European stocks weakened, while US stocks rallied, fed by investor optimism that the presidential election would deliver a ‘blue wave’ and provide massive stimulus on coronavirus relief, infrastructure spending and expanded health benefits. Earnings results in Europe have been mixed but helped stocks the major bourses pare some losses. Global M&A is a big part of the bull thesis for investors and that got some good news with the official announcement that Advanced Micro Devices Inc. will buy chip peer Xilinx Inc. for $35 billion in stock.
Election
With one week to go until Election Day, Americans are not waiting to make up their minds after 60 million votes have been casted. A record turnout is inevitable, and most signs still suggest a very blue outcome. Republicans are hoping for a strong Election Day turnout, but it seems President Trump has not been able to gain much momentum following the last debate.
Earnings
HSBC shares soared after posting strong results, signalling they were trying to keep paying their full-year dividend, and will accelerate restructuring in the US. Investors were impressed with the strong beats in Net profit and revenue, but really enjoyed the news of paying a “conservative dividend”.
BP delivered a surprise profit but was unable to deliver an optimistic outlook given the challenging environment. BP’s refining margins are under pressure and production is set to decline, however the oil giant avoided major write-offs and did not have to take on more debt.
Pfizer
Pfizer’s earnings report did not impress. Adjusted EPS was $0.72 a cent beat of the consensus estimate but down a few cents from a year ago. Revenue missed and the company narrowed their full-year sales outlook. Pfizer provided an update with their COVID vaccine trial, noting that 42,000 have been enrolled and that almost 36,000 have already received their second dose. Merck
Merck had a rockstar earnings report with a strong beat with both the top and bottom line, alongside a boost to the outlook.
Virus
The fight against COVID-19 had two major updates, the first one being a major setback after Eli Lilly announced a US run clinical trial of its antibody therapy will end. On the bright side, the Financial Times reported AstraZeneca & University of Oxford’s vaccine produced a strong immune response in elderly people. A big part of the 2021 outlook is dependent on a handful of treatments and vaccines being used across the globe. Pre-pandemic behavior won’t completely return to normal until the race for a vaccine delivers a few winners.
The virus is spreading too rapidly across the US, possibly going into exponential growth. With the election too close, the Trump administration is doubling down on their strategic avoidance of supporting social distancing and mask requirements. The virus surge could get much worse as the election nears.
Justice Barrett
A divided Senate delivered President Trump a warp speed approval for Judge Amy Coney Barrett to the Supreme Court. In a 52-to-48 Senate vote, mostly a party-line vote except for Republican, Susan Collins of Maine, cementing a 6-3 conservative majority on the high court. Democratic nominee Biden will now have to decide on how he will go about expanding the Supreme Court. With many tight Senate races, he does not want to jeopardize the second part of his ‘blue wave’. Many republicans who are planning on voting for Biden may lean towards voting for Republican Senators to keep the conservative majority in the Supreme Court
CNY
The PBOC is pushing for the yuan to become a reserve currency. Reuters reported that the PBOC asked “some of the 14 midpoint contributing banks to submit and adjust their models to better reflect flexibility in the exchange rate and let the currency become more market-driven.” In May 2017, following an extended period of yuan weakness, the PBOC added the secret counter-cyclical factor to its formula for calculating the midpoint reference rate for trading of the currency. The PBOC wants yuan stability and for the yuan internationalization to continue.
Oil
Turnaround Tuesday’s weaker dollar is helping crude prices stabilize following a week-long selloff. Oil’s short-term bearish drivers remain the restart of all of Libya’s major oil fields, rising expectations European governments can’t avoid a return to lockdowns, concerns that treatments and vaccines might take longer for approval, and broader market weakness on failed attempts to get a stimulus done this side of the election.
Energy markets might be looking ahead to the presidential election which could deliver a ‘blue wave’ that would deliver a mask mandate and further aid in testing and fighting the coronavirus, ultimately easing extended lockdown fears and providing optimism for the crude demand outlook.
Hurricane Zeta has tentatively made landfall in Mexico and will move across the Gulf Coast and eyeing the Mississippi River Delta and Mobile, Alabama. This is not a major hurricane and has only shut in 15.9% of Gulf of Mexico oil output and 6% of gas output.
Heading to next week’s election, WTI crude appears to have two massive support levels, just ahead of the $38 level and the $35 level. Unless the dollar weakness persists, it will be tough for WTI to break above the $41 level.
Gold
Gold prices seesawed as investor demand for safe-havens grew on coronavirus worries, Brexit concerns, and no prospects of fresh stimulus until after the presidential election. The dollar initially gave back some yesterday’s gains and that helped gold rise earlier in Europe.
Gold’s outlook will remain very bullish if Election Day delivers a ‘blue wave’ that signals massive stimulus on coronavirus relief and infrastructure spending.
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