Polling Points, Stress Tests & Tech Issues

Month-end flows dynamics, rebalancing of Russel indices and resurfacing doubts on whether US states will fully reopen in light of surging virus infections are the order of the day. But it's also time to start mentioning the US election and the possible risks for markets associated with Biden's gain in the polls. Ashraf mentioned that a rare event in a major currency pair is undergoing as we speak. Such event is identical in terms of time and price symmetry to the last time it took place, setting up for a major secular move ahead. He's shared the idea preliminarily with the WhatsApp Broadcast Group and will confirm in next week's Premium videos.

The most important levels to watch ahead of Friday's close is the S&P500's 200-DMA at 3018/20, US Crude support at 37.30 and EURUSD 1.1190. One potentially negative aspect for indices is the 10-yr yield's break below its 55-DMA of 0.68%, which could trigger further selling if 0.60% is taken out. But the gold implications for such an event are largely positive.

Trump's only consistent message is that he will not or cannot afford to leave the negotiating table with China. Trump reiterated today that the phase-one trade deal with China was “fully intact” after his adviser Peter Navarro caused panic for 5-7 minutes earlier this week when his remarks were misinterpreted that the Trade deal was off. This means that technology stocks could be the first to gain from a confirmed resumption in talks.

Stimulus replaces lockdown

Another positive emerges from reports of discussions between the Trump administration and Congress about another stimulus package. Ashraf mentioned that the administration's willingness to resist any lockdown despite record cases could be offset with delivering a new stimulus package in July. These would be considered a double-positive shock for the economy. Or at least an attempt to do so.

Polling Thoughts

The market has plenty to focus on at the moment and the US election isn't until November 3 but there are some themes worth watching. There is a clear shift towards Biden in a series of polls, with some major ones showing a lead as wide as 14 points with some showing him losing in Republican strongholds. No one needs a reminder of the polling surprises in recent years so pricing in policies is premature.

The risk here is the polls themselves. Trump is highly attuned to polls and the near-term risk is that he grows desperate. It's unclear how that would manifest itself but ramping up the trade war against China, or some kind of military action can't be ruled out as a tail risk.