One of the most anticipated days for the markets, the Election has approached us in the midst of one of the most turbulent years in the past decade. It is important to note the critical factors that the markets look for and a general overview of the markets.
Earlier today, as Biden strongly lead the race, commodity and equity markets were up firmly as the likelihood of a contested election faded away. However, with Trump planning to contest the election results alongside Trump claiming that the Democrats are stealing the Election by allowing votes to be continued after the ballots close, a contested election has come back into question. Markets started to retreat, with the Dow Jones pushing lower.
As predicted, volatility has been rocking the futures market today. Particularly with Gold, a commodity that was expected to do relatively well amidst the volatility has taken on an equity-like behavior instead of being a "save haven."
Equity markets have swung back and forth, with the S&P 500 and the Dow Jones being up / down 1% during the day. A little bit more consistent, the NASDAQ has been up above 2% for most of the day as many investors and traders retreat to tech stocks as a "defensive" play. With that said, U.S. futures near the tail end of the night grinded lower with European equities trading in the negative territory.
Another consistent player in the Market has been the U.S. dollar, as investors and traders sell positions to hold the U.S. It has rallied on risk-off trades. However, it has remained relatively flat. If you take a look at the cable, it essentially mirrors the dollar index.
The Democrats hope for a blue sweep have all but gone as Donald Trump clinches Florida and Ohio, battleground states that Biden hoped to win. Fabiana Fedeli, global head of fundamental equities at Robeco, said that "The blue wave trade has been going on since summer and has built up more recently, and I would expect to unravel now." However, she does warn that trading the outcome "makes no sense."
We can clearly state that we do not know what's going to happen in the next couple of hours. However, as all is said and done, markets should return back to a relative normal. Stay put. Stay safe and Trade safe.
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've talked about it for months. "There will be volatility coming into the election." "Safe havens may rally on the volatility." "The VIX is at an all time high."
Now we're in the neck of the storm. We are five days away from the election, and markets are trying to price in numerous possibilities alongside the Coronavirus's everchanging environment. In 5 days, we will know who will run the world's most influential country for the next four years.
Here's a couple of things you should know if you want to benefit from the possible wild swings the election may bring.
The election is on the 3rd of November, in the United States. However, there is a chance Trump contests the outcome if he does not win. If so, volatility in the markets may increase.
During market-moving events such as NFP and Central Bank, interest rate decisions affect respective currency pairs significantly. During these periods, traders and investors form their own opinion on what will happen and place trades. Therefore, Liquidity might be low, which may increase the spread (the difference between the bid and ask price).
During the election, there is a high chance fluctuation on who currently leads the race will occur, possibly whipsawing currency pairs as the votes come in.
This is important to note, as not only does this increase the cost of entering into a trade, but this may affect your stop losses and take profits. There is also a chance you hold your trade after market close on Wednesday; you may be charged with a triple swap.
You may remember, at the start of the year, when Coronavirus was slowly starting to pick up in the United States, the sharp market drops forced a halt in trading in equities due to the inbuilt Circuit breakers disincentivizing panic selling. For example, circuit breakers are set to halt trading in the S&P 500 when there is an intraday drop of 7%, 13%, and 20%.
During the election season, massive swings may force these circuit breakers off. This is likely not going to follow through in the CFD markets – however, this may force massive spreads when trading. Traders and investors should keep an eye out on the news during election day to avoid getting hit with high spreads.
Many traders and investors enjoy trading wild swings because a lot of money can be made in a short span of time. However, this also means a large amount of money can be lost in a short span of time. Combine this with wide spreads, which may force many traders to hold onto traders to recoup the spread's cost to break even. It is essential to have a stop loss that mitigates your risk as much as possible, with suitable take profits to manage losses.
It will not be a surprise that volatility will increase on election day. The only thing you can control is how you trade the volatility. Will you take care of your risk?
…And that excuse is the devaluation of the dollar. Gold is not immune to fundamental events. However, recently has been sideways for the most part of two months.
A theme revolving around Biden's win is the dollar's devaluation, with many banks calling a drop in the dollar if Biden is elected. Given the historical precedent of Gold rallying on dollar weakness, a Biden win may push the yellow metal higher. Furthermore, a sell-off in the equity markets on a Biden win may give Gold's tailwinds as investors and traders switch to risk-off.
Commerzbank Analyst Daniel Briesemann stated that the "Market will not doubt follow the talks in Washington very closely," and that "Gold could profit in the event of a deal because the U.S. dollar would presumably be in less demand then and would probably depreciate".
It is a simple recipe that revolves around the dollar's devaluation and its historically inverse relationship with Gold. Stimulus and Support from the U.S. government and the Federal Reserve are likely to depreciate the dollar, pushing Gold higher. Furthermore, a Biden win may incentivize a further sell-off in the U.S. dollar, again, pushing Gold higher.
Currently, Gold is sitting at $1,922 an ounce – Right on a very strong support/resistance level. It has been on a strong upwards trend from a drop in the previous symmetrical wedge. Furthermore, the highs to the trend's low constitute a full Fibonacci retracement. A break of the $1,958 level, which is another strong support/resistance level and is right on the 50% fib retracement level, before the election, may see Gold rally back to its all-time highs and seek further targets of $2,204.
However, a Trump win on election day may see a sell-off in Gold, with prices breaking the upwards channel down back to a full retracement to $1,847
Are you looking at Gold?
The Pound against the US Dollar is currently one of the most exciting pairs to be keeping an eye on, as it is essentially fighting between a rock and a hard place. Currently ranging just under 1.30, both nations have events coming up that will significantly shift the currency pair in either direction.
In the UK, we have Brexit negotiations affecting the Pound side of the equation. After the 30th of September passed, the UK is trying to buy time due to the worsening of the Coronavirus in Britain. There is pressure mounting onto Prime Minister Boris Johnson to ensure a deal goes through to avoid a compounding economic and human loss that a no-deal Brexit and terrible Coronavirus conditions bring to the UK.
According to a CNN Business analysis based on Citi and the Institute for Fiscal Studies forecasts, a no-deal Brexit could cost the UK economy $25 billion next year. Laurence Boone, Chief Economist at the Organization for Economic Cooperation and Development, stated that "The Combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain" and that "actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the United Kingdom's economic trajectory for years to come."
The election is heating up with current polls across the Ditch, showing Biden taking a double-digit lead over Trump, with Joe Biden polling at 54%, and Trump polling at 43%. Biden seems to have the advantage over Black, Latinos, Whites with a college degree, and young voters. Conversely, Trump's strongest group continues to be White Evangelical Christians, rural voters, and whites without college degrees.
However, for both, the Coronavirus continues to run rampant. Unfortunately, investors and traders assume that America has given up on the Coronavirus and is learning to live with the virus. They can't get a second wave since they have not finished their first yet. Therefore, a second partial lockdown in the UK in response to the second wave has weighed on the Pound stronger than the US's long first wave.
As for the pair, a Biden Victoria plus positive Brexit talks should push the Pound higher, and the US dollar strengthens, moving past that strong 1.30 mark. However, a Trump win and further deterioration of Brexit talks should see the Pound weaken, and the US dollar strengthens.