Dump all risk, find the best haven and re-evaluate later is the primary modus operandi as US president Trump tested positive to Covid-19.
The risk-off reaction to Trump’s positive Covid-19 test feels like the last of the Biden pricing is getting done. The quarantine will mean he misses three swing state rallies – with critical Florida among them.
It also means the next debate will need to be shifted. Currently, oil is the worst performer, down just over 2%, followed by the mini down 1.8%.
Risk is trading lower because the market is pricing the last bit of Biden tax hikes and anti-oil stand from Biden. This is far from risk-off due to uncertainly but rather risk-off due to certainty.
Did Trump infect Biden at the debates? Answer: Not sure, but on his own team it was a tight group on Air Force-1, so if Hicks passed it to Trump, it feels to be the greater risk is to Pence, Meadows, etc
Is there an advantageous angle? Answer: 100 % YES Biden clean sweep is a massive risk on – the Democrats will be able to ramp up the fiscal back to the original plan of $3.5 trillion.
Biden’s spending plans might have been expected to drive demand into US Treasuries, but gold is a better hedge as the market tuns off the dollar. The Japanese yen’s gain is as expected, but the bid for CNH stands out also.
Oil gets hammered
Another rough day in the oil patch as the weakest link of the bunch is getting absolutely hammered.
There’s no news on when/where US President Trump contracted Covid-19, but with a close aide, Hope Hicks, having tested positive and having flown on Air Force One on Tuesday to the Cleveland rally, that looks a likely time.
There are plenty of pictures from Trump and others, including Vice President Pence, talking without masks. With senior White House staff operating in a very tight bubble, the next stages will be the test results for everyone on the Ohio trip.
I suspect there are emergency contingency meetings underway now with could lather the market with stimulus.
Can Trump Cancel/Postpone the Election?
No – this cannot be done via executive order. Article 3 of the US Constitution requires legislation enacted by Congress and signed by the president.
A Biden presidency and Democratic sweep of Congress has been increasingly priced in this week based on prediction markets. That should boost expectations for fiscal stimulus in 2021 and drive US equities higher and USDJPY upside.
A Democratic sweep is now my election call.
Lots of forks on the road
Still, as we see, the initial reaction is a shift to massive safe-haven demand and provides more cause to cut all risk into the weekend, but I’m not sure the US dollar is the place to be, a safer haven in the JPY.
Rumours have been kicking around all morning. Now that the cat is out of the bag. I’m assuming Biden moves big in the polls market moves from pricing 60 % to 90 % certainly of a Democrat win in the polls with Trump all but toast.
Election risk fades, now it’s down the stimulus now or later, and if the Republican Senate votes YES out of political self-preservation or bends the knee, then later tonight risk could stabilize.
Oil remains the weakest link to the Covid-19 headlines as it reinforces the view that anyone, even the commander in chief, is susceptible to the virus.