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Risk Remains on Trump’s Health

Precious metals continued the grind higher and USD weakened as the risk sentiment improved.

Trump returned to the White House and the markets cheered as the fears of more uncertainty should his health deteriorate subsided. Precious metals continued the grind higher and USD weakened as the risk sentiment improved.

However, this is a virus he is fighting. There’s been many cases where improvements were reported before things took a turn for the worse. He’s not out of the woods yet, and the risk of a volatility spike remains. Keep to the path but be nimble.

TRADING PLAN

  1. Gold & Silver — Strong support for Gold is at 1850–60 and minor support is at 1880–85. Strong support for silver is at 21.80–90 and minor support is at 23.20–30. With heavy long positioning having been washed out, the grind higher has indeed resumed. Keep to the path!

Key risks — Key driver of risk sentiment remains the health of the US President. Progress on the US stimulus front is still the other thing to keep an eye on. US yields rising does not seem to be driving the USD at the moment, but that could change if it continues to go aggressively higher.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 5 Oct 2020
  • Trump said he would leave the hospital on Monday night after responding well to several coronavirus treatments, including one from Regeneron (REGN 605.08, +40.28, +7.1%); House Speaker Pelosi and Treasury Secretary Mnuchin reportedly made progress on relief talks; and the ISM Non-Manufacturing Index for September increased to 57.8% (expected 55.6%) from 56.9% in August.
  • The optimism was supported by White House Chief of Staff Mark Meadows, who said there is still potential for a deal among lawmakers in Washington on more economic relief, and that Trump is committed to getting the deal done. Failure to reach a deal, however, would likely be positive for the Dollar, which on Monday fell 0.32% against a basket of major currencies. JPY crosses were higher on the day with EURJPY rising almost 1% as risk sentiment came back strongly, while USDCNH fell -0.43%, 6.7218 to make new lows.
  • S&P 500 rose 1.8% on Monday in a risk-on trade, as investors received positive news on Trump’s health, stimulus talks, and economic data. The Dow Jones Industrial Average (+1.7%) kept pace with the benchmark index, but the advantage today belonged to the Nasdaq Composite (+2.3%) and Russell 2000 (+2.8%).
  • Another positive factor for trading sentiment was the S&P 500 clearing its 50-day moving average (3365) at the open and never looking back for the rest of the session. The benchmark index also topped the 3400 level for the first time since mid-September.
  • The U.S. Senate Judiciary Committee announced on Monday that it would open a confirmation hearing for President Donald Trump’s Supreme Court nominee, Amy Coney Barrett, on Oct. 12, making clear that an outbreak of COVID-19 will not interfere with the schedule. Republican Senator Lindsey Graham, the committee’s chairman, announced that the hearing would start at 9 a.m. EDT (1300 GMT) on Oct 12.
  • A congressional report on Big Tech and antitrust has been delayed as the House Judiciary subcommittee on antitrust received new information on Facebook’s acquisition of Instagram, a Democratic source told CNBC. The second postponement came Monday when Republican members said they wanted to add their input, according to the source, who expects the findings to be released after those discussions take place.
  • Japan’s Toyota Motor Corp 7203.T said on Monday it would develop a heavy-duty fuel-cell electric truck with its subsidiary, Hino Motor Co, for the North American market. The move expands upon Toyota’s existing effort to develop a 25-ton Class 8 fuel-cell electric truck for the Japanese market, announced earlier this year.

HEADLINES:

TRUMP SET TO GO HOME TO A WHITE HOUSE HARD HIT BY CORONAVIRUS

Trump said he would leave the hospital on Monday where he has been treated for COVID-19, returning to a White House hit by a wave of infections and a campaign further shadowed by the pandemic four weeks before Election Day.

“I will be leaving the great Walter Reed Medical Center today at 6:30 P.M. Feeling really good! Don’t be afraid of Covid. Don’t let it dominate your life. We have developed, under the Trump Administration, some really great drugs & knowledge. I feel better than I did 20 years ago!” he said on Twitter.

Trump, 74, has not had a fever in more than 72 hours and his oxygen levels are normal, his medical team said in a briefing in front of the hospital. The doctors declined, however, to discuss any potential toll the disease could have on the president’s lungs or disclose when Trump last tested negative for the coronavirus.

Even when discharged, Trump will need to continue treatment as he is still undergoing a five-day course of an intravenous antiviral drug, remdesivir, and will have to isolate himself for a certain period of time.

The coronavirus outbreak around Trump widened on Monday when White House press secretary Kayleigh McEnany said she had tested positive for the virus.

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

U.S. SUPREME COURT CONSERVATIVES REVIVE CRITICISM OF GAY MARRIAGE RULING

Two conservative justices mounted a fresh attack on Monday on the landmark 2015 ruling that legalized gay marriage nationwide even as the U.S. Supreme Court rebuffed a bid by a former Kentucky official to avoid lawsuits over her refusal to grant marriage licenses to two same-sex couples.

In an opinion accompanying that action, Justice Clarence Thomas, joined by Justice Samuel Alito, wrote that the same-sex marriage ruling, known as Obergefell v. Hodges, continues to have “ruinous consequences” for religious liberty. Thomas and Alito both dissented in the Obergefell ruling.

LBGT advocacy groups took those comments as an ominous sign for same-sex marriage and gay rights on a court moving further rightward.

If the Senate confirms President Donald Trump’s nominee Amy Coney Barrett, a favorite of Christian conservatives, the court would have a 6–3 conservative majority. With Justice Ruth Bader Ginsburg’s death and Justice Anthony Kennedy’s retirement, only three of the justices who comprised the court’s 5–4 majority in the Obergefell ruling still serve on the bench.

Thematic Context: “The death of Justice Ruth Bader Ginsburg less than two months before the presidential election also tosses one more lit match into the tinderbox of national politics in 2020: It will surely inflame a deeply polarised country already riven by a deadly pandemic, a steep economic downturn, and civil unrest in its major cities.

A successful GOP effort to replace Ginsburg with a conservative before or immediately after a Democratic victory will almost certainly lead to more progressive calls for Biden — along with a willing Democratic Senate — to simply pack the Supreme Court with more seats to offset the conservative advantage.

Into that cauldron now goes a Supreme Court fight, with an outcome that could alter American society not only for the next four years, but for a generation to come. Expect market volatility to ramp up into Nov 3.” — 21st Sep 2020

IMF URGES INFRASTRUCTURE INVESTMENT TO BOOST POST-COVID GROWTH

The International Monetary Fund on Monday said member governments should seize a low interest rate opportunity to invest in infrastructure to drive recovery from the coronavirus pandemic and a shift toward greener energy.

The IMF said in chapters from its fiscal monitor that its research shows public investment in infrastructure, including investments in health care systems, digital infrastructure and addressing climate change can pay back more than two to one in economic growth within two years.

DAY AHEAD

RBA

The Reserve Bank of Australia meets for its latest policy decision. Having clearly signalled at its previous meeting that the Bank is planning to stay on hold for the foreseeable future, markets were caught by surprise from recent dovish comments by Deputy Governor Guy Debelle. The AUD tumbled in response as short-dated Australian government bond (AGB) yields slipped. But investors are not fully convinced that further easing is imminent as interest rate futures have not budged much, meaning there is plenty of scope for volatility should the RBA perform a significant shift in its policy stance.

SENTIMENT

FX

STOCK INDICES

Market Observation

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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