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Trading the US Election? Read this

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 day of the election

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.

Spread are likely to widen

Spread during NFP an NFP annoucement

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.

Circuit Breakers may be triggered

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.

Volatility may provide great gains, but also great losses

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?

NASDAQ sits above 11,000 after Trump TikTok Ban

NASDAQ is up 1% fueled by President Donald Trump issuing an executive order banning U.S. residents from doing business with Chinese owned TikTok and WeChat 45 days from now.

NASDAQ in Blue, Facebook (FB) in Orange

With the election 90 days away, some critics may point to this latest move as a hail Mary to gather up votes before the election. However, the U.S. government has cited security risks that take users' data from both apps and allow the Chinese Communist Party access to American's personal information. While TikTok denies all claims regarding the CCP's access to the platform's information, TikTok's terms and conditions state that the company may share information with its parent, subsidiary, or other affiliates, including Chinese businesses and law enforcement legally required to do so.

Paul Triolo, Head of Global Technology Policy at Eurasia, states the ban is akin to a "U.S. – China technology war." "The U.S. government is targeting these two very popular Chinese apps, and basically, they have national security problems." Furthermore, from the think tank New America, Graham Webster states that "A ban on WeChat could be consequential because it would practically shut down communication between U.S. and China."
However, specifically with TikTok, President Donald Trump has given them an out: Sell their U.S. related parts to an American company. The logic being, a trusted American company, will not turn over U.S. data to the Chinese government. Recently, the company that has been in talks to purchase the U.S. operations of TikTok is Microsoft. Furthermore, with a stellar reputation and over $184 Billion on the balance sheet, the U.S. technology conglomerate is in a good position for any acquisition.

Microsoft x TikTok in the future?

This will test Satya Nadella's deal-making skills, as it is either a ban on TikTok or a purchase from Microsoft; therefore, they have a decent amount of leverage over TikTok regarding the acquisition price. Furthermore, with a suggested price of $50 Billion for the U.S. business without any negotiation, around $25 - $30 Billion on $3 Billion of earnings will represent approximately 8 – 10 times earnings acquisition price. In comparison, Facebook currently trades at 30 times earnings. This may be a lucrative deal if Microsoft can pull it off.

NASDAQ futures are up around 1%,sitting healthily about the 11,000 level, Facebook led the charge up 6.59% as they take advantage of the situation by releasing their TikTok alternative, Facebook reels. Just one week ago, Facebook's CEO, Mark Zuckerberg, testified to Congress just last week regarding anti-competitive practices.

With Non-farm payrolls coming up, retaliation from China and/or further pressure from the U.S. government may provide a volatile trading session.

Euro eyeing out 1.18 against the dollar

The Euro has been on a tear recently, up 8.55% against the US Dollar over the past three months as investors become increasingly more confident in the continent.

Euro against the US Dollar over the past three months

Euro advancing on positive and united Coronavirus response

The European Union recently has had many tailwinds as of late: Containment of Covid-19, general alignment in how to combat the Coronavirus, and their 75 Billion euro recovery package lead investors to believe that Europe is where outperformance is.

Given the recent expansion in the valuation of US equities, specifically tech stocks in the NASDAQ, the premium for owning non-cyclical internet businesses have been quite expensive. The NASDAQ trades at a 29.88 multiple, making value stocks such as banks in Europe look dirt cheap. For example, UBS and Deutsche Bank have a price/earnings ratio at 9.69, and Deutsche Bank has a negative P/E ratio with both trading at price/book value of less than 1. Therefore, the Euro may be getting a boost from US investors pulling their money out of the local market and investing in companies in Europe.

There has been an increase in technical factors pushing the Euro higher. Recently, we have seen the EUR/USD push above its 200-day moving average during its recent push past 1.17. The last time the Euro pushed past the 200-day moving average was in 2018. We may see Euro gap 1.18 on worsening US macro conditions and a more pessimistic view from the Fed than was expected this coming week.

US Dollar Index

However, the Euro’s strength may be partially due to the weakening in the US Dollar. The Dollar index is down 6.58% in the past three months. With the US still pumping cases across the states with no official Coronavirus plan, investors have lost interest in the US Dollar safe-haven trade as value pops up across Europe. With that said, the US reported 65,809 daily cases, a 1.6% decrease from the previous weeks’ 7-day moving average. This is a positive sign for US strength; however, this is still miles away from flattening the curve, as many other countries have done.

Anish Lal, an analyst here at BlackBull Markets did an excellent overview on the 200 day average for the Euro/US Dollar. You can watch it here.

Week Ahead: Rates, Jobs, GDP and CPI Data

The Financial Markets have a heavy data week ahead. With geopolitical tensions ratcheting up, and concerns turning to how governments will slowly pull back their unprecedented support, we are starting to see how the world reacts to a post-Covid world. Currently, they are 8.92 Million confirmed cases globally, with 467k deaths. Here is your week ahead.

Global Coronavirus Cases in Blue, Coronavirus Deaths in Red

Reserve Bank of New Zealand Interest Rate decision –  Wednesday, 24th June

With New Zealand entirely out of lockdown, threats of random Coronavirus cases popping up have increased. Facts have emerged from individuals entering the country with special exemptions and not adhering to the quarantine rules. Currently, the country has 1,161 confirmed cases, with 22 deaths. With the RBNZ implementing asset purchases of $30 Billion, the central bank was ready to take the full brunt of the Coronavirus for the financial markets. With that said, analysts predict the central bank to keep rates as is at 0.25%. Chairman Adrian Orr stated that negative rates are not out of the question; however, it is highly unlikely and will not come till next year. (Also a partial reason as to why negative rates could not be implemented in the first place is due to banks’ computers not being able to handle negative rates)

ECB Monetary Policy Report – Thursday, 25th June

Similarly, to New Zealand’s Reserve Bank, the ECB has dedicated a sizable chunk to help the European economy recover from the Coronavirus. The Policy meeting hopes to discuss the future of the European economy, future monetary policy stance, and provide guidance on economic developments. This report will be fundamental in determining the mindset of the ECB, and what the future financial environment will be in the European Union.

US Initial Jobless Claims, US GDP Growth rate QoQ and US Core Price Index – 25th, 26th and 27th June

With Coronavirus cases increasing above their average in many states, the virus remains front in center for many Americans. With election season coming up, President Donald Trump has resorted to opening the states with regard to the rising cases. Peaceful racial protests continue to fuel the spread of the Coronavirus. The previous unemployment claims dropped to 1.52 million last week, showing signs of American citizens going back to work. Analysts predict that figure to drop to 1.508 Million unemployment claims. With the consumer being touted as the backbone of the American economy, hopes are on the consumer to provide that initial boost to the economy. Analysts predict a drop of the Core Price index to 0.9% year over year, down from 1%. Furthermore, analysts predict a -5% Quarter over Quarter growth rate.

Investors and traders need to be careful of sudden policy changes affecting their trades and investments in the week ahead. Here is your market recap over the weekend

Happy trading!

Week ahead: Fed Powell Speeches, consumer data

Traders should brace for a volatile week ahead as the world starts its road to recovery. The 17th day of protests continues for the killing of George Floyd, with the United States seeing spikes in Coronavirus cases. In comparison, New Zealand has no Coronavirus cases as is fully removes Coronavirus restrictions, while Japan, Korea, the United States, and Australia prepare for a potential second wave. Currently, the world approaches 7.53 Million Coronavirus cases, with 421k deaths. Here is your week ahead.

All dates are at NZDT.

Jerome Powell Testifies and FED Speech – Tuesday 16th and Friday 19th June.

With the FED leaving rates unchanged at 0.25% alongside promising low rates until at least 2022, Chairman Jerome Powell sent dovish signals to the markets. Both speeches this week should mirror each other, with both speeches possibly being market movers concerning the USD and the major indices. With an increase in outbreaks in individual states, a second wave is definitely on the table for the United States. This is in contrast to Anthony Fauci stating that the “US may not see a second wave” and President Donald Trump insisting that “[the government] are not going to close the country” if there is a second wave.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

RBA Meeting Minutes and Australian unemployment rate – Tuesday 16th and Thursday 18th June.

With citizens experiencing a fairly non-restrictive Coronavirus period, Australia has had similar results to New Zealand without an extreme lockdown. However, with random Coronavirus cases popping up in sporadic places, with protests increasing the likelihood of the spread of the Coronavirus, it is not clear whether their method prevails. Futhermore, Australia plans to lift virus curbs by the end of July. Analysts expect a relatively coordinated speech at the RBA meeting minutes conference, backing the RBA’s decision to keep rates at 0.25%. Furthermore, analysts predict an increase in unemployment to 7%, from 6.2%.

Bank of Japan Interest Rate Decision - Tuesday 16th June

With Tokyo reporting 47 new Coronavirus cases, Japan is preparing for a second wave of the Coronavirus. Facing pre-Coronavirus issues such as an aging population and slowing GDP alongside an increase in unemployment, analysts predict a change from -0.1% rate currently; however, uncertainty plagues the decision.

 

GBP Unemployment and Consumer Price Index - Tuesday 16th and Wednesday 17th June

With one of the worst fatality rates in the world, the UK is likely to be struck in the next couple of months with regards to consumer spending and unemployment. Furthermore, Prime Minister Boris Johnson has been touting a 10% unemployment rate by Christmas rate not seen since the 1930s. CPI growth is set to fall to 0.5% from 0.8% as consumers restrict their spending due to the Coronavirus.

The second wave will likely dictate the course of the market in the next following weeks. Therefore, investors and traders should specifically be cautious on the upcoming US data in the week ahead, as flares up in Coronavirus cases have been slowly increasing.

Stocks tumble as much as 7% after FED meeting and Jobless Claims

Stocks tumble as investors' optimism is crushed on the dovish tone from Jerome Powell's meeting yesterday. The NASDAQ continues to drop, currently at 4.8%. The Dow Jones at the SP500 is down 7% and 6%, respectively. Big tech, a leader in the bull market, could not withstand the sell-off, down around 4%.

SP500 (Blue), Dow Jones (Red), NASDAQ (Orange)

Powell scaring stock investors away

Powell's message to the Stock Market was summarized in one statement yesterday – "We're not even thinking of raising rates." He believes the toll from the Coronavirus will continue to weigh on the economy for a prolonged period, requiring accommodative financial conditions. However, his answers to press questions suggested that negative interest rates were off the table for the FED. This may indicate that they will likely keep that printer working overtime to help the economy recover. The USD may see some deflationary pressure over the long run.

However, with the FED essentially pledging to help the American economy at whatever cost, the sell-off may be a general reaction to Powell's dovish statements yesterday. With asset purchases predicted to be at around $120B per month, investors may find the selloff as a good entry point for a potential bullish run on the back of FED support.

Unemployment still front and center

There are tentative signs of the American economy slowly starting up again. Unemployment claims fell to 1.52 Million last week, showing signs of American citizens going back to work. However, with a record 6.65 Million applying for unemployment benefits in early March, we may have just adjusted our eyes to seeing the world million with unemployment claims. However, as a whole, we should not take it as a positive sign for the medium-term prospect of the US economy. 1.52 Million applying for unemployment is still terrible, with 20.9 Million still receiving unemployment benefits.

The second wave is still on the table, with states such as Texas, Florida, and Arizona seeing jumps in Coronavirus cases as people start going about their daily lives. However, as cases arise, the Government Coronavirus task force has been set to weekly meetings instead of the previous regular meetings. It's said that President Donald Trump has not attended these meetings since late April.

However, it would be unfair to single out the United States government performing poorly during this Coronavirus pandemic. The government's delayed response has given the UK one of the worst death rates from the Coronavirus in the world. This has caused the public to lose confidence in Prime Minister Boris Johnson's government. From a senior advisor breaching lockdown rules to Boris contracting Coronavirus after shaking hands with patients who had Coronavirus, the UK mirrors something like that of the United States. The UK has chosen to try and contain the virus, loosening lockdowns hoping the NHS can cope with the rate of infections. The FTSE 100 is down 4% today.

Are you buying the dip?

Week ahead: GDP, FED Decision. Markets Recap

It has been a turbulent week for the markets and social stability. The markets extend their risk on rally during protests around the world for the death of George Floyd and a surprising 2.5m jobs that were created for non-farm employment. This is your week ahead.

The SP500 has gapped higher at the start of each trading week

All dates are in NZDT.

Japan’s GDP Annualized – Today, 8th June

Japan is an example of a nation that has returned to a relativel normal without fully squashing the curve. This is slowly showing the cracks of their method of not officially entering a lockdown, as the daily number of average cases grow. With an aging population and slowing pre-coronavirus GDP rate, a growing Coronavirus case may not bode well for the long-term view of Japan’s GDP. Analysts forecast a drop in the growth rate by -2.3%.

 

Euro GDP Growth Rate Year over Year – Tuesday 9th June

With Italy and Spain opening their borders after a brutal Coronavirus period for both countries, citizens are looking forward to a relatively familiar normal. With the EU’s GDP predicted to shrink by 8.7%, Christine Lagarde led a charge for the ECB to inject an extra $1 Trillion into the economy. There have been 6.8M Coronavirus cases confirmed, with just under 400k deaths.

Federal Reserve Interest Rate Decision – Thursday 11th June

A turbulent week for the United States with protests over George Floyd’s death engulfing the public with rage. However, markets seemed to ignore the unrest, rallying on unexpected news such as the 2.5m Jobs non-farm jobs gained – a far cry from the anticipated 13.3 million job loss. Analysts predict Federal Reserve Chairman Jerome Powell to keep rates steady at 0.25%. However, investors may be interested in Jerome Powell’s Economic Projections on the same day for market-moving statements. 

United Kingdom’s GDP Year over Year – Friday 12th June 

Suffering one of the highest death rates for the Coronavirus at around 14.17%, the UK government has had many controversies with regards to their response to the pandemic. Finance ministry officials predict that the government deficit could swell to over 337 Billion pounds this year from just 55 Billion in March. GDP YOY Growth is expected to drop by 22.3%.

Market recap

This week ahead: Jerome Powell Testimony, Inflation rates

Markets brace for the week ahead as the Coronavirus continues to disrupt the world order. As the death toll has topped 300,000 worldwide, markets have shown a tentative appetite towards risk-on assets. Oil is up 7.45% the past week, with the S&P 500 down 1.58%. Gold is up 2.3%.

Oil in blue, S&P 500 in red, Gold in orange. Figures below are in USD, dates are in NZST.

Japan's GDP Growth Annualized – Today, May 18th

As Japanese residence defying lockdown rules, analysts predict a 4.6% contraction in annualized GDP growth. The government issued a $1.1 trillion fiscal stimulus package in early April, which including lowered interest rates and asset purchases. This  stimulus package represents 21% of their GDP. in With an aging population and a slowing pre-coronavirus GDP growth rate, investors and traders will be looking for any positive sentiment in the report today to bolster the JPY as a safe-haven currency.

Fed's Jerome Powell to testify to congress - Tuesday, May 19th

A key event to watch for traders and investors, as sentiment from the FED chairman Jerome Powell this week may affect the dollar significantly. However­, he has been quite vocal in the strength in the American economy. "In the long run and even in the medium run, you wouldn't want to bet against the American economy. The American economy will recover". However, he also voiced his doubts concerns, stating that "for the economy to recover.. that may have to await the arrival of a vaccine." This is on the back of President Donald Trump stating that the Fed chair was his "Most Improved player." The Fed has implemented deep cuts to the Fed funding rate, and a unlimited quantitative easing scheme extending to bond ETFs.

United Kingdom's Employment change and Inflation rate; Tuesday, May 19th and Wednesday, May 20th

The United Kingdom has one of the highest Coronavrius fatality rates in the world, currently sitting at aorund 14.3%. The government has pledged a fiscal package totaling $520 Billion, $50 Billion of which going towards employment relief. Analysts predict a 65,000 decrease in the number of people employed. This comes a day before the United Kingdom releases its Core Inflation Rate. With people being locked in their own homes, analysts predict a drop in the rate of inflation this week to 0.8%, down from 1.5% a month before.

Canada's Inflation Rate - Thursday, May 21st

With one of the countries not implementing a strict lockdown, Canada has done relatively well. Alongside the government's quick actions and Canadian residence adhering to a self-imposed lockdown, currently their fatality rate stands at 7.5%. Similarly to the UK, analysts predict a slight drop in the rate of inflation to -.1%, down from 0.9% a month before.

This week ahead: US and Eurozone GDP

On January 11th, China announced its first death related to the Coronavirus. 120 Days later, the pandemic has wreaked havoc in the lives of all. This week ahead marks many important indicators that, in regular times, would be an indicator of the prosperity of the global economy. We now look to the same indicators and quantify the damage Coronavirus has done to our lives and the global economy. Note: Dates are in NZST. 

Coronavirus Cases across the world - ABC News

China’s Inflation rate – Tuesday, May 12th

The People’s Bank of China has been wary of cutting their lending rates in favor of direct approaches, such as bond issues and direct lending – a stark contrast to how many central banks tackled the issue Coronavirus. However, due to implementing one of the strictest lockdown measures at the epicenter of the virus, consumer demand has been shattered. The PBOC in a statement stated that “ there was no foundation for persistent inflation or deflation in the country” Analysts predict a 3.7% inflation rate, down from 4.3%.

Inflation rates US – Wednesday, May 13th

In contrast, the US government has favored bolstering financial stability of households – providing them with stimulus checks to keep the economy afloat. This is on the back of the Federal Reserve announcing an unlimited quantitative easing program. These measures are textbook ways in which the rate of inflation increases in the long run. However, the consensus has been that it is more important to keep the economy afloat and worry about inflation later. Analysts forecast a 1.7% inflation rate, down from a previous 2.1%.

Interest Rate Decision RBNZ – Wednesday, May 13th

With one of the lowest coronavirus fatalities in the world, New Zealand has been praised for its swift and immediate response to the threat of the Coronavirus. However, this has not shielded them from the economic shortfalls a retraction of demand has caused. With the RBNZ expecting to double their quantitative easing measures, it remains to be seen whether their aim of keeping inflation between 1% and 3% is feasible. Analysts predict the RBNZ to keep interest rates at 0.25%.

UK GDP – Wednesday, May 13th

With having the worst fatality rate concerning the Coronavirus of around 16%, analysts forecast the UK to revise their GDP rate down from 0.1% to -2.9%. This is on the back of their Prime Minister, Boris Johnson contracting the Novel Coronavirus. The UK is set to slowly come out of their 7-week lockdown as their infection rates slowly decline.

Eurozone GDP – Friday, May 11th

With the Eurozone thriving over the free travel between Europe’s borders, lockdowns across the continent have severed this fundamental backbone of the European nations. Alongside devastating Coronavirus figures from the UK and Italy, analysts are forecasting a 3.3% drop in GDP year over year, in contrast to last year’s 1% growth.

US Retail sales – Saturday, May 16th

With lockdown measures across the United States and all across the world, in person, retail sales have suffered gravely. Retail sales fell 8.4% in March, with clothing and accessories suffering the worst plunging 50.5% in March. This is on the back of JCPenney and Neiman Marcus filing for Chapter 11 bankruptcy. Analysts forecast a further 12% drop in retail sales.