The Wall of Worry

Stimulus talks stalemate, Trump refusing to concede, and surging virus infection cases which will lead to harsher social distancing measures — these are just some of the worries plaguing the market at the moment.

Stimulus talks stalemate, Trump refusing to concede, and surging virus infection cases which will lead to harsher social distancing measures — these are just some of the worries plaguing the market at the moment.

Thanksgiving is next week, and the CDC has issued an advisory for Americans to avoid all travel during the holidays. The US Treasury Secretary Mnuchin has requested the Fed to return unused funds in the various emergency lending programmes that the Fed is administering.

These are all going to factor into the Fed’s decision in their policy meeting next month.

TRADING PLAN

Gold & Silver — Strong support for Gold is at 1850–60 and for silver, major support is at 21.80–90. Traded weak again with Gold testing the support again. For now, support is holding but caution is warranted.

Key risks — Higher US interest rates and a stronger USD are the main risk for now.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 19Nov 2020

U.S. Initial claims for the week ending November 14 rose by 31,000 to 742,000 (expected 720,000). Continuing claims for the week ending November 7 decreased by 429,000 to 6.372 million. The report covers the period in which the survey for the Nov employment report is conducted. Though the jump in initial claims is relatively small, the total is still exceedingly high, and will contribute to expectations for a slowdown in job growth in Nov.
The Dollar slid for a sixth straight session on Thursday, after trading higher for most of the day, on reports that U.S. Senate Republican leaders have agreed to resume negotiations on another coronavirus stimulus package. CNBC reported that top Senate Democrat Chuck Schumer said on Thursday that Republican Majority Leader Mitch McConnell has agreed to resume COVID-19 relief talks as cases surge across the country.
The S&P 500 increased 0.4% on Thursday and overcame a sluggish start (-0.43%, lows, 3543.84) as buyers quietly eased their way back into the market. The Nasdaq Composite (+0.9%) and Russell 2000 (+0.8%) outperformed while the Dow Jones Industrial Average increased just 0.2%.
In other positive developments, Phase 2 vaccine trial data from the AstraZeneca (AZN 54.03, +0.04, +0.1%)/Oxford collaboration showed encouraging immune responses in older patients, and October existing home sales increased at a faster-than-expected, seasonally adjusted annual rate of 6.85 million (expected 6.49 million). Market reactions were muted, but these were good for the market sentiment.
The Philadelphia Semiconductor Index (+1.6%) was another pocket of strength today. NVIDIA (NVDA 537.61, +0.46, +0.1%) beat top and bottom-line estimates and issued upside Q4 revenue guidance; Cree (CREE 81.00, +8.39, +11.6%) was upgraded to Overweight from Neutral at JP Morgan with a $90 price target.
While the U.S. economy came back stronger than expected in the third quarter, the rise in coronavirus infections is concerning and small businesses and households need more support from fiscal aid, Cleveland Federal Reserve Bank President Loretta Mester said Thursday. “The fact that we don’t have a fiscal package is very concerning,” Mester said during an interview with Bloomberg TV. “With the disparate impact of this pandemic that’s where fiscal policy plays a role because fiscal policy can be really targeted to the households and small businesses that really need the aid.” Asked if she would be in favor of increasing the scale of the Fed’s asset purchases or changing the maturity of those purchases, Mester said she didn’t want to “prejudge” the Fed’s December policy meeting. She said it would also be helpful for the Fed to clarify its forward guidance for future purchases.
Atlanta Federal Reserve Bank President Raphael Bostic said on Thursday it would be “prudent” to keep open the Fed’s emergency lending and backstop programs created to help stabilize financial markets and the broader economy. Bostic, in an interview with Bloomberg TV, said he was “a bit surprised” by the decision by the Treasury to end some of the programs on Dec. 31.
Treasury Secretary Steven Mnuchin on Thursday asked the Federal Reserve to return more than $400 billion in unused funds from the massive March pandemic relief package so that Congress can reappropriate it to deliver economic stimulus. “I am requesting that the Federal Reserve return the unused funds to the Treasury,” Mnuchin said in a letter to Fed Chair Jerome Powell. “This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds.”

HEADLINES:

OPTIONS DWINDLING, TRUMP FACES LIKELY SETBACK IN GEORGIA RECOUNT

The U.S. presidential election battleground state of Georgia is expected to affirm Joe Biden’s victory over Donald Trump after a painstaking recount, which would deal yet another setback to the president’s attempts to cling to power.

Georgia’s top election official, a Republican, has said the manual recount of almost 5 million votes is unlikely to erode Biden’s initial 14,000 winning margin by enough to hand Trump victory in the state.

That would leave Republican Trump with a dwindling number of options to overturn the results of an election in which Democrat Biden won 5.8 million more votes nationwide. Barring a series of unprecedented events, Biden will be sworn in on Jan. 20.

Trump, who has largely stayed in the White House and kept out of public view since the election, has no public events scheduled for Thursday. His administration has so far refused to recognize Biden as the winner, which has held up funding and security clearances to ease the transition from one president to another ahead of the Jan. 20 inauguration.

TURKEY’S BEHAVIOUR “WIDENING ITS SEPARATION” FROM EU, BORRELL SAYS

Turkey’s rhetoric on Cyprus is aggravating tensions with the European Union and Ankara must understand that its behaviour is “widening its separation” from the 27-nation bloc, EU foreign policy chief Josep Borrell said on Thursday.

He was referring to comments by Turkish President Tayyip Erdogan, who called for an equal “two-state” solution in Cyprus during a visit earlier this week to the breakaway Turkish Cypriot north of the island.

Erdogan also said Turkey and Northern Cyprus would no longer tolerate what he called “diplomacy games” in an international dispute over rights to offshore resources in the Eastern Mediterranean.

The EU has threatened to impose sanctions on Turkey over illegal exploration at sea when its leaders meet next month.

The EU has failed to persuade Ankara to stop exploring in waters disputed by Greece and Cyprus, but it has so far held off imposing sanctions that Athens and Nicosia are seeking. Germany, which has led diplomatic talks with Ankara, wants to give dialogue a chance because of close EU-Turkey trade ties.

Thematic Context: “Turkey used to be a “trusted NATO ally” and a reliable friend for U.S. administrations, however things changed since the advent of Erdogan and his religious radicalization and Trump’s administration only deepened the rift. Energy has always been the driver of geopolitics and the cause of wars over centuries, Turkey’s Gas find will not be overlooked by the superpowers and it can be a bargaining chip for Erdogan (which hegemonic faction will he pivot to?” — 21st Aug 2020
“We maintain our view and believe that our aforementioned comments are playing out. Erdogan is intentionally causing geopolitical rift in a time when deglobalization is running amok, is the intent to cause fracturing of alliance in the EU? It’s a key issue we should be abreast of as it seems the inflection point in the EU is currently Turkey, Russia & Belarus.” — 21st Sep 2020
“Erdogan has subtly made his ambitions and role of Turkey in the global order known. The goal is to restore semblance of the “Ottoman Empire” and for Turkey to regain its role in the global balance of power. This intent has been made clear with extensive logistics investment with regards to energy infrastructure, unabated pursuit for natural gas deposits within disputed waters, refusal to kowtow to Russian or U.S. demands in terms of defence and open support for the caliphate and muslim brotherhood. — 25th Sep 2020
As we have mentioned before, Turkey is large and powerful enough to make a difference and the outcasts from the new middle-eastern alliance with Israel may join the Turkish alliance in setting a new power structure in the region.”
— 3rd Oct 2020
The war (Nagorno-Karabakh Conflict) was of concern, but the greater concern is Turkey’s (a NATO member) bold push onto the global order with disregard for international calls for restraint. Erdogan has radicalized the Turkish regime and seems determined to carve out an economic faction of his own within the Caspain/Mediterranean/Caucasus region. And a telling point of his ambitions is his frequent reference to the “Ottoman Empire”. Watch out for this development as it has the potential to flare up into something much bigger in the long run. — 19th Oct 2020

PRAISING UNION, UK PM JOHNSON OUTLINES PLANS TO MAKE NAVY MOST POWERFUL IN EUROPE

Prime Minister Boris Johnson pledged to restore Britain’s navy to its position as Europe’s most powerful maritime force on Thursday, highlighting that shipbuilding could also help heal divisions between the four nations of the United Kingdom.

He announced plans for 13 more frigates as well as committing to a new generation of warships, which he said would spur a renaissance in shipbuilding across the United Kingdom.

This will illuminate “the benefits of the union in the white light of the arc welder’s torch,” Johnson told parliament. “If there was one policy which strengthens the UK in every possible sense, it is building more ships for the Royal Navy.”

Thematic Context: “The government said the increased military spending will cement the United Kingdom’s position as the largest defence spender in Europe, the second largest in NATO, and allow increased investment in areas such as cyber and space. The prime minister will announce a new agency dedicated to artificial intelligence, the creation of a National Cyber Force and a new “Space Command”, capable of launching Britain’s first rocket in 2022. This is a form of fiscal spending in itself and will be bullish for the UK’s defence sector, we will cover more on which assets will benefit most in following newsletters.” — 19th Nov 2020

DAY AHEAD

UK Retail Sales figures due on Friday are expected to flag more trouble for the recovery. Sales m/m are forecast to come in at -0.3% (prev -1.5%). The projected slowdown would have come just before tighter virus restrictions were enforced in November and would add to fears of a double-dip recession.

Nevertheless, traders are likely to look past the short-term gloomy outlook if a Brexit deal is announced in the next week or so, or at the very least, significant progress is made and a compromise agreement appears to be only a matter of time.