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The Deafening Cries of the Silent Majority

Expect a tsunami of stimulus should the blue wave, that all the evidence is pointing to, materialises.

The moment of truth is here. Expect a tsunami of stimulus should the blue wave, that all the evidence is pointing to, materialises. Volatility is high as predicted. Size your trades appropriately and do not forget the forest for the trees.

TRADING PLAN

  1. Gold & Silver — Strong support for Gold is at 1850–60 and for silver, major support is at 21.80–90. Trading well and would rally strongly on a blue sweep as a tsunami of stimulus will be expected in that event.

Key risks — All about the US elections today.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 3 Nov 2020
  • Dollar dipped on Tuesday on stronger risk appetite as investors positioned themselves for the prospect that Democrat Joe Biden will win Tuesday’s U.S. presidential election and launch a large new stimulus package to boost the economy. Biden has led in national polls but President Donald Trump is close in enough swing states to piece together the 270 state-by-state Electoral College votes needed to hold the presidency, which he won in a surprise 2016 election result. Analysts believe a Biden win would weaken the dollar as he is expected to spend big on stimulus and to take a freer approach to trade, boosting other currencies at the dollar’s expense. Fiscal spending would likely be even higher if Democrats also take control of the U.S. Senate. The dollar index measuring the greenback against a basket of currencies fell 0.51% to 93.55. The EUR jumped 0.55% to $1.1704, after hitting technical support at $1.1621 on Monday, which was a one-month low. The dollar fell 0.13% against the JPY to 104.7.
  • S&P 500 advanced 1.8% on Election Day, as investors bought the dip for the second straight day ahead of tonight’s results. The Nasdaq Composite (+1.9%) and Dow Jones Industrial Average (+2.1%) eked out larger gains while the Russell 2000 (+2.9%) legged out the clear advantage.
  • In the tech space, PayPal (PYPL 179.81, -7.95, -4.2%) and Skyworks (SWKS 138.80, -3.32, -2.3%) were notable laggards despite exceeding earnings expectations. PayPal, however, did issue downside Q4 EPS guidance. Arista Networks (ANET 249.49, +33.37, +15.4%) surged 15% following its upbeat earnings results and guidance.

HEADLINES:

U.S. ELECTION DAY UNFOLDS SMOOTHLY, SO FAR DEFYING FEARS OF DISRUPTION

Americans by the millions patiently lined up on Tuesday to cast ballots at libraries, schools and arenas amid a deadly pandemic, in an orderly show of civic duty that belied deep tensions shaping one of the most polarizing presidential campaigns in U.S. history.

Business owners in some cities nailed plywood slabs over street-level windows for fear that civil unrest could break out later, especially if the election’s outcome were delayed.

In New York City, the Empire State Building and Macy’s department store were among those boarded up. On Rodeo Drive in Beverly Hills, staff had stripped the display windows at Tiffany & Co. and Van Cleef & Arpels of their jewels.

Even once votes are cast, some Americans worry about a protracted ballot count in pivotal states, forcing the country to wait for days or more before a clear winner emerges if the race is close. Trump, whose office holds no powers over state-controlled vote-tallying, has said he thinks states should simply stop counting legal ballots once Tuesday has passed.

Thematic Context: “To win again Trump has to chart a narrow path by winning states he won in 2016, such as Florida, Georgia, North Carolina, Ohio, Iowa and Arizona, and holding at least one of the Midwestern states that he took four years ago, such as Pennsylvania, Michigan or Wisconsin. It’s not over till it’s over, 2020 is filled with tail events and Trump might just pull this off. Regardless, the wall of money is awaiting and huge macro dislocations should be taken advantage of because the outcome is inevitable. (with the U.S. the buyer of last resort due to lack of foreign buying of U.S. debt, the only way out is balance sheet expansion regardless of who wins). — 2nd Nov 2020

It’s election day and no amounts of analysis can prepare you for a highly contentious outcome. Early votes historically favour the Democrats by 2–1 and that’s why we are seeing many attempts by the Republican party to get the state courts to throw out the early votes. Regardless as we have been saying, do not lose sight of the forest for the trees and be prepared to take advantage of any macro dislocations that will arise.” — 3rd Nov 2020

RBA CUTS RATES TO NEAR ZERO, RAMPS UP BOND BUYING

The RBA cut its target for three-year bond yields to 0.1%, from 0.25% (expected), to align with the cash rate, which it pledged will remain unchanged for at least three years. The Reserve Bank of Australia (RBA) said it would buy A$100 billion ($70.4 billion) of government bonds with maturities of around five to 10 years over the next six months, a more aggressive pace than some had expected.

“Today’s decision reflects the Reserve Bank’s commitment to do what we reasonably can, with the tools that we have, to support the recovery of the Australian economy,” Governor Philip Lowe said in a speech in Sydney. “The Board views addressing the high rate of unemployment as a national priority and it wants to do what it can to support job creation.”

CHINA SLAMS THE BRAKES ON ANT GROUP’S $37 BILLION LISTING

China suspended Ant Group’s $37 billion listing on Tuesday, thwarting the world’s largest stock market debut with just days to go in a dramatic blow to the financial technology firm founded by billionaire Jack Ma.

The Shanghai stock exchange said it had suspended the company’s initial public offering (IPO) on its tech-focused STAR Market, prompting Ant 6688.HK688688.SS to also freeze the Hong Kong leg of its dual listing scheduled for Thursday.

This followed a meeting with China’s financial regulators on Monday during which Ma and his top executives were told that Ant’s lucrative online lending business would face tighter scrutiny.

The Shanghai bourse described Ant’s meeting with financial regulators as a “major event” which, along with a tougher regulatory environment, disqualified Ant from listing.

To revive its listing, Ant is trying to establish if it needs to disclose more information to the Shanghai exchange about its relationship with regulators, or if the bourse expects it to resolve all its issues with the regulators, which would take much longer, a person with knowledge of the matter said.

At an event last month attended by Chinese regulators, Ma said the financial and regulatory system stifled innovation and must be reformed to fuel growth. He also compared the Basel Committee of global banking regulators to “an old man’s club”.

Thematic Context: We suspect Ant Financial will play a key role in China’s hegemonic ambitions by being a key financing infrastructural pillar to companies, trade & supply chains along the One-Belt-One-Road (OBOR). For example, small businesses who do not have access to banks, but want to join the OBOR logistics network can exchange relevant information (value add) in hope of getting financing from Ant Financial to start their microbusiness. The granularity in being able to allocate capital to rural areas (frontier economies) might be powerful. On a social level, it helps alleviate poverty and on an economic level, may be deflationary due to cheaper labour. A good way to gain exposure to the rise of China’s economic faction and ensuing hegemonic intent is to gain exposure to Ant Financial. More on this in the weeks ahead.” — 26th Oct 2020

DAY AHEAD

Risk assets today will undoubtedly be driven by U.S. elections politics.

SENTIMENT

FX

STOCK INDICES

Market Observation

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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