounces. Most noticeable was the continued inflows in August and September despite falling prices in both months. From a gold perspective the yield rise has if anything been supportive with the rise in nominal yields primarily being fed by rising breakevens thereby leaving real yields close to unchanged. Real yields look set to fall deeper into negative territory as breakevens rise, not least considering the Federal Reserve’s attempt to keep nominal yields capped. Whether or not gold is ready to embark on a fresh drive back towards $2000/oz remains to be seen. Not least considering the amount of reflation and a Biden win that by now has been baked into the price. The surprise Trump win back in November 2016 saw gold drop by 15% before hitting a through in mid-December that year. However, with the novelty value of his behavior gone, Trump’s chances of repeating his astonishing comeback from behind are likely to be lower this time round. Some investors may nevertheless want to postpone an investment decision until after the election given the potential for increased volatility and market uncertainty. For the time being gold is stuck between the 100-DMA at $1858/oz to the downside and the 50-DMA to the upside at $1944/oz. Finally staying with the inflation theme and in this case the worst kind. Following the biggest quarterly surge in food commodities since 2016, the market awaits the monthly Food Price Index released by the United Nations Food and Agriculture Organization on Thursday. The index which tracks prices of more than 70 food commodities is likely to show another jump after hitting a six-month high in August. Ole Hansen Head of Commodity Strategy Saxo Bank Topics: Commodities Coronavirus Gold Silver Platinum US Election

  • Update to our US election baskets
    by Peter Garnry on October 6, 2020 at 9:20 am

    Based on yesterday's price action and more analysis we are updating our US election baskets which now include single stocks. On Friday we put out our first take on US election baskets as a response to the first US presidential debate. But going back to 20 August we did an extensive list of green energy stocks that could gain on a Biden election win as his Clean Energy Revolution would increase spending and enact policies in favour of green energy stocks. Our initial take ahead of the US election on 3 November was that Biden would be perceived as net negative for equities due to uncertainty over taxes and in particularly corporate taxes. According to Biden’s campaign details his proposed corporate tax hikes including hiking the GILTI (global intangible low-taxed income) tax rate which would apply mostly to technology and health care companies would be negative for the technology, communications services and health care sectors. This is also long-term the direction under a Biden administration and could create up to 10% headwind for S&P 500 earnings. More details can be found in the soon to be released Q4 Outlook. You can sign up here for Q4 2020 Quarterly Outlook live presentation on Friday. What we saw yesterday in equity markets was mostly likely a reflation trade (long growth stocks and small caps) but also the market most likely pricing out the scenario for a contested election given Biden is gaining in the polls. Given this lean in polls the market may also be discounting a higher probability for a clean sweep by the Democrats (getting the majority in US Congress), which will make it more likely that the Democrats’ $2.2trn stimulus bill passed in the House (controlled by the Democrats) four days ago could go all the way after the election on a clean sweep victory. That would increase fiscal stimulus at a much-needed time as the US economy still lacks 4% more growth to be back at positive y/y growth. So, the market seems to be switching to a positive Biden win narrative for equities. We are not fully convinced and is thus not updating our election baskets on that account. However, compared to the US election baskets presented on Friday we have changed two things. We have switched the positive oil & gas theme under a Trump victory to oil & gas exploration as this is a higher beta play on less strict environmental laws under Trump. We have also switched the health care theme under Trump victory from negative to a positive view given the Regeneron Pharmaceuticals story related to its antibody treatment of Trump and potential emergency approval by the FDA. You can read more about this story in our Quick Take and podcast from today. It seems more and more likely that the health care sector will have less FDA regulation under a Trump administration and from a shareholder perspective this could be interpreted positively if Trump wins. The table is the same US election basket from Friday’s analysis but now updated with single stocks. We have put in the five largest stocks in each category selecting them from key benchmark indices. They are therefore not our direct single stock recommendations but inspiration for which single stocks are attached to each theme under a Biden or Trump victory. Peter Garnry Head of Equity Strategy Saxo Bank Topics: Equities US Election United States Technology Financials Health Care USNAS100.I Apple Facebook Inc Chevron Corp Amazon.com Jpmorgan Chase

  • FX Update: USD close to the brink of support as US yields spike
    by John Hardy on October 6, 2020 at 9:01 am

    USD weakness has extended to pivotal levels that are the bull-bear dividing line between a return to a weak USD regime and the more neutral tactical outlook if USD support holds here. Volatility remains muted, but will have a hard time remaining that way if we continue to see anything resembling the pronounced weakness in US treasuries yesterday. Trading focus: Getting a grip on the US yield spike and what it means for the US dollar The most important development across markets yesterday was the steep sell-off in US treasuries all along the yield curve coming after a period in which US yields have been moribund. What are the drivers here? Is the market satisfied that US data is bouncing back strongly as evidenced in the latest strong September ISM Services yesterday (at 57.8) and that a stimulus deal looks more likely now that Trump is back in the White House and has argued in favour of striking a deal? Or perhaps the signs that Biden is pulling away in the polls is the chief driver and the argument here is that the Democrats are set to take back the presidency and the Senate, therefore paving the way for a massive multi-trillion stimulus passed in the first one hundred days of a Biden administration, taking US inflation much higher while leaving the Fed policy rate pegged near zero. The US dollar has clearly been driven by the market’s pricing of future inflation. The Biden argument seems the more plausible driver here, and US rates spiked all along the curve, but most aggressively at the long-end yesterday, with the 10-year trading above 0.75% resistance and the 30-year above 1.50%, a notable chart level. Also, the stronger the apparent edge that the Democrats are achieving in the polls, the less likely that Trump’s claims of a fraudulent election will be able to drive “contested election” uncertainty for any appreciable length of time after Election Day. In the meantime, however, if US rates continue spiking here the risk sentiment apple cart could be upset and keep the USD bears at bay – tough to tell where the balance of risks lies, but equities are stumbling in the European session today after the boost yesterday, supposedly from Trump’s quick return to the White House (at the margin, a healthy Trump through Election Day keeps the risk of election chaos at bay as well). Chart: AUDUSD The AUDUSD rally has found that 0.7200 is the sticking point here after an uninspiring RBA meeting overnight that provided no notable shift in forward expectations for policy. This has coincided with EURUSD testing the 1.1800 area. The narrative for the USD bears is that the US is set to unleash further torrents of liquidity, either right away in a last-ditch Trump administration-Democratic House deal to juice the economy and get checks in the mail ASAP, or at worst, after the election with a massive, multi-trillion new stimulus from an increasingly likely US Democrat “clean sweep” scenario. The downside trigger is rather far away at 0.7000 but is the more prominent chart point. The G-10 rundown USD – the US dollar taken to the last bits of support in a number of pairs – more USD liquidity from stimulus and rising expectations of a Biden win and the deeper negative real US rates that this might bring on a heavier dose of fiscal stimulus are theoretically USD negative, but if spiking US yields spike risk sentiment, the USD bears could be in for a rough ride tactically. EUR – EURUSD has tickled the 1.1800 level, arguably the local bull-bear line for the pair and a key for the broader USD outlook. The services PMI revisions for Europe were positive for Germany, but even worse for Spain at a terrible 42.4 as piecemeal shutdowns are threatened there. The only argument for euros is that they will hold their value because more cautious fiscal in Europe together with demographics will keep the negative real rate threat lower than elsewhere. JPY – hard to argue in favour of the yen if yields spike further, but as long as the spike is isolated to the US on fear of negative real rates, the stronger JPY story could re-emerge if risk sentiment wobbles here. So many JPY crosses resemble their USD counterparts (EURUSD and EURJPY, for example) and would expect that to continue. GBP – sterling poised for good news, which the market seems to be leaning for as we await the key headline announcing some breakthrough in post-Brexit transition period negotiations. Still have long term doubts on the height of the ceiling for sterling due to the UK’s structural deficits, but a sterling surge on finally getting the Brexit issue in the rear view mirror is likely in the cards.. CHF – nothing to report here, but watching with interest on whether yield move continues higher and drives weakness at the margin. EURCHF 1.0600-1.0900 is the limbo zone for the franc and has been since June. AUD – the RBA looking for ways to bring further easing if needed, but happy where it is at present and already hopeful that the unemployment rate peaks at a lower level than previously feared. AUDUSD has found resistance again at the pivotal 0.7200 area as noted above. CAD – CAD failed to react much to the very strong surge in WTI crude yesterday as USDCAD sits at a local tactical pivot area of 1.3250 – the pair looks passive and low-beta to the USD direction. NZD – in NZDUSD terms, we have been coiling and coiling since July – the clearest level at the moment there is the 0.6500 area, which could set up a run towards 0.6400 if the USD puts on a rally again. The AUDNZD cross is lost in the desert, but downside pressure risk towards 1.0600 perhaps weighs more as long at 1.0850 isn’t retaken. SEK – EURSEK needs a positive news in Europe and another surge in risk sentiment to punch back down through the 10.40 pivot area and suggest an end to upside risk. Right now - in limbo between recent top and that 10.40 area. NOK – a nice rebound in crude oil gives the NOK a shot in the arm and if positive risk sentiment continues here, we could see a full return to the 10.50 area in EURNOK. The CPI rise and implications for negative rates looks scary until we consider that it is mostly FX-driven as the trade-weighted NOK is some 8% below where it was a year ago even after the comeback from the spring-time lows. Upcoming Economic Calendar Highlights (all times GMT) 1230 – Canada Aug. Int’l Merchandise Trade 1300 – ECB President Lagarde to Speak 1400 – US Aug. JOLTS job openings 1440 – US Fed Chair Powell to peak John Hardy Head of FX Strategy Saxo Bank Topics: Forex USD EUR JPY USDJPY EURUSD AUD AUDUSD CAD NZD NOK GBPUSD EURGBP USDCAD EURJPY Coronavirus

  • Chart of the Week: Completed investment in China’s real estate
    by Christopher Dembik on October 6, 2020 at 8:00 am

    Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance. Click here to download this week's full edition of Macro Chartmania, including new additions such as Saxo’s Misery Index which tracks the evolution of the four worst performing industries this year due to Covid-19. The Chinese government’s attempts to re-engineer the economy after the lockdown has mostly consisted in an increase in public investment and cheap credit flows into the market with little incentives to directly support aggregate demand and consumption. It thus explains why household’s disposable income is not back to pre-COVID level yet, and why the labor market is not back fully. The focus on public investment, which is not unusual in period of crisis in China in order to offset the decrease in private investment, has in turn made a positive impact on the housing market. Completed investment in real estate – a key driver of economic growth- is back to expansion with a last print at 4.6% YTD Y/Y in August. However, it is still significantly below pre-COVID level when it was running around 10% YTD Y/Y. Other data confirm the ongoing housing market recovery: the average price of new homes in 70 cities monitored by the government rose 0.56% in August and property sales by floor area, which are considered as a reliable indicator to track the evolution of demand, rose 13.7% from a year earlier in August. Both indicators rose faster in August than July’s expansion. Despite, the strong public support to investment, the real estate sector is still not back to normal and is actually going through an imperfect V-shaped recovery. Much more stimulus is expected in the short- and medium-term to fuel the rebound in the housing market, which represents around 80% of Chinese people’s wealth, and is therefore crucial to support the economy as a whole. The new guidelines should be enacted at the upcoming Fifth Plenum of the Nineteenth Communist Party Congress that will be held from October 26 to 29 in Beijing. It will be a major market event for China watchers as it will lay out the blueprint for economic priorities and social development targets for the next five years. Christopher Dembik Head of Macro Analysis Saxo Bank Topics: Macro China

  • Podcast: Yield spike demands our full attention
    by Saxo Market Call on October 6, 2020 at 7:40 am

    Today we talk Trump's return to the White House and the interesting Regeneron therapy he received, but spend most of our time dissecting the significant spike in US yields yesterday and the implications if long yields continue to rise. Today with Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app:     If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Saxo Market Call Saxo Bank Topics: Podcast Forex Equities Commodities Macro Nasdaq EURUSD Gold Crude Oil

  • Market Quick Take - October 6, 2020
    by John Hardy on October 6, 2020 at 6:25 am

    Equities have started the week on a strong note as US President Trump returns to the White House, even if questions linger about his condition. The US dollar has weakened further and is teasing near pivotal levels. Gold managed to close back above 1,900 per ounce even as long US yields spiked higher yesterday ahead of a string of US treasury auctions. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I): US equity futures are pausing a bit in early European hours after a strong session yesterday that saw S&P 500 futures gaining 1.6%. Strong Eurozone retail sales reaching a new record and better than expected US Services PMI added tailwind from macro. On the politics side stimulus hope is still present and yesterday smelled of the market pricing out the scenario for a contested election as Biden is gaining across polls. EURUSD and AUDUSD - the USD continues to tease closer and closer to the edge of a real breakdown as the 1.1800 area in EURUSD and he 0.7200-0.7250 area in AUDUSD come into focus here and we await further news on stimulus. Australia’s central bank, the RBA, at its meeting overnight expressed an optimistic hope that the unemployment rate could peak at a lower level than feared while saying it was still looking for ways to stimulate the economy further if needed. Another weaker close for the US dollar through the levels note above, together with stronger risk sentiment from a stimulus deal, would set sights lower still for the greenback – toward 1.2000 in EURUSD and 0.7400+ in AUDUSD. Spot Gold (XAUUSD) and Spot Silver (XAGUSD) - both rallied on Monday as the dollar dipped on approved risk appetite amid optimism that lawmakers in Washington may still end up agreeing to another round of stimulus. Long maturity bond yields stablised after reaching a four-month high with traders increasingly pricing in a Biden win on November 3. Total holdings in exchange-traded funds backed by bullion reached a new record at 111 million ounces, another sign that investors are not yet done accumulating gold. We maintain a positive outlook and following Monday’s rejection in the low 1880’s the focus returns to resistance at $1920/oz. WTI Crude Oil (OILUSNOV20) and Brent Crude Oil (OILUKNOV20) - put in another strong recovery yesterday highlighting a market that remains stuck with the focus alternating between rising production, the pandemic’s impact on demand on one side and the prospect for a U.S. stimulus deal, weaker dollar and another hurricane threat growing in the Gulf of Mexico. Focus today, EIA’s monthly Short-Term Energy Outlook at 1600 GMT followed by the stock report from the American Petroleum Institute at 20:30 GMT. Having once again found support towards $39/b, Brent may have another go at the key band of resistance between $42.5/b and $43.25/b. Treasuries 30-year (30YUSTBONDDEC20) yields rose 14 basis points. Yesterday we saw the US yield curve steepening with the 5s30s spread widening by eight basis points. The 30-year treasuries yields have been rising 14 basis points in the day of yesterday. With President Trump returning to the White House investors expect the US election to run as planned, and the polls indicate easier election win by Biden. If the fiscal stimulus passes as well, we can expect a bear steepener to continue. Regeneron (REGN:xnas) - shares were up 7% yesterday as news broke that US president Trump had been treated with Regeneron antibody cocktail (developed in partnership with Eli Lilly and AbCellera Biologics) which currently has pending patent application and still has not got FDA approval. The antibody therapy is expected to be used in both treatments, but also as preventative drug also called a passive vaccine. Siemens Energy (ENR:xetr) - the company recently IPO’ed as a spinoff of Siemens, Europe’s largest industrial conglomerate, and has so far not gained any momentum down 1% from its opening price on first day of trading. However, recently analysts have started covering the shares with buy and outperform recommendations. Out of 12 recommendations, 10 are buys and 2 are holds. Consensus price target is €27.10, around 25% higher than yesterday’s closing price. The key catalysts mentioned by analysts are margin improvement from the current 5.9% EBITDA margin and attractive valuation. What is going on? US President Trump returned from hospital late yesterday. While questions linger about his condition and whether the virus’ impact could decrease his ability to campaign up to Election Day, the quick turnaround will lead many Republicans to claim that lockdown measures and fears of the disease are excessive if a person of Trump’s age and condition can recover so quickly (even if he had access to treatment unlike the average person, to say the least.) Asian bond primary market resumes. Asian dollar bond spreads are falling as investors move on after Evergrande scare. Contributing to the recovery is also the risk-on sentiment coming from the US as Trump returns to the White House and a stimulus package looks moving forward. To market bonds today are Baidu and the Export-Import Bank of Thailand. The reflation was alive yesterday with yields climbing. Longer term yields rose in the US on more stimulus hope from a potential Democratic clean sweep. Bolstering the reflation trade investors also bid up small-cap stocks and the same patterns were evident in European markets. What we are watching next? US Treasury auctions this week in focus as long US yield spike higher with some suggesting that the rise in yields is due to the shift in favour of a strong Democratic showing (including the taking back of the Senate) as the US election. Regardless, the US 30-year yield benchmark crossed above 1.50% for the first time since June and the US 10-year benchmark rose above 0.75% as the yield curve steepened ahead of a trio of options from the US Treasury starting today with a huge $52 billion auction of 3-year treasuries followed by an auction of 10-year Treasuries tomorrow and 30-year T-bonds on Thursday. US stimulus prospects now that Trump back in place to add urgency ahead of election – hard to tell whether the return of Trump to the White House makes a stimulus deal more or less likely, given Democratic outrage over the Republicans’ attempt to ram through a last-minute Supreme Court nomination in the days just before the election, but it is a critical issue for risk sentiment and the US dollar, which could weaken further on a stimulus deal of reasonable size. Jerome Powell and Christine Lagarde speak today. Yesterday we had Mester, the president of the Cleveland Fed, saying that she doesn’t see the size of bond buys rising, however the Fed could opt to concentrate bond buying to longer maturities. It will be important to understand whether Powell can give further details on that. In Europe, it will be important to understand whether the ECB sees further stimulus following weaker than expected inflation numbers last week. Delta Air Lines Q3 earnings on Friday will impact the entire global tourism and commercial aviation industry as one of the largest carriers will provide insights on the outlook but also current state of airborne mobility both domestically and abroad. TRY and RUB on Armenia-Azerbaijan conflict – the geopolitical stakes are high for Russia and Turkey over the hot conflict in the Armenian-majority enclave of Nagorno-Karabakh within Azerbaijan with the two countries supporting opposite sides in the conflict (Turkey supporting Azerbaijan while Russia nominally supports Armenia, although it would prefer that the conflict merely stop). The fresh hostilities have clearly impacted the two currencies and bears watching for further distress. Economic Calendar Highlights for today (times GMT) 0835 – ECB President Lagarde to Speak 1230 – Canada Aug. Int’l Merchandise Trade 1300 – ECB President Lagarde to Speak 1400 – US Aug. JOLTS job openings 1440 – US Fed Chair Powell to peak 1600 – EIA’s ST Energy Outlook 2030 – API’s weekly oil and fuel stock report Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:     John Hardy Head of FX Strategy Saxo Bank Topics: Macro Equities Commodities Forex Quick Take EURUSD AUDUSD Gold Silver Crude Oil Siemens United States

  • Election Uncertainties Dominate
    by Eleanor Creagh on October 6, 2020 at 2:00 am

    Fresh polling data cementing Bidens widening lead has seen risk assets price out some of the uncertainty surrounding a contested election and protracted legal battle Japan, South Korea and Hong Kong indices trade modestly higher, whilst E-minis and Aussie stocks are range bound, oscillating between gains and losses on the session. Reports a House panel will propose an antitrust overhaul and breakup of tech megacaps weighing on Nasdaq/S&P 500 futures. President Trump’s departure from hospital, along with optimistic rhetoric from lawmakers on the prospects of securing a fiscal deal in coming weeks has continued to support sentiment. In addition, fresh polling data cementing Biden’s widening lead has seen risk assets price out some of the uncertainty surrounding a contested election and protracted legal battle, as the probability of a clean sweep for the Dems grows. In this instance the increased probability of a large fiscal spend outweighing the negative impact of higher taxes. The increased fiscal spend and accompanying reflationary pulse boosting US economic growth also being broadly positive for risk assets globally. Early voting statistics show not only a surge voting supporting expectations of a record turnout, but also that Democrats have a significant lead in returned ballots so far. This looks like the trend we saw in the 2018 mid-terms has been continued, which works in favour of the Democrats. Particularly with the mid-terms seeing younger voters turnout increasing, voting overwhelmingly support House Democrats as key issues like the climate and racial equity resonate with strongly with this voting demographic. Although with Trump returning to the White House and adamant about resuming the campaign trail, we are reminded that the next 4 weeks may still bring fresh uncertainties surrounding the odds of a contested outcome. With the added possibility that the race may tighten again. Volatility and range bound markets will likely be a continuing feature of risk assets pricing a rolling reassessment of election uncertainties as the final dash to November 3 draws closer. Until there is clarity on the eventual policy path, it is likely the election cycle keeps risk assets in limbo. Another consideration, come November 3 if a clear winner emerges and the probabilities surrounding a messy, drawn out contested result are priced out, those corresponding hedges will be unwound quickly. This dynamic alone could easily see the market trade higher in the event of a blue sweep. This alongside the sector/industry specific beneficiaries which include - infrastructure, renewables, education, semiconductors and gun stocks (sales increase frontrunning regulatory concerns).  In summary, the short-term outlook is very much dominated by the election and corresponding uncertainties. However, aside from the uncertainties that go hand in hand with a contested election outcome and potential tail risks that emerge in the form of the social unrest that may eventuate if some believe the victory has been stolen, the election outcome (once known) may be less consequential than investors currently believe. The path of Fed policy and the COVID recovery trajectory, alongside the outlook for inflation, will likely be more important in the medium term for risk asset pricing. Although clearly the probabilities surrounding a clean sweep for the Democrats controlling both the House and Senate play into these factors. Eleanor Creagh Australian Market Strategist Saxo Topics: Equities US Election Elections Asia Central Banks Corporate Earnings Technology