Market Rally as Political Risk Recedes

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Equities rebound
Dollar slightly offered
Nikkei -0.53% Dax 0.31%
UST 10Y 0.88
Oil $40.57
Gold $1879/oz.
BTCUSD $16351/oz.

Asia and the EU
EUR HICP -0.9% vs -1.0%
EUR GDP -3.3% vs. -4.3%

North America Open
USD PPI 8:30
USD U of M 10:00

The markets resumed their risk-on tone in Asian and early European trade as stock index futures rose by 80 basis points and the dollar was slightly weaker across the board.

The move occurred despite the rising number of coronavirus cases and deaths in both Europe and the US that may prompt many OECD countries to impose partial lockdowns once again. The US reported a record-shattering 150,000 number of cases and experts project that given the trajectory of infections the US may be on pace of 200,000 daily cases and 2000 deaths per day by Thanksgiving.

Although the COVID numbers may be bleak the markets are looking past the current data with the hope that a new batch of vaccines coming onto the market will be able to immunize the population from infection by next year.

Meanwhile, the political risks posed by Donald Trump’s refusal to recognize the election win of Joseph Biden are starting to dissipate as more and more Republican legislators begin to distance themselves from the current President. That latest polling indicates that only 3% of Americans believe that Joe Biden did not win the Presidency and fully 79% do. That suggests that Mr. Trump’s attempts to contest the election have backfired badly.

Mr. Trump never had any legal cause for his grievance, but his lying and disinformation campaign could have created serious political risks if a large part of the population was willing to believe his claims. That threat appears to be gone and markets may be seeing a small relief rally as a result.

The calendar today is very quiet with only PPI and U of M data on the docket and absent any further exogenous shocks the price action may settle into a more subdued range as well. After several days of massive turbulence, volatility is clearly compressing as traders wait for fresh catalysts to move the markets.

Boris Schlossberg
Managing Director

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