Winter is Coming

The spread of the virus is clearly still a problem in US, Russia and France and many others in Europe

With record number of daily cases registered in US, Russia and France, the spread of the virus is clearly still a problem in these countries and many others in Europe. With large crowds expected next week in the US elections, things are not looking good on this front. When economic numbers start to falter in these countries, the government spending and money printing will eventually have to be ramped up again.

We know where this path leads.

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. Gold and Silver were trading well before the weakness in US stocks dampened risk sentiment and dragged them lower. Gold has since recovered despite the lingering weakness in stocks. Silver is not far behind. Should stocks stabilise, the current phase of weakness could be running its course.

Key risks — Fading hopes of a stimulus deal remain a risk. US yields easing off the highs is good but needs to be monitored.

WHAT HAPPENED YESTERDAY

The stimulus impasse was nothing new for investors, but the continued deadlock was disappointing given the macroenvironment appeared to take an unfortunate turn, which could undercut confidence for consumers and businesses without fiscal support. Note, House Speaker Pelosi said she was still optimistic in reaching an agreement before the election.
Dollar advanced on Monday, bolstered by safe haven bids amid surging coronavirus cases in Europe and the United States as well as a lack of progress on a U.S. stimulus package. The United States (+69,841), Russia (+17,347) and France (+26,771) set new daily records for new COVID-19 infections as a second wave swelled across parts of the Northern Hemisphere, forcing some countries to impose new curbs. Spain (+17,396) announced a new state of emergency and Italy (+17,012) has ordered restaurants and bars to shut by 6 p.m. On the stimulus front, U.S. House Speaker Nancy Pelosi said on Sunday she expected a White House response on Monday to the latest relief plan, but there is little evidence a deal is close. The EUR, which has the largest percentage share of the dollar index, fell 0.4% to $1.1811. It slipped earlier after the German Ifo business (92.7 vs expected 93.1) climate index fell for the first time in six months in October. The Dollar rose 0.5% against the CNH in the offshore market to 6.703, in a sign of caution as the Chinese government began discussions on its next five-year plan.
The S&P 500 fell 1.9% on Monday on familiar concerns surrounding the economy, although it was down as much as 2.9% intraday. The Nasdaq Composite declined 1.6%, the Dow Jones Industrial Average declined 2.3%, and the Russell 2000 declined 2.2%.
U.S. District Judge Amit Mehta on Monday set a status hearing on the Justice Department’s antitrust lawsuit against Alphabet Inc’s Google for Friday. The Justice Department last week sued the $1 trillion company and accused it of illegally using its market muscle to hobble rivals in the biggest challenge to the power and influence of Big Tech in decades.

HEADLINES:

PELOSI OPTIMISTIC OF COVID-19 RELIEF DEAL BEFORE Nov. 3 U.S. ELECTIONS-AIDE

U.S. House of Representatives Speaker Nancy Pelosi is hopeful that congressional Democrats and the Trump administration can reach agreement on a coronavirus relief bill before the Nov. 3 elections, her spokesman said on Monday, adding that major issues still must be ironed out.

Many Senate Republicans have resisted legislation of a scope that Pelosi and Mnuchin have discussed, totaling around $2 trillion, and Hammill said that progress depends on Senate Majority Leader Mitch McConnell agreeing to a comprehensive bill.

Pelosi and Trump have been trading accusations for days about who needed to act in order to cement another round of COVID-19 aid before Election Day, with Trump’s fellow Senate Republicans off to the sidelines.

Thematic Context: “Either Congress passes the bill, or the markets will force it out of their hands via a selloff. We maintain that any meaningful retracements (approx -10%) in Nasdaq can be bought.” — 9th Aug 2020
“As stimulus effects wane off due to the lack of motivation to expand the balance sheet at this point in time, mainstreet economic woes floats back to the forefront. In our opinion, nothing has changed on mainstreet, jobless rates have been as high during the risk rally as it is now, but without the wealth creation effect in markets, problems suddenly seem bigger. As we have been saying, either the government prints the money, or it will be forced out of their hands via magnification of social and economic woes.” — 24th Sep 2020

U.S. SENATE VOTES TO CONFIRM SUPREME COURT PICK BARRETT

Enough Republican U.S. senators voted on Monday to confirm President Donald Trump’s Supreme Court nominee, Amy Coney Barrett, with the White House planning a celebratory event afterward.

While Democrats have fiercely opposed the conservative jurist’s nomination, Trump’s fellow Republicans hold a 53–47 Senate advantage and have reached enough votes to confirm as voting continued.

Barrett, a federal appeals court judge, is Trump’s third selection for the court, enabling him to remake it in dramatic fashion as part of his success in moving the broader federal judiciary to the right since taking office in 2017.

ERDOGAN BACKS BOYCOTT OF FRENCH GOODS OVER CARTOON ROW

Turkish leader Tayyip Erdogan asked his compatriots to stop buying French goods on Monday in the latest expression of anger in the Muslim world over images being displayed in France of the Prophet Mohammad, which some Muslims consider blasphemous.

Erdogan, who has a history of fraught relations with Macron, said France was pursuing an anti-Islam agenda.

“I am calling to all my citizens from here to never help French brands or buy them,” Erdogan said.

The row has its roots in a knife attack outside a French school on Oct. 16 in which an 18-year-old man of Chechen origin beheaded Samuel Paty, a 47-year-old teacher who had shown pupils cartoons of Mohammad in a civics lesson on freedom of speech. The cartoons first appeared many years ago in the satirical magazine Charlie Hebdo, whose Paris office was attacked in 2015 by gunmen who killed 12 people.

Since the beheading, the caricatures have been projected onto a building in one city and people displayed them at protests around the country. Macron said he would redouble efforts to stop conservative Islamic beliefs subverting French values.

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 is of immediate 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

COMMENTS/IMPACT: Our aforementioned comments on Erdogan and Turkey’s ambitions in the global order remains.

DAY AHEAD

Australia Inflation Report (CPI), Weds Morn: CPI in the second quarter showed a decline of 1.9%, the first decline since 2016. Trimmed CPI, which excludes the most volatile items in the headline release, also posted a rare decline, with a read of -0.1%. The headline figure is expected to bounce back in Q3, with a forecast of 1.5%. Trimmed CPI is projected to show a small gain of 0.3%.

Risk will continue to be driven by stimulus saga, U.S. politics & virus development.