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TRACKRECORD DAILY

Hopes of Fiscal Stimulus Reignited

From the FOMC minutes and all the comments from Fed speakers thus far, it is clear that the Fed thinks that more fiscal stimulus is imperative for the recovery. So, market sentiment will be dependent on developments on this front for now.

No fiscal stimulus, but possibly some standalone stimulus. Trump killed hopes of a stimulus bill with a tweet but reignited hopes of some form of stimulus with another tweet a few hours later. This is the randomness we have been warning about.

Expect this to remain a risk as we countdown to the US Presidential elections. From the FOMC minutes and all the comments from Fed speakers thus far, it is clear that the Fed thinks that more fiscal stimulus is imperative for the recovery. So, market sentiment will be dependent on developments on this front for now.

TRADING PLAN

  1. Gold & Silver — Strong support for Gold is at 1850–60 and for silver is at 21.80–90. Trading slightly better with the recovery in US stocks.

Key risks — Key driver of risk sentiment remains the health of the US President. Progress on the US stimulus front seemed to have stalled but as usual could just be a Trump negotiating tactic. Rising US yields are still a threat.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 8 Oct 2020
  • FOMC Minutes for the Sept. 15–16 meeting provided no surprises. Fed officials expressed concerns regarding a recovery if there is no more fiscal stimulus and remained in agreement that the current environment is disinflationary.
  • Dollar dipped on Wednesday as risk appetite improved in hopes of at least some new fiscal stimulus before the November 3 U.S. Presidential election, and as investors priced for the prospect of a Democrat victory next month. Trump said late on Tuesday that Congress should quickly extend $25 billion in new payroll assistance to U.S. passenger airlines furloughing thousands of workers as air travel remains down sharply amid the coronavirus pandemic. Trump had earlier on Tuesday abruptly ended talks with Democrats on an economic aid package, which sent stock markets tumbling and boosted demand for the dollar.
  • RBNZ official says ‘actively working’ on negative interest rate and funding-for-lending programme. NZD traded lower this morning (-0.38%, 0.6547) on the headline from Reuters that cites an unnamed RBNZ official.
  • S&P 500 rose 1.7% on Wednesday, primarily driven by renewed stimulus hopes and secondarily coronavirus-related optimism. The Nasdaq Composite gained 1.9%, the Dow Jones Industrial Average gained 1.9%, and the Russell 2000 gained 2.1%.
  • After Trump said he called off stimulus negotiations yesterday, he later clarified that he still wanted stimulus but in the form of standalone bills for airlines, small businesses, and citizens ($1200 payments). This jump-started the futures market, and news that Eli Lilly (LLY 148.96, +4.83, +3.4%) requested emergency use authorization for its COVID-19 antibody treatment supported the rebound effort.
  • U.S. House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin had a 20-minute phone call to discuss a standalone bill to provide assistance to the struggling airline sector and agreed to talk again on Thursday, Pelosi’s spokesman said in a post on Twitter on Wednesday.

HEADLINES:

CELL PHONE IN HAND, ‘ARMY FOR TRUMP’ READIES POLL WATCHING OPERATION

Republicans are mobilizing thousands of volunteers to watch early voting sites and ballot drop boxes leading up to November’s election, part of an effort to find evidence to back up President Donald Trump’s unsubstantiated complaints about widespread voter fraud.

Across key battleground states such as Pennsylvania, Florida and Wisconsin, Republican poll watchers will be searching for irregularities, especially with regard to mail-in ballots whose use is surging amid the coronavirus pandemic, according to more than 20 officials involved in the effort. They declined to say how many volunteers have signed up so far; the campaign earlier this year said its goal was to recruit 50,000 monitors nationwide.

TRUMP SAYS CATCHING COVID-19 WAS A ‘BLESSING’

Trump on Wednesday declared that catching the coronavirus was a “blessing from God” that exposed him to experimental treatments he vowed would become free for all Americans, in his first video message since leaving hospital.

“I think this was a blessing from God that I caught it. This was a blessing in disguise,” Trump said, adding that his use of the medication from Regeneron Pharmaceuticals Inc REGN.O had allowed him to experience first-hand how effective it could be.

“I want to get for you what I got. And I’m going to make it free,” Trump said.

His video message followed White House assurances that the 74-year-old president was back at the Oval Office on Wednesday, getting briefed about economic stimulus talks and Hurricane Delta, just two days after his discharge from Walter Reed military hospital.

Thematic Context: “You can’t make this up, the amount of plot twists running up to the elections and year 2020 is indeed unprecedented. The protagonist of this year’s story has gotten the virus and this changes the entire dynamics. Will the stimulus bill be fast tracked on the back of this to calm markets? (we think so- bullish for markets) Might he tout the advent of a treatment (or around the corner) if he successfully emerges healthily from the virus? (a decent possibility — bullish for markets & election odds). There are many curveballs in the weeks ahead, stay nimble, size appropriately.” — 5th Oct 2020

CHINA’S 2060 CARBON NEUTRAL GOAL BILL COULD HIT OVER $5 TRILLION

China’s goal of reaching carbon neutrality by 2060 would require investments of more than $5 trillion, which would include renewable power generation capacity as well as carbon capture technology, consultancy Wood Mackenzie said on Thursday.

President Xi Jinping said at the United Nations General Assembly in September that China would achieve carbon neutrality before 2060, the first time the world’s biggest emitter of carbon dioxide has committed to ending its net contribution to climate change.

If delivered, the pledge would bring about the biggest reduction in projected global warming of any climate commitment made to date, according to research consortium Climate Action Tracker.

Thematic Context: “It is clear that infrastructure building fueled by the “Green Narrative” & “ESG Investing” will underpin the reason for unlimited money printing. This is inflationary in nature and is the Fed front running its mandate by buying up TIPs? (Treasury Inflation-Protected Security (TIPS) is a Treasury bond that is indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money.) Watching this closely as the inflation narrative remains a key theme. Inflation is good for Hard Assets like Gold & Silver.” — 29th Sep 2020

“We believe rare earths will be in a supercycle in the years ahead as it is essential to the “Green Narrative” that underpins most ESG (ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities) investment mandates that are being adopted by institutions globally. Additionally, in the context of deglobalization, rare earth miners and supply chains outside of China will only become more valuable over the next decade. One particular company we are monitoring is Lynas Corp. which is really the only company actually producing meaningful amounts of REs outside of China.” — 1st Oct 2020

DAY AHEAD

ECB Minutes

The European Central Bank will publish the minutes of its September policy meeting as policymakers find themselves increasingly under the spotlight for their diverging views. Differences over the deflationary impact of a stronger EUR and how the pandemic asset purchases are conducted have been sending conflicting signals about where the ECB stands on these issues, casting doubt on the Bank’s ability to respond effectively should another round of stimulus be required. In the meantime, the single currency has been taking its cues from the USD, as its rally fizzles out.

One of Christine Lagarde’s priorities when she took over the helm at the ECB was to unite a Governing Council left divided by her predecessor, Mario Draghi. But although her efforts paid off at the height of the pandemic crisis in March and later again in June when policymakers approved a total of almost €1.5 trillion in asset purchases, the fragile truce between the hawks and the doves could soon unravel, if it hasn’t already.

SENTIMENT

FX

STOCK INDICES

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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