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Opening Bell: Global Shares Extend Rally On Mixed U.S. Election Expectations

Published 11/05/2020, 07:29 AM
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  • US dollar declines, despite escalating Treasuries
  • Bitcoin hits its highest level since January 2018
  • Tight US election prompts oil traders to price out legislative expectations
  • Key Events

    Futures contracts, including on the Dow, S&P, NASDAQ and Russell 2000, and stocks were green across the board on Thursday, with technology and healthcare shares leading the rally. The expectation that the US election will finish with mixed results rather than a Blue Wave—where Democrats win the Presidency and a majority in both the House and Senate—boosted sentiment since it means there will be no significant change to taxes or regulation, something markets like.

    Gold continues to rise as investors seek safe haven options.

    Global Financial Affairs

    In the US, former Vice President and Democratic Presidential candidate Joe Biden won the closely-contested states of Wisconsin and Michigan, putting him in a good place to take the White House. As counting continues in other states, President Donald Trump has already opened legal proceedings to stop vote counting in Pennsylvania and Georgia.

    In Europe, the tech sector rebound that's been fueling US markets over the past few days, also drove the Stoxx 600 Index to a higher open on Thursday. Positive sentiment was further buoyed by results from Societe Generale (PA:SOGN). Its shares surged nearly 6% right off the bat, after the French bank reported profits nearly double market expectations.

    Soc Gen Daily

    The French lender’s jump created a breakaway gap that completed a Double Bottom, though it trimmed its advance to 4%, as traders took profit by the 100 DMA mark.

    Yields in the UK slouched to 0.17%, the lowest since Sept. 21, and almost the lowest since Aug. 10, after the BoE increased its debt-buying initiative more than estimated. The central bank said the move is an attempt to offset the fourth quarter, which will include a one-month lockdown across the UK, contracting the country's economy. Investors increased demand for gilts—UK government bonds—illustrating their confidence that they will likely be able to sell them back to the UK central bank.

    Asian markets were all in positive territory earlier today, with at least 1% gains on expectations Biden administration would be a more friendly foreign policy regime and would roll back Trump’s trade sanctions. The dollar retreat boosted Asian currencies.

    Among the major regional benchmarks, Hong Kong’s Hang Seng outperformed, (+3.25%), closing at over a three-month high.

    On Wednesday, during the New York session, all the US indices added at least one percent to a four day rally, with the NASDAQ far outperforming, up 3.85% as investors poured back into tech stocks. Markets had been concerned that if the Democrats won control of both branches of Congress and the Presidency they would tighten regulation in the sector, possibly break up perceived monopolies and increase taxes, thus curbing profits.

    The pharmaceutical sector also surged, helping to push averages to their biggest gains in five months. A mixed election result, which will see a government stalemate for the next few years, is expected to maintain the status quo for the drivers that have propelled stocks to their highest levels.

    A narrow presidential victory, compounded by a balanced legislature will mean Democrats will be stuck with President Trump’s 2017 corporate tax cuts, which are one of the themes that coined the phrase the “Trump Trade." Still, as the blue wave possibility fizzles, it will offset some of the demand, which was counting on a massive fiscal stimulus package by Democrats.

    Some investors are still hanging their hopes on the Federal Reserve—which helped to ignite the powerful bull market that picked up immediately after the fastest bear market in history—to continue lubricating an economy that has been dried out by the worst global pandemic in a century.

    The reduced likelihood of a multitrillion-dollar coronavirus aid package getting passed by a divided Congress helped push Treasuries, including the 10-year note, higher again on Thursday.

    10-year Treasuries Daily

    Yields have fallen to the bottom of a rising channel since the early-August bottom. For now, the channel, coupled by the 100 DMA, provides support for yields, or more accurately resistance for Treasuries.

    The dollar fell, which is noteworthy considering the increased demand for dollar-denominated Treasuries. The greenback should also be rising as investors no longer expect such a big fiscal aid package—which would have diluted the value of the USD.

    Dollar Index Daily

    The greenback is falling toward the neckline of a H&S continuation pattern, whose downside breakout would signal a resumption of the underlying downtrend.

    Gold is rising for the fourth out of five days, as investors treated the yellow metal in different ways—sometimes as a haven asset and at other times as a dollar hedge.

    Gold Daily

    Technically, it continues to struggle between the bearish flag, following a bearish triangle, and a bullish wedge.

    Bitcoin jumped 2.2 %, extending its 3-day rally to 6.7% and more than doubling the value of the cryptocurrency this year. The leading digital currency reached the highest since early January 2018, about two weeks after it hit its near-$20,000 all-time high.

    Oil pared gains after Wednesday’s 3.6% surge—the third straight day of increases, increasing its value by almost 10%—after the tightly contested presidential race ensured that all the key elements that were driving risk will remain in place.

    Up Ahead

    • On Thursday the Federal Reserve releases its policy decision.
    • The key US Nonfarm Payrolls report is due Friday.
    • Results from AstraZeneca (NYSE:AZN) will be released at 12 ET on Thusday.

    Market Moves

    Stocks

    Currencies

    • The Dollar Index sank 0.4% to 93.03.
    • The euro jumped 0.4% to $1.1777.
    • The British pound increased 0.3% to $1.3031.
    • The onshore yuan strengthened 0.4% to 6.631 per dollar.
    • The Japanese yen strengthened 0.2% to 104.27 per dollar.

    Bonds

    • The yield on 10-year Treasuries sank four basis points to 0.72%.
    • The yield on two-year Treasuries was unchanged at 0.14%.
    • Germany’s 10-year yield dipped one basis point to -0.65%.
    • Britain’s 10-year yield fell two basis points to 0.185%.
    • Japan’s 10-year yield sank two basis points to 0.022%.

    Commodities

    • West Texas Intermediate crude fell 1.1% to $38.72 a barrel.
    • Brent crude fell 0.9% to $40.86 a barrel.
    • Gold strengthened 0.8% to $1,917.30 an ounce.

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