It was another bullish day for global equity markets yesterday even though political uncertainty was doing the rounds with respect to the US Presidential election.
It is looking likely that Joe Biden will win out, but President Trump is set to contest the results of certain states, so that could pave the way for a lengthy legal process.
The positive run in stocks is a little odd seeing as it is often said that dealers despise uncertainty, and that is exactly the situation we are in now. In advance of the vote, traders were saying they would like to see a clear a win one way or the other, but it now seems likely that Mr Biden will win the presidency, but the Republicans will keep their majority in The Senate. Should that be the case, then Mr Biden will find it difficult to manoeuvre. In a roundabout way, that has boosted sentiment in stocks as Biden probably won’t be able to implement his plans to crack down on the power of big tech or impose new pricing practices on big pharma. With respect to the proposed coronavirus stimulus package, traders might have to settle for a scheme in the region of $500 billion as that’s what the Republicans were pushing form, and keep in mind that Nancy Pelosi, of the Democrats. was hoping for a scheme of roughly $2 trillion.
The US non-farm payrolls report will be the focus of the session. The consensus estimate is that 600,000 jobs were added last month, and that would be a bit of a dip from the 661,000 registered in September. When it comes to the unemployment rate, it is anticipated to dip from 7.9% to 7.7%, and the yearly average earnings metric is expected to be 4.6%, down from 4.7%. The US data will be posted at 1.30pm (UK time).
Keep in mind the ADP report showed that 365,000 jobs were created last month and that was nowhere near the 650,000 that economists were anticipating. It is possible the US economic recovery is running out of steam. By and large, the latest US manufacturing and services data has been robust so the economy is in good shape. The employment component of the ISM manufacturing and the non-ISM manufacturing data were mixed but nonetheless they both showed expansion.
It is a mixed picture for stocks in Asia, as the Nikkei 225 is higher, while equities in mainland China and Hong Kong are in the red.
Things are heating up with respect to the US presidential election as Mr Trump is marginally ahead in Pennsylvania, and his lead in Georgia is minuscule.
Yesterday, the Bank of England (BoE) decided to take a proactive approach to the tougher restrictions that are in place in the UK, by revealing an increase the in quantitative easing programme of £150 billion to £895 billion. Economists were only anticipating an increase of £100 billion. Interest rates were left on hold at 0.1%, meeting forecasts. The BoE lowered their growth forecasts, which is not exactly surprising seeing as England has entered a one month lockdown. In addition to that, the prospect of negative interest rates is still a possibility, but it could just be the case that the bank doesn’t want to rule out that option.
The Federal Reserve kept its monetary policy on hold last night, meeting forecasts. Jerome Powell, the head of the Fed, expressed concern for the rising number of coronavirus cases in the US and overseas. It doesn’t look like the Fed will be tightening their policy for years.
Oil slipped yesterday as traders took the view that a Biden victory might bring about an increase in supply from Iran. President Trump took a hard-line against the Iranian regime, and that brought about a tighter supply, dealers feel that M Biden could take a softer approach to the situation.
Metals rallied yesterday on the back of the overall bullish sentiment. Industrial metals, like silver, copper, platinum and palladium all racked up decent gains. Gold jumped too as the tumble in the US dollar helped the yellow metal.
At 7am (UK time), German industrial output will be published and economists are expecting a reading of 2.5%, which would be a big rebound from the -0.2% posted in August.
The Halifax UK house price index is tipped to show an increase of 0.5%, on a monthly basis, and keep in mind the September growth rate was 1.6%. The reading will be posted at 8.30am (UK time).
Canada’s unemployment rate is expected to slide from 9% to 8.8% in October, and the employment change is expected to show an increase of 100,000, down from the 378,200 jobs that were added in September. At 1.30pm (UK time) the details will be released.
EUR/USD – while it holds above 1.1612, it could push higher and 1.1880 might act as resistance. A break through 1.1612 might pave the way for 1.1400 to be tested.
GBP/USD – Tuesday’s candle was very bullish and while it holds above the 100-day moving average at 1.2894, the uptrend should continue. 1.3269 might act as resistance, and a move beyond that mark, could put 1.3515 on the radar. A move through 1.2800, could see it target 1.2675.
EUR/GBP – Wednesday’s candle might be a bullish engulfing and a break above 0.9100, could put 0.9157 on the radar. Should we see a break lower, a move through the 0.9000 mark, might see it retest the 0.8864 area.
USD/JPY – it fell to a level last seen in March and if the bearish move continues it could target 103.08 or 101.90. A snap back might encounter resistance at the 50-day moving average - 105.33.