A strong start to trading week had to happen after too many deals were announced, positive vaccine/treatment news, expectations improve for Washington DC to pass a stopgap bill, and as investors anticipated another dovish Fed policy meeting. Despite the strong start to the trading week, many investors remain nervous the correction is not over and that inflation concerns are arising. Inflation might be closer than we think as the Fed’s unprecedented efforts have propped up asset prices, the hot housing market might see incomes struggle to keep up, and as supply side pressures intensify on deglobalization.
Deals Deals Deals
Super merger Monday saw dealmakers delivered $69 billion in M&A over the weekend. The pre-election push to get deals done will likely heat up as we near November 3rd. With a tremendous amount of uncertainty on what trade and taxes environment after the election, companies are taking advantage of the low cost of raising capital.
The first mega-deal is really a partnership between Oracle and TikTok’s US operation. The Chinese video sharing platform seems to have gotten a deal announced before the September 15th deadline. For the deal to be finalized, China needs to sign off and it needs to pass the US government’s two-track national security review. The other blockbuster deal was Nvidia’s acquisition of ARM from Softbank for $40 billion.
Gilead may have overpaid for Immunomedics, but no one is doubting the importance of expanding coverage in their oncology portfolio. Gilead’s prize of the deal is Trodelvy, an FDA-approved treatment for metastatic triple-negative breast cancer.
Merck also announced a $1 billion equity stake in Seattle Genetics, with the entire deal possibly being worth up to $4.5 billion. Merck’s two strategic oncology collaborations will broaden its development program in breast cancer and other solid tumors.
Eli Lilly had positive COVID treatment data This is the third successful medicine in a well controlled study and continues to add the positive outlook with the fight against COVID-19.
On the vaccine front, AstraZeneca ended its 6-day halt of vaccine tests in the UK, while remaining suspended in the US. Pfizer also expanded its trial from 30,000 to 44,000 people and reiterated they should know by the end of October if the vaccine gets the greenlight. Financial markets remain optimistic a vaccine will get done before the year is over.
A stopgap spending bill seems likely to get done before the month is over and that basically means talks are dead for another coronavirus relief bill. The fiscal year ends in under three weeks and it would be political suicide for many if the government is not kept open. Next week the House is expected to vote on a stopgap spending bill, giving the Senate about a week to get it finalized.
Despite the strong start for US stocks, crude prices did not have a chance of rallying today after a trifecta of bearish headlines. First, a bearish OPEC monthly oil report saw both a weaker demand outlook and a recovery with US shale production. Second, the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting reportedly is unlikely to change course with their production cuts despite the significant oil price drop. Lastly, the return of Libyan supply could be nearing as Libya, commander Khalifa Haftar appears committed to ending a months-long blockade of oil facilities.
Earlier oil prices had some support as soon-to-be Hurricane Sally eyes the eastern edge of the offshore production area, prompting some oil and natural gas drilling to be temporarily halted. Despite a plethora of activity in the Gulf, energy traders remain focused on the demand side fundamentals.
WTI crude looks shaky here and could be ready to test the low-to-mid $30s if the Thursday OPEC+ meeting does not show some openness to new production cuts.
Gold has never looked so good. The dollar seems ready for its ‘swan song’ as the Fed is likely to remain committed to keep interest rates near zero for longer. Safe-haven demand will be strong as the presidential election is less than 49 days and the potential outcomes for election night are numerous. In addition to finding out who wins the Oval Office and Senate, we might not get the results that night or even week. Lastly, the main reason gold is looking good is that this part of the economic recovery could also be the beginning of inflation. Inflation concerns are brewing as the Fed’s unprecedented efforts have propped up asset prices, the hot housing market might see incomes struggle to keep up, and as supply side pressures intensify on deglobalization.
This is a big week for gold that could see it finally break free of the $1900 and $2000 trading range. The Fed has been amazing throughout this pandemic and if they deliver again, gold could finally push higher.
Less than 50 days until the election and former VP Biden continues to hold onto a strong lead. The latest polls show Biden has a 9-point lead in Minnesota, 3-point edge in New Hampshire, 4-point advantage in Nevada, and a 5-point upper hand in Wisconsin. If Biden wins in November, he would very need to thank Billionaire Mike Bloomberg. Over the weekend, Bloomberg announced he would spend as much as $100 million in Florida to defeat President Donald Trump in what many experts are calling a must-win state. It is far too early to call this election, especially before the debates, but Bloomberg’s infusion of cash could mean checkmate for Trump. Bloomberg basically took care of Florida for Biden, now the Democratic nominee can focus on the other battleground states.
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