US Close – BlueWave remains the base case, FX ready to pounce on the dollar, Oil higher as OPEC+ considers more cuts, Gold ready for one more run, Ant IPO suspended

The two likely scenarios for election night is that either Biden wins in an easy landslide or a ‘red mirage’ occurs and gives some hope for the Republicans, but once all the mail-in votes are counted, Biden emerges victorious.  President Trump has a fighter’s chance, but it would require a lot to go his way. At best, Trump’s chances are in the high-single digits and that is why you are seeing investors heavily pile into infrastructure spending, green energy, and health care stocks.  The Senate races remain the biggest question mark tonight. While the base case scenario is for the Democrats to have at least a net gain of three seats to regain Senate control, investors should not be surprised if they fall a vote short.

FX

The dollar is drowning as Wall Street continues to price in a ‘blue wave’.  It seems the only thing that can stop the dollar’s slide is if at the of tonight the prospects of a contested election seem high.  Regardless of the outcome, currency traders are counting on fresh fiscal stimulus post-election and for the Fed to do more.  As long as the world has a couple of vaccines and more treatments available over the next couple of months, the dollar is destined to become a funding currency.

Oil

Crude prices continue to rebound as dollar weakness returns and after OPEC+ finally saw the writing on demand outlook wall.  OPEC+ appears to be ready to discuss deeper production cuts as European demand wanes following steady lockdown announcements.  Much of the northern hemisphere is nowhere close to returning to pre-pandemic behavior so OPEC+ should be scared that oversupply concerns could quickly send oil below USD30 a barrel.

Oversupply fears were also supported by rising Libyan output and as Hurricane Eta headed toward Nicaragua, avoiding much of the Gulf Coast production.  Libya oil production continues to bounce back, now at 850,000 bpd, nearing their short-term goal of 1-million barrels.  ETA was the 28th storm of 2020, matching the 2005 record for most named systems.

Gold

Gold is back above the USD1,900 level as investors start to focus beyond the election and price in more action from the Fed and strong holiday demand from India’s Diwali and China’s Lunar New Year.  A contested election is a risk that can’t be ignored and continues to see some safe-haven flows.  After the election aftermath, the focus comes quickly back to COVID-19 and its relentless spread, raising the risks for some hospitals to reach capacity.  COVID-19 once again could prompt the urgency needed for Congress to come through and deliver aid to state and local governments.

If the polls got it right and it seems they have a very good chance of doing that, gold should skyrocket back above the USD2,000 level in the coming weeks as a ‘blue wave’ will deliver massive stimulus in the first half of next year, sending the dollar sharply lower.

Ant Financial

Stunned!  China pulled the rug on billionaire Jack Ma’s fin-tech IPO.  A meeting with regulators has thrown the world’s largest IPO into disarray. This is a big blow for the dual listing in Shanghai and Hong Kong.  Ant Group was supposed to be a behemoth stock that was going to benefit from the rapid digitization of financial services in China.  The new draft rules will disrupt their earnings and revenue outlook for the next few years.  Alibaba owns nearly a one-third stake in Ant Group and saw their share prices tank over 8%.

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