Australian dollar to the moon with Biden win

See the latest Australian dollar analysis here:

Macro Afternoon

DXY sank last night:

The Australian dollar had one wild day:

Gold was subdued:

Commodities bounced:

Miners fell:

EM stocks went nuts:

As junk jumped:

While Treasuries crashed:

And stocks soared:

Westpac has the wrap:

Event Wrap

US service sector ISM fell to 56.6 (est. 57.4, prior 57.8), reflecting the potential of a slowdown in growth in Q4, as well as the failure of pre-election stimulus talks. A pullback in the employment component to 50.1 was notable. Final Markit service PMI firmed to 56.9 (est. 56.0, prior 56.0) – its highest reading since 2015, on the back of stronger new business, although it too showed a pullback in employment. October’s ADP employment report showed a disappointing 365k rise against estimates of 650k.

Eurozone final Markit service sector PMIs edged above their flash readings (of 46.2) to 46.9, pushing the region’s composite PMI to the inflection level of 50.0.

UK final Markit service sector PMI fell to 51.4 (flash 52.3), pulling the composite down to 52.1 (flash 52.9), amid pandemic and lockdown concerns and fears of “a double-dip recession”.

Event Outlook

Australia: Westpac expects the trade surplus to widen in Sept to $5.2bn as imports pull-back and exports lift (market f/c: $3.7bn).

NZ: Domestic activity indicators have been picking up, supporting ANZ business confidence in Nov (prior: -15.7).

Euro Area: The rebound in retail sales will stall in Sep as containment measures to manage COVID-19’s resurgence are instituted (prior: 4.4%, market f/c: -1.5%).

UK: The BoE will take careful note of growing downside risks at its policy meeting as England begins its second nationwide lockdown.

US: The market expects initial jobless claims to fall slightly from 751k to 735k.

The FOMC’s November meeting will conclude today; we expect the meeting communications to focus on risk and uncertainty rather than the positive Q3 GDP result.

So, after a few weeks of Trump legal tantrum, on the balance of probabilities Democrats will take the White House and Republicans retain the senate. This sets the US economy up for:

  • 10 weeks of a lame-duck regime determined to exact its revenge (probably by unleashing the virus);
  • a new Biden Administration that will have to lock down the moment it takes power:
  • and not enough stimulus throughout any of it:

In its wisdom, the market has determined that this sequence of events is outrageously bullish for stocks as the economy rolls into another depression in both the US and Europe:

Call me skeptical. Even though it raises the prospect of more help from the Fed and the much yearned for negative interest rates. That won’t come without a market crash first, which remains a very distinct possibility.

As for forex and the AUD, it will get pushed around by whatever happens next in this grand fiction formerly known as capitalism.

David Llewellyn-Smith
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Comments

  1. The wise move was to take chips off the table before the election and go and read book or mow the lawn instead.

  2. We better start learning to kowtow. China is gonna want a return on all that money they spent on Hunter.

    • I'll Stir Fry You in My WokeMEMBER

      It’s good you mention this.

      I fricking LOVE some kow-tow. Especially tofu curry kow tow. Deeeeelicious.

  3. How will Biden force a lockdown? Can it be done via Exec Order? Won’t Red governors defy any order as has been the case for the past 6 months?

    • With the US’s lack of universal healthcare and no single payer system, just a hodge-podge of private insurers that are shonky in the extreme (ask me how I know, grrrr), I don’t see any way lockdowns there will work without helicopter money.

    • I don’t think president Harris will have much luck convincing NRA members to give up their freedoms!

      • Add to that Biden stated recently that he won’t be enforcing a lockdown. It was Trump that said Biden would be doing it.

        “You don’t have to shut things down. The Democrats have already passed a $2 trillion program to help these businesses stay open, change their ventilation, allow for dividers for businesses to keep people socially distant. They’ve already passed $200 billion for schools across the nation. How do you do it? By providing masks and PPE for all the students as well as the teachers. We know how to do this. Maybe that’s why he wants to fire Dr. Fauci, because Fauci has too much integrity to remain silent.”

  4. pfh007.comMEMBER

    Biden should have a read of this paper by Robert Hockett.

    MyTreasury will work just as well as MyFed assuming that they run into problems implementing that with a hostile Senate.

    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3599419

    Abstract
    I propose means of immediately converting the Department of Treasury’s existing ‘TreasuryDirect’ system of freely available transaction accounts into a publicly administered digital savings and payments platform. A platform of this type is an essential public utility in any commercial society such as our own. It is additionally growth-promoting inasmuch as growth-tracking GDP is a measure of transaction volume, while transaction volume is a function of more efficient and inclusive transacting. As Congress seeks means of streamlining the payments infrastructure in a time of pandemic-induced crisis, the Treasury route recommends itself as the fastest way to digitize payments for 95% of our citizens and business enterprises. I also map means of migrating the Treasury architecture to the Fed over time once the crisis is past – as the ‘Greenback’ paper dollar itself did in the late 19th and early 20th centuries – and include my draft Treasury Dollar Act as an Appendix.

    Don’t tell the RBA though as they have insisted that our private banks are doing a great job.

    https://theglass-pyramid.com/2020/10/08/rba-watch-central-bank-digital-currency-on-the-way/

  5. Puppet Biden (gosh he is awful) has promised a ‘dark winter’. Admittedly he’ll flip-flop as he has done for foooortyyyy-seven years! He has no hubris that will resurrect the US economy.

  6. Ronin8317MEMBER

    With Michigan looking like a Biden win, that gives Biden 270. The nightmare scenario of Supreme Court deciding the election is averted. I believe Wall Street is jumping on that rather than celebrating a Biden victory.

    Of course, if Trump can somehow claw back Nevada, it’s game on.

    • Joe wins unless Don can prove voter irregularities and win court case. But Don wants to stop counting instead of investigating voter fraud.

  7. BBUS is looking very good right now. I can’t any stimulus before Feb and that almost guarantees market correction.
    If AUD falls below 69c during the correction (if correction plays out) then go long AUD as once stimulus is unleashed and the new green deal is sealed commodities will be in demand.

    • I will probably buy ASX:ETHI as well. There are also heaps of good renewables companies, some on the ASX, too.

      And, hey, what about 5G stocks? I’m keen to pick up some of those once this all settles down and stimulus gets announced.

      I can’t buy BBUS at the moment; I hold a little BBOZ, but that’s really only because I didn’t get out of it all in time.

      • “There are also heaps of good renewables companies, some on the ASX, too” – name few please.