Buy Hard Assets on Dips
With money printing continuing unabated, any dips will be opportunities to get long for the long term outperformance of hard assets.
Relatively quiet day with USD weakening due to the improving risk sentiment. Precious metals continue to trade more positively in a sign that we’ve seen the end of the recent position washout. With money printing continuing unabated, any dips will be opportunities to get long for the long term outperformance of hard assets.
- Gold & Silver — Support for Gold is at 1850–60 is holding for now. Support for silver is at 21.80–90. Price action continues to be positive.
Key risks — Possible US equity market weakness, and USD yields going higher with strong USD. Risks previously highlighted will become more of a focus in the days ahead but for now the fears from the recent sell-off seem to be ebbing.
WHAT HAPPENED YESTERDAY
- U.S. Conference Board’s Consumer Confidence Index jumped to 101.8 in September (expected 88.5) from an upwardly revised 86.3 (from 84.8) in August. In February 2020, the index stood at 132.6. Consumers, bolstered by improved business and labor market conditions, expressed greater optimism about their short-term financial prospects, which could be a welcome support factor for consumer spending activity in the fourth quarter.
- Dollar added to losses, as investors felt a little more confident getting out of the safe-haven currency after data showed U.S. consumer confidence rebounded more than expected in September, as households’ views of the labor market improved. The EUR firmed across the board, rising 0.5% against the USD to $1.1727 and 0.6% versus the JPY to 123.84.
- S&P 500 declined 0.5% on Tuesday in a relatively lackluster session. The Nasdaq Composite (-0.3%), Dow Jones Industrial Average (-0.5%), and Russell 2000 (-0.4%) didn’t stray too far away from the benchmark index. It was a relatively low volatility day for a change.
- While the $2.2 trillion price tag is still considered too high by Republicans, reports indicated that House Speaker Pelosi will continue talks with Treasury Secretary Mnuchin on Wednesday. With that said, the lack of a fiscal relief bill did not suppress consumer confidence this month due to an improving economy and lower coronavirus infection rates.
- The U.S. Senate voted overwhelmingly (82–6) on Tuesday to advance a temporary funding bill to keep the government open through Dec. 11, with final passage of the measure expected on the deadline, Wednesday. Government funding runs out at midnight Wednesday. The legislation, if passed by then and signed into law by Trump, would maintain current funding levels for most programs, avoiding a government shutdown in the middle of a pandemic and weeks ahead of the Nov. 3 U.S. election.
- The New York Stock Exchange on Tuesday set a reference price of $7.25 per share for Palantir Technologies Inc, valuing the data analytics company at $15.8 billion ahead of its public market debut on Wednesday. While the valuation was lower than the $20 billion that Palantir fetched in a 2015 private fundraising round, the reference price is not an offering price for investors to purchase shares, but rather a benchmark for performance when the stock starts trading on the stock exchange on Wednesday. This will be a Direct Listing (In Direct Listing, the business sells shares directly to the public without the help of any intermediaries. It does not involve any underwriters or other intermediaries, there are no new shares issued and there is no lockup period).
- Activity in China’s services sector expanded at a faster pace in September, official data showed on Wednesday, as demand across the economy continues to recover from a coronavirus-induced slump. The official non-manufacturing PMI rose to 55.9 from 55.2 in August, data from the National Bureau of Statistics (NBS) showed.
PELOSI ‘HOPEFUL’ AS SHE & MNUCHIN SPEAK ON VIRUS AID
U.S. House Speaker Nancy Pelosi said on Tuesday she hoped to have a coronavirus aid deal with the White House this week, after speaking with Treasury Secretary Steve Mnuchin for about 50 minutes and making plans for further talks on Wednesday.
“I’m hopeful,” Pelosi told reporters who asked whether agreement on additional coronavirus relief could be reached this week. Her discussion with Mnuchin on Tuesday was their third conversation in as many days.
“The two went over the provisions of the updated Heroes Act and agreed to speak again tomorrow,” Pelosi spokesman Drew Hammill said on Twitter, referring to a $2.2 trillion measure unveiled on Monday by House Democrats.
Thematic Context: “Either Congress passes the bill, or the markets will force it out of their hands via a selloff. We maintain that any meaningful retracements (approx -10%) in Nasdaq can be bought.” — 9th Aug 2020
“As stimulus effects wane off due to the lack of motivation to expand the balance sheet at this point in time, mainstreet economic woes floats back to the forefront. In our opinion, nothing has changed on mainstreet, jobless rates have been as high during the risk rally as it is now, but without the wealth creation effect in markets, problems suddenly seem bigger. As we have been saying, either the government prints the money, or it will be forced out of their hands via magnification of social and economic woes.” — 24th Sep 2020
“If a stimulus bill is passed, we believe risk assets will resume its upward trajectory, albeit with much more volatile crosswinds as political and virus development will throw wrench hammers at any “market narrative” we have formed in our heads. In this climate, it is crucial to keep revisiting our views and thesis to see if it still holds based on new information which comes in at a much faster rate this year. If all things remain status quo, the passing of the stimulus bill is good for equities.” — 29th Sep 2020
AZERBAIJAN & ARMENIA REJECT TALKS AS KARABAKH CONFLICT ZONE SPREADS
Armenia and Azerbaijan accused one another on Tuesday of firing directly into each other’s territory and rejected pressure to hold peace talks as their conflict over the enclave of Nagorno-Karabakh threatened to mushroom into an all-out war.
The conflict has reignited concerns about stability in the South Caucasus region, a corridor for pipelines carrying oil and gas to world markets.
Nagorno-Karabakh is a breakaway region inside Azerbaijan but run by ethnic Armenians and backed by Armenia. It broke away from Azerbaijan in a 1990s war but is not recognised by any country as an independent republic.
Dozens of people have been reported killed and hundreds wounded since clashes between Azerbaijan and ethnic Armenian forces broke out on Sunday, threatening to draw in neighbours including Azerbaijan’s close ally Turkey.
Thematic Context: “Instability has moved to the Caucasus and this has the potential to affect global energy supply chains as Azerbaijan is a large producer of oil and gas. Where energy is concerned, the major superpowers will indirectly be involved and this is where things can get dicey. Keep an eye on this development as it ties in to the broad de-globalization theme and development of economic zones.”- 28th Sep 2020
ANTITRUST REPORT LIKELY TO COME OUT AS SOON AS MONDAY OCT 5TH
The U.S. House of Representatives Judiciary Committee’s antitrust subcommittee is expected to release a much anticipated report into antitrust allegations against four of America’s largest tech companies as soon as Monday, Oct. 5, according to a source with direct knowledge of the matter.
The chief executives of four of the world’s largest tech companies, Amazon.com Inc, Facebook Inc, Apple and Alphabet’s Google testified before the panel in July.
Thematic Context: “Breaking up big tech dominance is good for domestic tech companies, but bad for the “behemoths” we have gotten so comfortable with i.e. Apple, Amazon, Google etc. In the push for deglobalization, a theme we have been harping on since early 2020, tech will not be spared in a real Sputnik race and it seems the threat is on the fringes of materializing. This can potentially be bad for risk-sentiment as “Big Tech” were the main components leading the rebound in risk appetite. There is no shame in taking some chips off the table during this period, especially into the tumultuous months of heightened volatility ahead.” — 19th Sep 2020
UK GDP: The second quarter was a disaster, as Covid-19 shut down much of the economy. The final GDP reading is projected to confirm the initial reading of -20.4%. As this reading has been priced in, the release is unlikely to have much impact on the GBP.
Canada GDP: Canada releases GDP on a monthly basis. The economy has improved, with GDP climbing to 6.5% in June, up from 4.5% in May. The estimate for July stands at 2.9%.
Risk appetite today will be driven by tech sentiment, virus narrative and information gathered from the Trump-Biden debate.
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