Two major announcements coming from the Biden administration have had a significant effect on Thursday trading. The first announcement, centered on the US’s renewed focus on clean energy, had a hard time countering the second announcement, regarding a hike in capital gains tax rate. Consequently, some sectors related to clean-tech are up, while the market as a whole closed down.
With over 93 Million US Citizens voting early, surpassing two-thirds of all 2016 and consisting of 43% of registered voters, the United States election is finally two days away this week ahead. Many regard this as one of the most important Presidential Elections in history, possibly changing society's fabric in the United States for the foreseeable future.
Although the Presidential Election will probably get most of the attention, this week continues to be eventful with a lot of data being released. Here is your week ahead.
Dates are in NZDT.
A key point in Trump's campaign in 2016 was his promise to bring jobs back to America. However, an amended NAFTA agreement, alongside many more amendments to foreign policy, has lost many manufacturing jobs. For example, over one in four Michigan manufacturing jobs have been lost since the NAFTA agreement amendment.
The Coronavirus has just brought more pain to the sector, with an estimated 381,000 manufacturing workers in Michigan, Ohio, Wisconsin and Pennsylvania were laid off or furloughed – with all, but one (Pennsylvania) states being in the midwestern part of the USA. These states were one of the key reasons why Donald Trump was elected in 2016.
As states slowly open up, the Coronavirus continues to run rampant, affecting workers employed in the manufacturing sector. Unlike the tech and finance sector, manufacturers can not work from home. With that said, the US's ISM is predicting to increase slightly from last month to 55.6 this week ahead, as suppose to 55.4 last month.
Australia reached a positive milestone yesterday – zero community transmission. The country has a long road to recovery ahead of them, and the Reserve Bank of Australia acknowledges that. With dovish tones in the previous RBA minutes, analysts predict a 150 point basis cut, from 0.25% to 0.1% tomorrow. However, Insight Manager at Finder, Graham Cooke believes that further cuts will not make dramatic changes to the finances of ordinary Australians, stating that "a further 10-15 point basis cut us unlikely to have much of an impact on the economy –however, our experts seem to think that the RBA is in "every little bit helps" mode."
Furthermore, Retail Sales will also be released a day after the decision. Analysts predict a further 1.5% decline in Retail Sales as the Coronavirus continues to take a longer-term toll on employment.
The event everyone and I mean everyone, including your mother, will be watching.
There is nothing much to say about this other than to buckle in. Many polls state that Biden is likely to win. FiveThirtyEight predicts that in 20 out of 22 scenarios, Biden is stated to win. Other polls from firms such as RealClearPolitics see Biden leading over 9%.
Judging by the polls, the only way Trump can win is if he wins all of the swing states. The popular vote in NYC and California have Biden to win anyways, which means the popular vote will be absorbed within the Electoral college (tl:dr, the RealClearPolitics poll may be closer than is stated).
However, the polls showed Hillary winning in 2016. And we all know what happened then.
The UK has finally imposed a stricter lockdown (however, not a full lockdown) on citizens for one month, with analysts predicting that the lockdown may be extended further to allow the UK to have their Christmas not under lockdown. The Bank of England is set to inject over 100 Million pounds buying back bonds to fight the second wave.
However, this may not be enough, with analysts at HSBC predicting that the BoE's bond-buying regimes are "running out of room," which may leave the central bank with no choice but to implement negative rates. Governor of the Bank of England, Andre Bailey, has not ruled negatives rates but has described evidence of their effectiveness as "pretty mixed" and that negative rates might be most effective when an economy is in a recovery phase for the economy to take full advantage of the negative rates. Analysts predict rates to stay at 0.1%.
A key indicator showing how well the US economy is recovering, Non-farm payrolls is predicted to print 700,000 new jobs, up from 661,000 the month before.
This week ahead is going to be a turbulent one. Strap yourself in, and brace for the ride.
Stay safe, Trade safe. Have a good week!
We are 13 days away from the election. Many polls state that Biden is winning the votes – however that’s what happened in the 2016 election. With big banks citing a decline in the Dollar over a Biden win, what will happen to commodity currencies such as the Australian Dollar and the Canadian Dollar against the US Dollar?
The Australian Dollar against the US Dollar has had a strong comeback, up 30% from its March lows. This was due to Australian commodity prices such as copper, nickel, and iron rebounding as manufacturing restarted worldwide.
If Biden were to be re-elected, a risk to the Australian Dollar is his supposed $2 Trillion push for a greener future, pushing initiatives that would create the opportunity cost for using cheap power sources such as oil and coal as supposed to greener alternatives such as solar and wind, lower. A report by BloombergNEF showed that the “Levelized cost of electricity for onshore wind projects has fallen 9% to $44 megawatt-hour since the second half of last year… with solar [declining] 4% to $50 a megawatt-hour”. They also cite that prices are lower in countries such as the United States, China, and Brazil, and that “Best in class solar and wind projects will be pushing below $20 per megawatt-hour this side of 2030”. This is not good for commodity currencies such as the Australian Dollar and the Canadian Dollar, as they are notoriously known to sell off when green policies are enacted.
Therefore, it is likely that the Australian Dollar will sell off if Biden is elected. Given a predicted selloff too in a US dollar, we may see the pair make a violent move to the downside. Near the end of September, we saw a selloff in the pair, retesting that healthy 0.7 support level. The AUD/USD has been ranging ever since between the 0.7 and the 0.725 marks. However, a Biden win may see the currency pair down to 0.6925, a historically strong support/resistance level, and a full Fibonacci retracement from 0.74 to 0.6925.
Are you looking at the Australian Dollar?
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?
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.
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.
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.