Stocks enjoyed a very bullish move yesterday as traders swooped in and picked up relatively cheap equities.
Last week was largely dominated by doom and gloom as the headlines were about rising Covid-19 cases and lockdown announcements. The major indices of Europe dropped to their lowest levels in months, while US benchmarks fell to the lowest levels in roughly one month.
The upward moves that were witnessed yesterday don’t appear to have been rooted in any particular fundamental story. The manufacturing data reports from China, Europe and the US were well-received, but the reports weren’t that good to solely justify the big gains that were achieved. In a way, the bullish moves, felt like a relief rally, as stock slumped last week on the planned tighter restrictions for France and Germany, that will come into effect in this month, and now that November has arrived, there was a bounce back.
The Reserve Bank of Australia (RBA) cut interest rates to 0.1% from 0.25%, meeting forecasts. The RBA announced AUD $100 billion of bond purchases too. The central bank said it will loosen monetary policy further if it feels it needs to, but at the same time, negative rates are unlikely. Additional bond purchases are an option. Stocks in Australia are rallying and Hong Kong and mainland China are seeing strong gains too.
In the last few weeks there has been a huge amount of back and forth with respect to the proposed US stimulus package – which never materialised. The US presidential election is today and the outcome will most likely have a huge impact on the scale of the scheme, and its timing. It is possible that equity traders were keen to square up their books before voting took place. The election will be at the forefront of traders’ minds today, so it is likely that volatility in the markets will be low, akin to what is seen on a US non-farm payrolls session.
The elusive coronavirus stimulus package would probably be decided upon and delivered faster by a Trump win. Traders will also be keeping an eye on The Senate too as 35 seats are up for re-election, and the Republicans have a slim majority in the upper house. Seeing as President Trump is very pro-business, it is fair to say that Wall Street would prefer a Trump victory. If there is a huge ‘blue wave’, we might see the Democrats take control of the Senate as well as a Biden win, but if that is the case, we would probably be looking at 2021 before the stimulus programme is deployed.
The two candidates are much divided on the energy sector. Trump favours traditional oil and gas, whereas Mr Biden is keen to pivot away from fossil fuels and move more towards fossil renewable energy. No matter which individual takes the White House, the big tech industry is likely to come under more scrutiny, as both political camps have essentially expressed concerns about the growing influence of the likes of Facebook and Alphabet – Google’s owner. It is understood that a Biden win would probably result in a big push for infrastructure projects, but corporate taxes are tipped to rise under a Biden administration.
Oil saw a large amount of volatility yesterday. In the early part of the session, the energy dropped to its lowest level since May, but the overall mood in the markets improved, and there was a rebound in the oil market too. The energy was also given a lift by Russia. The major oil producing nation said it was open to the possibility of maintaining the existing production levels, rather than unwinding the steep production cuts that have been in place in recent months – which would in effect keep some pressure on supply.
At 3pm (UK time), US factory orders will be posted and economists are expecting 1%, which would be an increase from the 0.7% posted in August.
EUR/USD – has been moving lower for over one week and if the bearish move continues it could target 1.1612 or 1.1400. A rebound might run into resistance at 1.1788, the 50-day moving average or at 1.2000.
GBP/USD – recently retreated from a six week higher and while it holds above the 100-day moving average at 1.2878, the uptrend should continue. 1.3269 might act as resistance, and a move beyond that mark, could put 1.3515 on the radar.
EUR/GBP – while it holds above the 0.9000 mark, it might look to retest the 0.9157 area. A break below 0.9000 could see it target 0.8864.
USD/JPY – last Thursday’s candle has the potential to be a bullish reversal and if it pushes higher it might run into resistance at the 50-day moving average - 105.46 and a move above that, could see it target 107.00. A break below 104.00 could see it target 101.90.