Stock Market Analysis
Traders know stimulus is coming, but they are struggling to find the optimal Covid-19 overwrites while factoring in US election risk and a crowded stay at home basket ahead of what is bound to be a special Thursday US earnings session with a quorum of heavily subscribed tech sector leaders earnings on display – Stock Market Analysis Today: Investors hold back for fear of 2016 redux.
Despite a convincing lead for Biden, people are still worried about the “Shy Trump Voter.”
My view is that it is unlikely pollsters have not thought of this –and corrected for it. Honestly, I believe it is sensible to assume a much higher probability they have overcorrected for it and almost no chance they have under-corrected for it.
In other words, the margin of error in polling goes both ways, and if anything, the pollsters will tweak the dials to avoid looking stupid.
I think investors are wary of making the same mistake twice in a row, and this has introduced significant bias recently, which means bets on a Blue Wave have a high expected value.
People want to get involved in the Blue Wave trade but are holding back, investing a sliver of max or so due to fears of 2016 redux.
I realize its risk-off because Covid-19 cases are rising and with curfews across Europe meaning economic dangers now lurk in the dark. So, with governments worldwide under pressure to tighten social mobility restrictions after a pick-up in new daily Covid-19 cases, an effective vaccine candidate and even a partial stimulus bill and then topped up post-election cannot come quickly enough.
Asia FX – Stock Market Analysis Today
USDCNH started firm with the onshore spot opening higher. However, the market is still trying to fade the overnight spike. The USDCNH settled below 6.7000 for most of the morning session, which is very consistent with investors expecting more predictable foreign policy under a Biden presidency that should cap any rally in USDCNH.
And the Yuan gravitational attraction is influencing G-10 sentiment positively.
USDKRW is trading offered compared to its USD/Asia peers, after better-than-expected Korean Q3 GDP data out earlier. Spot opened at 1132 and traded down to a low of 1125.9
G-10 trading has been relatively uninspiring in Asia. In the absence of any EURUSD positive news, it looks like month-end housekeeping is kicking in a few days earlier than expected as few EUR buying orders went through as rebalancing indicators reflect the variability in equity market performance in October, pointing to a significant statistical need to buy Euro into month-end.
After all, these are challenging times for European policymakers. Virus-related lockdowns are once again becoming a reality across the continent, weighing heavily on the short-term economic outlook.
The September optimism is gone, including at the European Central Bank (ECB). There can now be little doubt that the December projections will be calling for additional policy action.
Headline inflation is negative, and inflation expectations have once again dropped from their temporary summer highs, and at below 1.2% measured by the 5y swap are far from the 2% target. It is getting increasingly difficult to see the Euro holding its own, let alone flourishing in this environment.
Emerging Market FX – Stock Market Analysis Today
EM FX Asia vols were bid this morning, despite the lacklustre spot action as the market looks to cover US election risk. CNH vols have been the biggest mover, with USDCNH 1m up 0.5 vol to 8.35 vol, but the election weights have gone up across the board – especially the low yielders such as CNH, KRW, TWD, and SGD.
This market is not entirely confident of post-election foreign policy outcome on the back of the latest China imposed sanctions on US interests.
It looks like some folks waited too long and are now left chasing what could ultimately be bogus strikes come election day. It never fails that the market needs to hit maximum pain thresholds before the chase sets in.
Liquidity in post-US election AUD options is starting to breakdown. Offers are getting paid up in everything out to one year. A combination of stocks selling off yesterday and short covering in the market drives vols a lot higher. The AUD spot is holding up likely due to M&A flow.
Oil markets have the end-November OPEC+ meeting to lean on. And while there are several variables to consider, I would expect the conclusion to be neutral at worst and likely positive for oil in the medium term.
And although much of the vaccine-induced melt-up will boil down to the efficacy of trials. But with 6 or 7 in the pipeline with oil prices scrapping the bottom of the barrel of the current range, I suspect more than a few traders are willing to buy this dip on the confluence of OPEC backstop and vaccine optimism.
If preliminary results suggest even one vaccine nearing a 70% or higher efficacy, a vaccine will come close to being a game-changing panacea for oil markets.
Stock Market Analysis Today: Investors hold back for fear of 2016 redux.