Red or Blue – What do the markets want?

by Oct 15, 2020Market Reviews

Blue or Red – What do the markets want?

Coronavirus. Vaccine? Biden. Next President? Brexit. Done in our lifetime? With a lot of uncertainty and volatility in the markets, what party do the markets want?

NASDAQ inverted head and shoulders?

Equity Markets

The historical sentiment was as follows – A Democrat government is said to increase taxes and increase spending on the welfare, therefore fewer earnings for companies, hence prompting a sell-off. This is somewhat true, with Joe Biden planning to implement a 4 trillion dollar stimulus plan, alongside an increase in taxes for people who make over $400,000. However, this round may be a little different. With Donald Trump’s Coronavirus’ response regarded by many as the Achilles heel for the United States recovery, the markets are slowly accepting a potential Democratic sweet. Now, investors, analysts, and traders are trying to see what a Democratic government will be in the future. Goldman Sachs Analysts stated in a memo that “All else equal, such a blue wave would likely prompt us to upgrade out forecasts,” citing that a stimulus package after January may “at least match” the downsides of a tax increase. So what are the Equity Markets looking for? Well, either really – either a Republican or Democratic government will see a stimulus bill come sometime soon. However, a Republican government will see a stimulus bill and security in lower taxes for the foreseeable future. Therefore, there is a slight tilt for Republicans to get into power for the stock market to push higher.

Commodity Markets

For Oil and Fossil fuel energy, it is relatively easy to discern that they do not want the Democrats to get into power. The reason? Biden’s $2 Trillion climate change plan towards greener energy. This would prove detrimental to oil giants such as Exxon and Chevron and may prove deadly for the US Fracking industry. The transition from Fossil fuels to cleaner sources of energy is starting to take place alongside the eventuality of Fossil fuels being cycled out. 

There was a scene in the TV show “Billions,” where one of the main characters convinces a Fossil Fuel giant to start the green initiative – on the basis that they will be there first when the eventuality comes, and they stand to reap the most profit. Logically, this makes sense, and we are seeing giants such as BP take this approach. However, for their shareholders now, a blue sweep with wining profits and betting on an investment will pay off in a decades’ time? Terrible for the stock and the prices of Fossil Fuels.

Oh, did we mention the effect of Covid-19 on oil demand?

For Gold, its market thrives on volatility, which is no doubt is going to get. As we head into the elections and the Fed continues to pump the economy, we should see certain tailwinds boost Gold. As for what the yellow metal wants to be in power? Unsure. Both Democrats and Republicans will have the Fed continuing to lift the markets alongside further stimulus, which should weaken the dollar and boost inflation. 

Currency Markets

The US dollar wants the Republicans to get in, as a blue sweep may increase the costs of goods for exports out of the United States, therefore decreasing the demand for US goods. Many banks echo this sentiment, with Goldman Sachs, UBS, and Invesco Ltd predicting a weaker dollar on a Biden Lead.

 Volatility is coming – Stay Safe, Trade Safe.

 

Related Posts

The First Rule of Trading Forex

The First Rule of Trading Forex

Have you ever found that your trading system works great one day but fails miserably the next? If so, your problem is likely market-type identification. Too many forex traders will trade the same way no matter how the market is behaving. Instead, you should identify the market type first. Then, you can devise a strategy appropriate to that market type. Sounds simple, right?

read more
India; Heavy Industry pulling more than its weight in the NSE and SENSEX

India; Heavy Industry pulling more than its weight in the NSE and SENSEX

​While India is dealing with one of the worst health crises in its history, its leading stock indices are holding steady. The stability is likely linked to the rise in heavy commodity prices such as copper and aluminum. Indian heavy industry companies included in these indices are benefiting greatly from the increase in commodity prices. The share price in some heavy manufacturers is up by more than 20% over the month. With the rise in commodity prices, the NRI has strengthened to yearlong highs against the USD. In contrast, the NRI is struggling to gain ground against its other major partners.

read more
What does the Reserve Bank of New Zealand think about house prices?

What does the Reserve Bank of New Zealand think about house prices?

The rise in New Zealand house prices over the past 12 months has been extraordinary. As a result, Finance Minister Grant Robertson has moved to increase the scope of the Reserve Bank’s concerns. Moving forward, the Reserve Bank must consider the price of NZ property in conjunction with the other issues it monitors and controls. Since its new mandate, the Reserve Bank has begun to flesh out its understanding of the country’s housing crisis and how it will affect its policy decisions.

read more

Black Bull Group Limited (trading name: BlackBull Markets) is a New Zealand registered and incorporated company (company number: 5463921).
We are also registered with the Financial Services Provider Register (number: FSP403326).

Black Bull Group UK Limited is registered in United Kingdom, Company Number - 9556804. Payment clearing services provided by: BlackBull Group UK Limited (Company Number - 9556804) Address - 483 Green Lanes, London, Greater London, United Kingdom, N13 485

Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.

All payments related to the Paysafe Group are facilitated by Black Bull Group Limited.

Copyright © 2021 Black Bull Group Limited. All Rights Reserved.

Share This