A relatively slow start to the week, with the data calendar looking thin and the US bank holiday likely contributing to the lack of activity.
It’s also worth noting that there’s a lot going on the rest of the week so we may just be seeing the usual calm before the storm scenario unfolding. The election is only a few weeks away now and with Trump having been cleared of Covid, the campaigning will be ramped up, as well as everything that comes with it. Trump’s Twitter feed will be one to watch.
The polls aren’t looking good for Trump which may work out favourably for the markets if the gap continues to widen as it has. The last thing markets want is a disputed election result that drags out the process and creates enormous uncertainty.
Earnings season kicks off tomorrow which will add an additional layer of interest. The third quarter will obviously have been better for business as they emerged from lockdowns but with restrictions around the world becoming tighter and the winter upon us, I doubt they’ll be full of optimism just yet. Fortunately for them, other things may be a bit of a distraction right now.
Sterling traders very calm ahead of Brexit “deadline”
Here in the UK, Brexit is front and centre as London and Brussels lock horns once again. This weeks “deadline” is fast approaching and the same old issues are still holding up a deal. It’s generally accepted now that the “real deadline” is the end of the month and that a broad outline of a deal is wanted to present at the EU summit. Even that may be too optimistic.
The pound is being remarkably well behaved under the circumstances. Whether that’s complacency with no-deal remaining a very real risk, or just an accurate reflection of the chances of a deal is debateable. But the longer a deal takes to be thrashed out, the more nervy traders may become. Although the failure to secure a deal at this point would be a huge failure, particularly under the circumstances.
A combination of bearish factors hit oil
Oil prices are heading lower again today as downside pressures return following a successful end to the pay dispute in Norway – that threatened to cut output by 966,000 barrels per day this week – and as Hurricane Delta is downgraded to a post-tropical cyclone, allowing workers to return and production to shortly restart.
At the same time, Libyan output is continuing to rise after a force majeure at its Sharara oil field – the country’s largest – was lifted, bringing production up to around 355,000 barrels per day. It’s maybe surprising that the unwinding of positions is taking as long as it is, with WTI seeing some support around $40 but I don’t expect that to last.
Gold turns more bullish on US optimism
Gold is paring Friday’s gains after driving back above $1,900 before seeing some resistance around $1,930. The yellow metal certainly picked up some momentum at the end of the week as the dollar came under pressure. It seems investors are becoming a little more optimistic, perhaps driven by the widening polls and hope of limited election disruption and uncertainty, combined with fiscal stimulus prospects.
They may be a little premature in both cases which could leave the market vulnerable to sudden and sharp corrections, but there’s clearly some optimism building. We’ve seen some profit taking around the 38.2 fib from the August peak to September low but given the momentum that’s building, that may not last. The downtrend appears to have broken and cautious optimism may turn into something more if we see positive progress in both cases.
