LCG: It's US Election Day

November 3, 2020

The day ahead is Election Day in the US where voters will head to the polls to cast a vote for President Donald Trump or former VP Joe Biden.

• Election Day is here!
• Dow jumps 400 points in rebound from rough week
• Apple announces new 'one more thing' event for Nov 10
• Dollar rallies for sixth straight day vs euro
• Oil prices explode higher after comments by Russia on OPEC+ output

MARKETS

Europe open

Stocks in Europe look set for a strongly higher open. With the US election as the main event in the next 24 hours, European investors are putting aside concerns over lockdown and taking cues from Wall Street.

Dow 400 points

The Dow jumping 400 points yesterday shows the exact same nervy trading that sent it lower hundred of points last week. We don’t read this as a ‘confident in stocks’ 400 points but more an 'too uncertain to keep selling' 400 points. A 10-point Biden lead according to a poll from the NBC/Wall Street journal may have offered investors some more strength in their convictions.

EUR/USD down 6 days running

Many have Biden down as a ‘dollar-negative’ President because of the implied extra deficit spending after new stimulus is passed but the dollar is up six days in a row vs the euro. The dollar strength up until now had been more a function of how the outlook for Europe has weakened with the 2nd lockdowns and a pretty explicit signal of extra QE in December from the ECB. This time the dollar gains were off the back of domestic strength. Manufacturing activity skyrocketed in October to a 2-year high reading of 59.3 in the ISM PMI reading.

Apple early Xmas present

Presumably Apple had this event planned anyway irrespective of the poor reaction to its Q3 numbers but for Apple investors it could offer some welcome distraction. Enthusiasm in Apple stock was muted in first reaction to what is probably the first MacBook powered by its own chips rather than Intel.

Oil price rips

Having tanked on rising US inventories and plummeting demand expectations, there was better news on the supply side for oil on Monday. Russia was giving out the good vibes with talk of a delay to the tapering of production cuts for another three months. Three months would hopefully bring us past the peak of the second wave of COVID 19. With demand looking so soft, supply was the only real possible bullish catalyst for oil here.

DAY AHEAD

Election Day

The nerves in markets have been palpable surrounding this election. Although most will agree over the long term elections don’t change the overall direction of the market, there is so much going on in the short term that could swing one way or the other.

Not much can be said about this election that hasn’t already been said already. From a markets perspective, Biden is baked into the cake but an elevated VIX index (fear gauge) tells you nobody’s ready to write off Trump completely. If The Donald does pull off another 2016, markets are not positioned for it and volatility will rise even higher. The most likely reason for elevated vol is a contested result – also not really priced outside of the VIX. Presumably some are using VIX derivatives to hedge against buying equities for a blue wave so that could unwind quickly if Biden sweeps in.

Also

Earnings: Aramco, Bayer, BNP Paribas, Associated British Foods (ABF)

RBA rate decision (cut to 0.1% from 0.25% expected)

API crude inventories