What’s the dynamic today?
The market moves today are a tough narrative to string together.
- USD soft across the board
- Treasury yields breaking out to the upside
- Gold higher
- Oil lower
- Equities flat
There are some unique factors at play, including a jump in sterling on Brexit deal optimism. That’s also spilled into EUR but the overarching theme is USD weakness.
What’s the story?
1. Time is up on stimulus.
Pelosi’s deadline was real because it’s a practical deadline. Americans are going to be voting in 13 days and the Senate is still trying to confirm a Supreme Court justice. It’s going to be a huge bill and there simply isn’t time to get it done. The talks are theatre and if the Senate isn’t considering any deal before the election they’re not considering it at all.
2. Trump’s odds are dwindling, blue wave building
The Hunter Biden thing is stupid and it’s not going to work. There’s some optimism in state-level polls but at the district level he’s facing some big headwinds and high participation is bad news for Republicans in general. There are so many paths to a Biden win and Democratic Senate majority.
3. Election risks remain
Even though all the numbers point to a blue wave, you can’t forget what happened last time and ignore Trump’s unpredictability and the chance he disputes the results. Do you really want to be in US assets over the next month? Who knows what could happen.
4. Blue wave with no near-term stimulus
So there’s not going to be a deal before the election and a blue wave is coming. I think the market is looking at that and saying a deal in the lame duck sessions isn’t likely either, except for something along the lines of the $500B the Senate is proposing. So we’re going to be waiting until January but I believe the market is also looking at a larger stimulus then, because COVID is raging. So that’s why Treasuries are soft.
Basically, you have the US dollar looking at the short term and the bond market looking at the next 2-4 years.