Australian dollar torn between election heaven and virus hell

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was down Friday night:

Australian dollar was up:

Gold fell:

Oil fell:

Metals too:

Miners are trending off:

EM stocks are ready to blow:

Junk is OK:

Treasuries gave up the insane steepening:

Stocks were up a bit:

We find ourselves at another very strange, very stretched moment in this crazy pandemic. Suspended animation capitalism is about to come face-to-face with a runaway virus, again. Yet all markets are focused on the election. Charlie McElligott of Nomura:

NO stimulus between now and the new administration taking-over, which then gets really complicated if the Senate stays Republican as well, who are then emboldened to act as the last line of defense into the Dem House and WH and act as a thorn in their “fiscal largesse” policy plans…because everybody is “set-up” for the bear-steepening/pro-cyclical fiscal stim + deficit spend + infrastructure + vaccine RECOVERY trade.

That is indeed the set-up. There is even a suggestion that CTAs are getting close to a bond liquidation event, also Nomura:

…the trigger line for a turnaround in the direction of CTAs’ trading is making its way up towards 1.02% from around 0.72% previously.

Yet the missing discount from markets is not the election or vaccines, it is the virus as it stands right in front of our eyes:

At the current rate of spread, by the election, the US will be at well above 100k/day. By Xmas, it will be…wait for it…300k/day. Hospitalisations and fatalities will be in outright crisis. Truth be told, if nothing changes, these figures will be conservative. Remember, we are only in October. The virus spread will accelerate as it gets colder.

That is, unless or until lockdowns resume again, either official or private. The latter has already started:

With another labour market shock building:


Wider economic impacts are spreading:


Yet, until Q2, 2021, everyone will have to do without fiscal support:

In short, the US virus third wave is about to put another massive dent in two quarters of GDP and earnings. There is no more fiscal support coming owing to the election and the market is so drunk on FOMO that it isn’t applying any price pressure to get any.

Nor is Europe much better:

Its new lockdowns are advancing and so is the economic fallout:

In sum, markets are positioned and poised to fly on the US election result. But, on the ground, the virus and fading fiscal support are about to send the entire North Atlantic economy into double-dip depression.

This set-up is alarmingly similar to February 2020. If suspended animation markets win then the Australian dollar will roar. If the virus reality wins then the Australian dollar will crater.

It’s Deja Vu all over again.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. migtronixMEMBER

    Trump is g. o. n. e.

    No chance of a deal now before Nov 4 and with cases at all times highs everywhere there’s zero chance the market doesn’t crater tomorrow….

    • PalimpsestMEMBER

      Mig, let’s not say ‘zero’ chance yet. A lot of the Financial markets crowd are TDS positives. They will live in hope or just focus on election noise. Therefore, I argue that there’s a possibility that (equity) markets will hang on until election night. I believe that bond traders are better at looking ahead.

      • Curious 2:
        Earlier, the New York Post reported, “12-minute video that appears to show Hunter, who’s admitted struggling with addiction problems, smoking crack while engaged in a sex act with an unidentified woman, as well as numerous other sexually explicit images.” The “crack, sex and Ukraine” story from the New York Post has been allegedly censored by social media giants, Facebook and Twitter.

        • migtronixMEMBER

          Hunter isn’t running for President or any public office and unlike Trump there’s no suggestion Joe was going to put him in the White House.

          Its patently not true because it’s so stupid – it hits all the hallmarks of scandal without substantiating anything. Anyhoo markets will kill Trump regardless

        • ???
          The NY Post has been criticized since the beginning of Murdoch’s ownership for sensationalism, blatant advocacy, and conservative bias.
          In 1980, the Columbia Journalism Review stated “New York Post is no longer merely a journalistic problem. It is a social problem—a force for evil.”[50]
          The Post has been accused of contorting its news coverage to suit Murdoch’s business needs, in particular avoiding subjects which could be unflattering to the government of the People’s Republic of China, where Murdoch has invested heavily in satellite television.[51]
          In The New Yorker, Ken Auletta writes that Murdoch “doesn’t hesitate to use the Post to belittle his business opponents”.
          He goes on to say that Murdoch’s support for Edward I. Koch while he was running for mayor of New York “spilled over onto the news pages of the Post, with the paper regularly publishing glowing stories about Koch and sometimes savage accounts of his four primary opponents.”[52]

          SO, is the Murdoch Mafia in Trumps camp?

        • Now Mig, this is not correct
          Its patently not true because it’s so stupid
          So who woulda thought Gladys was bonking the wierdo from Wagga, stupid thought for sure.
          I say plenty of people knew that,but that dirt file was kept for later use.
          you cant have an albtross like hunter any where near. massively too dangerous.

        • I think it’s fair to say that most of these allegations about HB are correct. Nonetheless, I can’t see this actually having any effect on the outcome. The vast majority of voters have known since 2016 who they’ll vote for. It’s just a question of numbers now.

  2. PalimpsestMEMBER

    The polls are narrowing slightly but not in a significant way. The big issue as the article notes: which party will have a majority in Senate. Even if the Senate flips, it’s February before there is any stimulus in US. If Senate doesn’t flip, then any stimulus will be blocked for longer. The market seems to have taken a big position on a blue wave across the three roles, and I know people that need to trade that night for whom I have a lot of sympathy. If the Senate doesn’t flip then there could be a huge market move as everybody races for that exit (giving the TDS crowd the excuse that the market crashed because Biden won, it’s really going to be because the Senate stayed Republican). A good time to be liquid if one has that option. The 538 margin on the Senate race is too close to justify a large blue wave bet – it’s within margin of error yet the portfolios seem to be expecting it.
    Plus RBA on Tuesday, I need to buy more popcorn.

    • migtronixMEMBER

      They did that all through Obama and here we are, just blowhard good old boys swinging whiskey and not gats…

      See John Stadtmiller the blowhard militia leader cry baby.

    • People fearing the Dems are going to push through gun laws. Just a good story to sell more guns.
      After Trump has spent 4 years completely wrecking the joint, Biden is going to have his hands full rebuilding it. If they get both Houses like 2008 they will only have 18 months to get changes through before midterms which would likely bring gridlock back. So they don’t have much time and really have to be selective on what they choose to address.

      • Delayed reply but 538 refers to (big polling site although they definitely favour the left in general).

  3. My bro-in-law lost ~300k in Feb/mar, is telling me to put 100k on Qantas, will go $10 next year. I don’t why he thinks I have 100k, but longer term I think Qantas is pretty safe, I may put 1k in it lol

    • QAN is over valued at $3.00
      It wont be flying on profitable routes till 2022, after a anti V is released
      I was wondering what was causing its recent run

      • Apparently it’s staffing,maintenance etc is being cut to the bone permanently.
        The administration is using Covid to gut their costs, and when it reopens, it will cost a lot less to run( or so I’ve been told by a financial advisor with one of the big firms).

        • It will be lower cost to run, cos it wont be doing any flying
          Its profits were from BNE SYD MLB
          Now everybody can WFH
          Ask your advisor how many shares in the SPP they took up
          Always follow the money, and where are you in the food chain

          • Seems to me Qantas has a lot of people there for 20+ years. Can be hard to remove them. Also the PR would have killed them before. Now under the cover of Covid-19 they can do what they want.

        • Sounds feasible — Qantas is a classic state-turned-private asset. All the legacy issues that are a drag on the company’s cost-base take ages to eradicate. Along comes a crisis and suddenly management has carte blanche …

      • Yes ripping the cost out, take market share (Tiger, Virgin..), restart domestic flights (which is more profitable)….His call, his money

        Swampy, daddy had 5 bakeries at one stage, so he took on 1, had a takeaway shop on Botany road that apparently killed it, bought a few investment properties, now has his partner expecting a new Chanel/LV bag a month…but that last route hurt him

      • I do wonder if Covid-19 is just the first of its kind.. it would appear that mother nature is forcing us to change.

        • Agreed, I bought a parcel at $3.79.
          Have cash set aside to buy more in the future, though not convinced the current rally has legs.
          Will review again in March/April 2021.

          I was waiting to pick more up in the $2’s. It’s dipped a few times but hasn’t gone sub $3 since March 2020.

  4. Charts are giving me a whiff that ASX & AUD can both go up. Is that even possible? Time to sit on my hands….

    • Know IdeaMEMBER

      I have pretty much been doing that for three decades and just progressively adding a little more every now and again.

    • The best policy is to sit on a large cash position till after the election — there’s no point putting your neck on the line right now. That’s bad risk management. If all goes according to plan and the Dems win by a landslide you may miss the first 5-10% of the next rally. That’s perfectly acceptable. Taking a bet beforehand is what gamblers do — not good traders or fund managers.

  5. happy valleyMEMBER

    “At the current rate of spread, by the election, the US will be at well above 100k/day. By Xmas, it will be…wait for it…300k/day. Hospitalisations and fatalities will be in outright crisis. Truth be told, if nothing changes, these figures will be conservative. Remember, we are only in October. The virus spread will accelerate as it gets colder.”

    How great is The Donald – truly MAGA.

    • Maybe, as in the UK, they’re finding more because they’re testing more (originally 6k now 250k per day) otherwise with nearly everyone being asymptotic or having the sniffles why would you know or care.
      Oh yes that’s right, it ramps up the fear factor.

    • happy valleyMEMBER

      America has apparently officially conceded that it has lost control of covid, covid, covid – 4 more years, 4 more years, 4 more years – how great is The Donald.

  6. happy valleyMEMBER

    For sh.thouse term deposit rates for SMSFs for terms of up to one year, which of ING, Rabobank and and Westpac do you think has the most appalling rates? No cheating now.

  7. How much of a low information pundit do you have to be to believe that the president controls state by state laws concerning shutdowns??? Oh, and if Trump mandated everyone had to wear masks what would the media say? Trump is a TYRANT and abusing his power!

    • If by your logic, Trump was doomed either way, why did he take the worst option on the table? Following medical advise would literally have cost him nothing. It may actually saved his base as they are high-risk.