DXY was strong again Friday night:
But the Australian dollar was even stronger:
Gold is still poised:
Oil firmed:
Base metals are still mixed:
Miners rebounded:
EM stocks too:
And junk:
Bonds softened:
Stocks managed a weak bounce:
Despite the little comeback, I note that a new and less propitious narrative is developing. As the US pandemic refuses to improve the Trump Administration’s chances for reelection deteriorate:
The polling gap is large enough to suggest a Democratic clean sweep is possible.
That throws a nasty spanner into the stock market works given Joe Biden wants to see corporate taxes hiked to 28%:
Goldman reckons:
Goldman Sachs warns that Biden’s tax plan, combined with an expected drag on GDP, would lower next year’s S&P 500 per-share earnings by $20 to $150.
“Although the coronavirus has caused the sharpest decline in economic activity on record, in some ways tax policy represents a larger risk to earnings and consequently to equity prices,” David Kostin, chief US equity strategist at Goldman Sachs, wrote in a note to clients published Friday.
That $170 represents a $5 fall from 2019 levels. A ludicrous forecast from the squid. A more likely outcome is $150 from which Biden would be detracting another $20.
In short, earnings would be down by one third in 2021 if the Democrats win in a sweep, putting stocks on some kind of preposterous multiple near 30x.
The negative feedback loop is obvious: Virus kills Trump kills earnings kills stocks kills Trump.
Turning to forex, the obvious conclusion is that as stocks correct so will the AUD:
But there are some mitigating factors. Biden is anti-tariffs so is less USD bullish. He is also more China-corrupted so would be less hawkish and therefore less AUD negative.
These forces would come into play in time but I still think the “risk on, risk off” regime would be dominant in 2020.
