A minor hiccup or a sign of things to come?
If the lawsuit were to gain traction, sentiment could sour rapidly. The supply of new shares is a risk factor that must be closely watched as the market is ultimately a game of demand and supply.
The aggressive sell-off from the highs without a clear catalyst is worrying. Was it more uncertainty around the stimulus package after recently heightened hopes of a deal or the lawsuit from some US states to overturn Biden’s electoral victory at the Supreme Court? Or it was just a correction from the recent supply of new supply from IPO after IPO from various tech companies?
Whatever the trigger might be, fundamentals remain intact, but caution is warranted. If the lawsuit were to gain traction, sentiment could sour rapidly. The supply of new shares is a risk factor that must be closely watched as the market is ultimately a game of demand and supply.
- Gold & Silver — Major support for Silver remains at 21.80–90. Gold support is at 1750–60. Just when the going seemed good, it turned rough.
Key risks — A risk to be watched is the lawsuit by the group of red states and Trump to overturn the results of the election at the US Supreme Court. Higher US interest rates and a stronger USD remain the key risks.
WHAT HAPPENED YESTERDAY
- Dollar ended the day higher against most currencies in choppy trading on Wednesday, as progress in battling the coronavirus pandemic with positive vaccine news, yoyo-ing prospects of more U.S. fiscal stimulus and a reversal from positive risk sentiment in U.S. afternoon trading resulted in a volatile session. Both the AUD and CNH (USDCNH) hit 2–1/2-year peaks in early trading before it retreated from the highs as falling stocks sparked a minor USD recovery.
- With U.S. coronavirus cases exceeding 15 million on Tuesday, regulators moved a step closer to approving a COVID-19 vaccine, while Britain started inoculating people on Tuesday. As for stimulus, Treasury Secretary Mnuchin offered a new $916 billion stimulus bill, but Democratic Congressional leadership didn’t like the fact that it excluded enhanced unemployment benefits and preferred to focus on the $908 billion bipartisan plan instead.
- British Prime Minister Boris Johnson and the European Union’s chief executive gave themselves until Sunday for last-ditch negotiations on a post-Brexit trade deal after failing to narrow differences during a “frank discussion” over dinner in Brussels. Johnson did not want to leave “any route to a possible deal untested”, and so he and European Commission President Ursula von der Leyen had agreed to further discussions over the next few days between their negotiating teams.
- The Bank of Canada on Wednesday left its key interest rate unchanged at 0.25%, as expected, and said it would maintain its current policy of quantitative easing, balancing the ongoing COVID-19 risks against vaccine optimism. The central bank, in a statement outlining its final rate decision of 2020, reiterated that rates would remain at their effective lower bound until economic slack is absorbed, which will not happen until into 2023 under its current projections. BoC also noted that stronger demand was pushing up oil prices and seemingly shrugged off the recent strength of the CAD, attributing it to a broad-based decline in the U.S. exchange rate.
- Each of the major indices began Wednesday’s session at record highs, but a decline led by the Nasdaq Composite (-1.9%) unfolded throughout the day amid profit-taking pressure. The S&P 500 declined 0.8%, the Dow Jones Industrial Average declined 0.4%, and the Russell 2000 declined 0.8%.
- The Nasdaq really started to tumble following the DoorDash (DASH 189.51, +87.51, +85.8%) IPO at around midday. DASH shares opened at $182 per share after pricing its IPO at $102 per share, accentuating the frenzied demand for IPOs and representing a speculative excess in high-growth areas of the market.
- Besides the new supply delivered by DoorDash, other negative headwinds included continued stimulus disagreements and big-tech regulatory concerns. The latter stemmed from the FTC and U.S. states officially filing separate lawsuits against Facebook (FB 277.92, -5.48, -1.9%) over its business practices.
- Britain’s medicine regulator has advised that people with a history of significant allergies do not get Pfizer-BioNTech’s COVID-19 vaccine after two people reported severe adverse reactions on the first day of rollout.
TRUMP AND 17 STATES BACK TEXAS BID TO UNDO HIS ELECTION LOSS AT SUPREME COURT
President Donald Trump and 17 U.S. states on Wednesday threw their support behind a long-shot lawsuit by Texas seeking to overturn his election loss by asking the U.S. Supreme Court to throw out the voting results in four states.
Trump, defeated by President-elect Joe Biden in the Nov. 3 election, filed a motion with the court asking the nine justices to let him intervene and become a plaintiff in the suit filed on Tuesday by Republican-governed Texas against Georgia, Michigan, Pennsylvania and Wisconsin.
If the justices let Trump join the lawsuit, it would create the extraordinary circumstance of a sitting U.S. president asking the top American court to decide that the millions of votes cast in the four states did not count. The Republican president lost to Biden in the four election battleground states after winning them in the 2016 election.
Writing on Twitter, Trump said, “This is the big one. Our Country needs a victory!”
Texas also asked the Supreme Court to delay the Dec. 14 date for Electoral College votes to be formally cast, a date set by law in 1887.
FACEBOOK FACES U.S. LAWSUITS THAT COULD FORCE SALE OF INSTAGRAM, WHATSAPP
Facebook Inc could be forced to sell its prized assets WhatsApp and Instagram after the U.S. Federal Trade Commission and nearly every U.S. state filed lawsuits against the social media company, saying it used a “buy or bury” strategy to snap up rivals and keep smaller competitors at bay.
The lawsuits highlight the growing bipartisan consensus to hold Big Tech accountable for its business practices and mark a rare moment of agreement between the Trump administration and Democrats, some of whom have advocated breaking up both Google and Facebook. The complaints on Wednesday accuse Facebook of buying up rivals, focusing specifically on its previous acquisitions of photo-sharing app Instagram for $1 billion in 2012 and messaging app WhatsApp for $19 billion in 2014.
Federal and state regulators said the acquisitions should be unwound — a move that is likely to set off a long legal challenge as the deals were approved years earlier by the FTC.
Facebook’s Chief Executive Mark Zuckerberg told employees in July that Facebook would “go to the mat” to fight a legal challenge to break up the company, calling it an “existential” threat, according to audio of internal company meetings published by The Verge.
THEMATIC CONTEXT: “These days, Big Tech is synonymous with the “establishment” that the regulators are typically incentivised to resent. Breaking up Big Tech plays to the advantage of trying to stand up for the average American and standing up for small businesses regardless of how useful it is in practice. For comparison, the DoJ’s suit against Microsoft took almost 2 years, and when Microsoft was ruled as a monopoly in Nov 1999, (its shares had nearly tripled in that time) it subsequently went on to tumble 66% (from highs 59.97 to lows 20.12, primarily because of the bursting of the tech bubble)”.- 21st Oct 2020
CRIMPED U.S. DRY ICE SUPPLY COMPLICATES RURAL U.S. VACCINE RELEASE
As health officials from rural areas prepare to vaccinate people scattered over thousands of miles in what could be the most complex such campaign in U.S. history, they face the additional challenge of finding enough dry ice to keep a Pfizer vaccine that must be stored at sub Arctic temperatures from spoiling.
The vaccine developed by Pfizer Inc and German partner BioNTech SE could be authorized for emergency use as soon as this week and must be transported and stored at -70 degrees Celsius (minus 94°F), requiring specialized ultra-cold freezers or dry ice.
More than a dozen U.S. states, including Washington, New Mexico, Mississippi, Louisiana and Indiana, told Reuters they are rushing to secure dry ice to replenish suitcase-sized shipping containers from Pfizer. Once opened, if being used as temporary storage by a vaccination center, the vaccines can last a total of 30 days with re-icing every five days, Pfizer said.
The European Central Bank will meet today. Markets widely expect an easing package of around €500bn in QE purchases, likely complemented by more ultra-generous loans to banks. Yet, this move has already been telegraphed and priced in, so if policymakers want to sink the supercharged EUR, they need to deliver something larger — which may be difficult. In the bigger picture, the EUR may be driven mostly by Brexit and the U.S. stimulus hopes.
Function Of The Dollar & Why It Matters?
The Dollar-denominated capital market is the biggest in the world, and its function is extremely critical to many countries and entities that need to borrow capital to fund their operations and investment. Importantly, most of those debts aren’t owed to the United States (despite being denominated in dollars), but rather are owed to other countries. For example, China makes many dollar-based loans to developing countries, as do Europe and Japan (Eurodollar System).
When the dollar strengthens relative to emerging market countries’ local currencies, it acts as a sort of quantitative tightening for those countries because their dollar-denominated debts go up in local currency terms relative to their assets and cash flows, which can be particularly brutal during recessions. Their dollar-denominated borrowing is one of the key reasons why emerging market assets and economies are riskier and more volatile than that of developed market economies.
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Phan Vee Leung
CIO & Founder, TrackRecord