Market Likely to Drift Higher

Without more bad news to drive markets lower, then the tendency to drift higher will persist.

It all looked pretty bearish yesterday and likely got the bears excited again. However, as usual, the markets started to grind slowly back and frustrate the bears. This was especially true in the case of precious metals with silver looking quite precarious, down more than 2%, before recovering to close pretty much unchanged on the day. Without more bad news to drive markets lower, then the tendency to drift higher will persist.

TRADING PLAN

Gold & Silver — Strong support for Gold is at 1850–60 and for silver is at 21.80–90. Traded weak and looked like there was going to be another wash-out but recovered strongly. Positive price action is encouraging, stay on course!

Key risks — Stimulus headlines, US yields and the strength of the USD remain as key drivers of risk sentiment. Equity weakness seems to have a lessening impact on precious metals for now.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 15 Oct 2020

U.S. Initial claims for the week ending October 10 increased by 53,000 to 898,000 (expected 830,000). Continuing claims for the week ending October 3 declined by 1.165 million to 10.018 million. The exceedingly high level of initial claims will contribute to the view that the recovery in the labour market is slowing and speaks to the need for more stimulus to keep it from getting worse.
Dollar was headed for its best week of the month on Friday, as surging coronavirus cases and stalled progress toward U.S. stimulus had nervous investors seeking safe assets. As fresh curbs to combat COVID-19 were introduced in Europe and Britain, the world’s reserve currency surged to a two-week high of 93.910 against a basket of currencies. It held just below that peak in Asian morning trade. Risk sensitive currencies were hit hardest, with the AUD dropping almost 1% on Thursday to a more than two week low of $0.7057. It has lost 2% for the week, weighed also by a dovish central bank speech. GBP was also heavily sold overnight, dropping more than 0.8% to $1.2891 on concerns about the obstacles keeping the European Union and Britain from reaching a Brexit trade deal.
London enters a tighter COVID-19 lockdown from midnight, which with a curfew in Paris leaves two of Europe’s largest cities living under state-imposed restrictions. The U.S. Midwest is also battling record surges in new cases as temperatures get colder, prompting authorities to set up a field hospital in the suburbs of Milwaukee, Wisconsin, in case of an overflow of patients from hospital wards.
S&P 500 battled back from an early 1.4% decline on Thursday to close lower by just 0.2%. Value-oriented stocks led the rebound effort at the expense of their growth-oriented peers, evident by the 1.1% gain in the Russell 2000 and 0.5% decline in the Nasdaq Composite.
The early weakness was attributed to ostensible growth concerns caused by renewed lockdowns in Europe amid rising cases of coronavirus and by a 53,000 increase in weekly jobless claims to 898,000 (expected 830,000). In addition, disappointing revenue guidance from Fastly (FSLY 89.70, -33.48, -27.2%) did take some steam out of many growth-oriented stocks.
Investors, however, steadily bought the dip throughout the day that lifted every sector off its low and notably pushed the S&P 500 energy (+1.2%), financials (+0.8%), real estate (+0.5%), and industrials (+0.4%) sectors into positive territory. Note, these sectors are among five S&P 500 sectors still down for the year.
Earnings-driven gains in Morgan Stanley (MS 51.33, +0.68, +1.3%) and Charles Schwab (SCHW 39.03, +1.91, +5.2%) provided the lift for the financials sector, which had struggled this week amid lackluster/disappointing reactions to previous earnings reports. United Airlines (UAL 34.25, -1.36, -3.8%) reported worse-than-expected results, which kept the airline stocks grounded today.

HEADLINES:

BIDEN ATTACKS TRUMP’S VIRUS RESPONSE AS TWO RIVALS HOLD SEPARATE TOWN HALLS

The prime-time split-screen showdown offered a visual reminder of the deeply divided American electorate, even as more than 18 million ballots have already been cast ahead of the formal Nov. 3 Election Day.

The second presidential debate had originally been scheduled for Thursday, but Trump pulled out of the event after organizers decided to turn it into a virtual affair following his diagnosis two weeks ago. A final debate is still scheduled for Oct. 22 in Nashville, Tennessee.

Trump, who spent three days in a military hospital but has since returned to the campaign trail, is trying to alter the dynamics of the race. Reuters/Ipsos polls show Biden has a significant national lead, although his advantage in battleground states is less pronounced.

Some 18.1 million Americans have voted either in person or by mail so far, representing 12.9% of the total votes counted in the 2016 general election, according to the U.S. Elections Project at the University of Florida.

Thematic Context: “Expect political headlines & stimulus saga to drive risk appetite in the week ahead. As Trump hits the trails, we expect nothing short of fireworks, brash statements and wild gyrations in the stimulus narrative. As we have said before, he is not one to head into the elections with a beaten down stock market.” — 12th Oct 2020

TRUMP SUPREME COURT PICK HEADS TOWARD SENATE VOTE DESPITE DEMOCRATIC PROTESTS

The Republican-led U.S. Senate on Thursday moved a step closer to confirming Trump’s U.S. Supreme Court choice Amy Coney Barrett, with the Judiciary Committee scheduling an Oct. 22 vote on her nomination despite Democratic objections.

The Republican president has asked the Senate to confirm Barrett before the Nov. 3 U.S. election in which he is seeking a second term in office. Trump has said he expects the court to decide the election’s outcome.

With Republicans holding a 53–47 Senate majority, her confirmation seems assured. Barrett’s confirmation would give the Supreme Court a 6–3 conservative majority. Barrett, 48, could serve for decades, alongside Trump’s two other Supreme Court selections, Brett Kavanaugh and Neil Gorsuch.

Thematic Context: “The vacancy is adding uncertainty in an already uncertain environment. But it may raise the odds of a Democratic sweep in the election, which could clear the way for a bigger stimulus package afterward to fight economic impacts of the coronavirus.” — 22nd Sep 2020

TWITTER BRIEFLY RESTRICTS TRUMP CAMPAIGN ACCOUNT, REPUBLICANS DECRY COMPANY’S ACTIONS

Trump’s re-election campaign’s Twitter account was briefly restricted on Thursday, causing an outcry from Republican lawmakers who accused social media companies of acting like “speech police” and vowing to hold Twitter responsible.

Twitter temporarily blocked the @TeamTrump account from sending tweets after it posted a video about Democratic presidential candidate Joe Biden’s son that it said violated its rules.

The video referred to a New York Post story from Wednesday that contained alleged details of Hunter Biden’s business dealings with a Ukrainian energy company and said the former vice president had met with an adviser of the company.

Twitter prohibited its users from posting links to two New York Post articles about Hunter Biden, saying they violated its policies against posting private information and “hacked materials.”

After Twitter imposed the restrictions, the U.S. Senate Judiciary Committee moved to subpoena Dorsey. Committee Chairman Lindsey Graham and Republican senators Ted Cruz and Josh Hawley said the committee will vote on sending the subpoena on Tuesday, Oct. 20 and plans to have Dorsey in front of the committee by Oct. 23.

Thematic Context: “Breaking up big tech dominance is good for domestic tech companies, but bad for the “behemoths” we have gotten so comfortable with i.e. Apple, Amazon, Google etc. In the push for deglobalization, a theme we have been harping on since early 2020, tech will not be spared in a real Sputnik race and it seems the threat is on the fringes of materializing. This can potentially be bad for risk-sentiment as “Big Tech” were the main components leading the rebound in risk appetite. There is no shame in taking some chips off the table during this period, especially into the tumultuous months of heightened volatility ahead.” — 19th Sep 2020

DAY AHEAD

U.S. Retail Sales

Retail sales are expected to tick up to 0.7% m/m from 0.6% in August though excluding automobiles, the measure is forecast to ease by 0.2 percentage points to 0.5%, suggesting that household spending is still weak. The retail control gauge which also excludes energy products could come in lower at 0.2% but above August’s print of -0.1%.

Risk will continue to be driven by stimulus saga, political drama and virus headlines.