Directionless with a Tinge of Weakness

Traders are likely to remain cautious as the clock for a stimulus deal before the election continue to run down

Markets remain trapped in a range but risk sentiment trades on the weaker side as traders are likely to remain cautious as the clock for a stimulus deal before the election continue to run down. Expect volumes to start to drop and price action to become increasingly choppy as more speculators move to the sidelines ahead of the impending election.

TRADING PLAN

Gold & Silver — Strong support for Gold is at 1850–60. For silver, major support is at 21.80–90 with minor support at 23.50–60. Precious metals, especially Silver, are trading on the backfoot despite the general USD weakness. Caution is required if this should persist.

Key risks — A stimulus deal is looking increasingly unlikely but the market is getting used to that. Now in the last full week of trading before the US elections, market volumes could start to dwindle. US yields are easing off the highs but remain a risk.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 23 Oct 2020

Trump and Democratic challenger Joe Biden squared off on Friday (Asia morning) in a less raucous debate than their previous meeting, but tensions were high, with a focus on the handling of the COVID-19 pandemic and plenty of personal attacks thrown into the mix.
Dollar weakened slightly against a basket of major currencies on Friday amid uncertainty over a new round of stimulus ahead of the upcoming U.S. elections, with the greenback set to record a weekly decline of 0.98%. U.S. House of Representatives Speaker Nancy Pelosi said another round of COVID-19 aid was still possible before the Nov. 3 elections, but that President Trump would have to get reluctant Republicans on board if he wants a deal. Trump and Treasury Secretary Steven Mnuchin countered that Pelosi must compromise to get an aid package, saying significant differences remained between the Republican administration and Democrats. In Europe, business surveys in France and Germany showed the impact of the second wave of COVID-19 infections in the eurozone’s two biggest economies, threatening to derail the bloc’s nascent recovery. Despite the data (EU Flash Services PMI 46.2 vs Exp 47.1), the EUR edged higher 0.34% against the greenback to $1.1859. CNH continued its rise against the Dollar (USDCNH, -0.05%) after comments from a Chinese official suggested authorities are not too worried about its recent rise.
The underperformance of the Dow was linked to weakness in Intel (INTC 48.20, -5.70, -10.6%) and American Express (AXP 100.99, -3.80, -3.6%) following their earnings reports. Intel warned about operating margin next quarter, and the 10.6% post-earnings decline pressured the top-weighted S&P 500 information technology sector (-0.1%).
Gilead Sciences (GILD 60.79, +0.12, +0.2%) received FDA approval for its remdesivir drug used to treat COVID-19. Shares spiked 5% on the news but ended the session with a 0.2% gain in a sell-the-news reaction.
Japan’s government is considering compiling an extra budget worth around $95.5 billion to offset the economic drag caused by the coronavirus pandemic, the Mainichi newspaper reported on Saturday. The government is likely to debate using the 10 trillion yen ($95.52 billion) budget to extend a labour subsidy programme scheduled to end in December and to pay for the distribution of a coronavirus vaccine, the Mainichi reported, without citing sources.
China’s top leaders will chart the country’s economic course for 2021–2025 at a key meeting (Oct. 26 to 29) starting on Monday, and may adopt a lower or more flexible growth target. The focus will be on what President Xi has called the “dual circulation” strategy, rebalancing toward China’s domestic market — according to leadership, to “facilitate better connectivity between domestic and foreign markets for more resilient and sustainable growth.” The challenge for China in presenting its 14th Five-Year Plan, founded on science and technology, is to show the world why all should root for, not against, its success. Keep a lookout for headlines pertaining to the “Green Narrative” i.e. ESG mandates (Environmental. Social. Governance).

HEADLINES:

U.S. SEES HIGHEST NUMBER OF NEW COVID-19 CASES IN PAST TWO DAYS

The United States has seen its highest ever number of new COVID-19 cases in the past two days, keeping the pandemic a top election issue as Vice President Mike Pence travels the country to campaign despite close aides testing positive.

The United States reported 79,852 new infections on Saturday, close to the previous day’s record of 84,244 new cases. Hospitalizations are also rising and have hit a two-month high and deaths are trending upwards.

So far in October, 29 states have set records for increases in new cases, including five considered key in the Nov. 3 presidential election: Ohio, Michigan, North Carolina, Pennsylvania and Wisconsin.

Pence’s chief of staff, Marc Short, tested positive on Saturday as well as multiple other senior aides. Despite the outbreak, the White House said the vice president would press ahead with campaigning, visiting North Carolina on Sunday and Minnesota on Monday.

Explaining why the Trump campaign is not requiring people attending rallies to wear masks, Meadows said the campaign offered masks to attendees, but “we live in a free society.”

IN ASIA, POMPEO EXPECTED TO BOLSTER ALLIES AGAINST CHINA

U.S. Secretary of State of State Mike Pompeo is flying to India next week to strengthen strategic ties with a nation that is locked in a military standoff with China, in Washington’s latest effort to bolster allies against Beijing.

As part of an intensifying pushback against China’s growing economic and military power in the region, Pompeo will also travel to Sri Lanka and the Maldives, two Indian Ocean countries struggling with a mountain of Chinese debt incurred to finance big infrastructure projects.

Pompeo will conclude his trip, which comes in the final week before the U.S. presidential election, in Indonesia, which is also locked in territorial disputes with China in the South China Sea.

“We’re looking forward to strengthening critical relationships with our friends and partners, emphasizing our deep commitment to the Indo-Pacific and advancing our vision for long-term partnership and prosperity in the region,” said Dean Thompson, principal deputy assistant secretary at the State Department’s Bureau of South and Central Asian Affairs.

Pompeo led a meeting of foreign ministers from India, Japan and Australia this month in Tokyo, a grouping which has been named the Quad, and could be a bulwark against China’s growing assertiveness in the region. Next month, India hosts ‘Malabar’, the biggest naval wargames in years, with the other Quad members — an exercise that China has in the past opposed.

Thematic Context: “The India-China conflict is key to watch as this event is a huge tailwind wind to the anti-china rhetoric that is gripping most of the western and “democratic world”(i.e. Australia, Philippines etc). India is the perfect counterweight to China in terms of size (almost equivalent) and demographics (superior demographic, largely young vs an aging Chinese population). Watch out for the Trump administration to throw its weight behind the situation and ramp up the rhetoric against China. In addition, India might be the beneficiary of the reshored supply chains out of China for the western world.”
For India to be the perfect counterweight, it first needs a competitive economy that will enable it to build up and sustain a sufficiently competent military which can serve as a deterrent to China’s geopolitical agenda. India may see an economic renaissance funded by “Cheap Dollars” out of this situation, leading to the rise of another emerging market superpower.” — 12th Aug 2020

ANT GROUP IPO PRICING ‘HISTORY LARGEST’, SAYS ALIBABA’S JACK MA

“It’s the first time that the pricing of such a big listing — the largest in human history — has been determined outside New York City” he told the Bund Summit in the eastern financial hub of Shanghai. “We didn’t dare to think about it five years ago, or even three years ago. But a miracle just occurred,” he told the audience, which included officials from China’s regulators.

He did not give exact details of the pricing which is expected to be officially announced next week. Backed by Chinese e-commerce giant Alibaba, Ant plans to list simultaneously in Hong Kong and on Shanghai’s STAR Market in the coming weeks.

Sources have said the listing could be worth $35 billion, surpassing the record set by Saudi Aramco’s $29.4 billion float last December.

Ma said the financial and regulatory system stifles innovation, calling for a revamp to extend financial services to more small firms and individuals on the basis of technology — an ethos that Ant is largely based on.

He said the global system established after World War II is outdated and too risk-averse, calling the Basel Committee on Banking Supervision “an old men’s club” and warning that risks are accumulating in the whole economy.

In China, banks still operate with a strong “pawnshop” mentality, demanding collateral and guarantees before lending, a model that will fail to fuel future growth, he said.

Instead, he said a new, inclusive and universal banking system that lends to small businesses and individuals on the basis of big data should be established. Ant, which has an extensive payment and micro-lending business that is largely based on big data, has faced rising scrutiny from regulators.

“Today’s financial system is the legacy of the Industrial Age,” Ma said. “We must set up a new one for the next generation and young people. We must reform the current system.”

Thematic Context: “Did China just unofficially enter the “Tech War” with a powerful legislation that allows the CCP to veto any predatory American advancement on Chinese tech Intellectual Property? We think so and this adds a new dimension to the ongoing “Tech Thucydides Trap”. 1. The legislation is a warning shot to American threats on Chinese listed companies in the U.S. 2. It shores up and draws in investments towards Chinese jurisdiction/s (Hong Kong etc.) as it lays forth intent that China plans to ring fence its tech champions. This is positive for the RMB in the long run (USD/CNH grinds lower).” — 30th Oct 2020
“This reform is a key marker to China’s long term geopolitical and economic intent to be a hegemonic force within its own economic faction (One-Belt-One Road) and a tech powerhouse, in which being dominant wields you the power of immense productivity on which superpowers are built upon. We believe that the trajectory of USDCNH is going to be much lower over the long haul and any decent spikes should be sold into.” — 19th Oct 2020

WEEK AHEAD

With less than two weeks to go until the US elections, markets are on red alert as opinion polls in key battleground states have tightened. In the meantime, there are three central bank meetings and a ton of data to keep things exciting. The ECB could steal the show by opening the door for more stimulus, to negate the risk of a double-dip recession as the virus rampages through Europe. The central banks of Canada and Japan will meet too, third-quarter GDP is out in America, the Brexit saga continues, and most of the tech world reports earnings.