Wall Street rallied overnight, as Facebook, Amazon, Apple, Google and Twitter produced yet another set of sparkling quarterly results. The Coolio results confirming what we already knew in 2020, that we keep spendin’ most our lives, consuming in a FAANGsTa’s paradise (please note the incredibly clever insertion of T for Twitter).
If big tech rappin’ in the money lifted equities, the rest of the street wasn’t buying into it. The US dollar continued to rally overnight, notably versus the euro and sterling, in contrast to dollar-bloc selloff the day before. Oil had another shocking night with consumption fears tearing an ever-larger hole in the price pipeline. Notably, gold and silver also eased overnight, after an ominous technical break the day before. There is no sign of the pre-election haven buying I had been expecting, and precious metals didn’t rally back with equities either. Not Coolio.
The ECB remained unchanged overnight but expressed concern about the outlook for Europe as it enters double-dip lockdowns. The statement telegraphed loudly that more easing was coming at the December meeting. With rates already negative, increased bond buying seems the likely route. It contributed in no small part to the euro’s fall overnight.
US Advance GDP outperformed overnight, jumping 33.1% for Q3, reversing Q2’s fall of 31.4%, completely messing up the y-axis of the GDP growth chart for a generation to come. The post-lockdown reopening peace dividend was evident in the numbers, but I note that GDP will still finish 2020 lower by 3-4%. Pantheon Macroeconomics is stating that the Q3 number would have needed to be around 53% to get back to zero for the year.
US Initial Jobless Claims also fell slightly to 751,000 with the Continuing Claims falling by around 700,000 to 7.756 million. Their impact was nullified by the announcement of large job losses by US big-oil, and it is clear that nagging doubts about future US growth are in the ascendant in the US now, notably as Covid-19 cases continue ramping higher.
The gulf between the haves and have-nots was there to see in Asia today. South Korea Manufacturing (8.3%), Retail Sales (4.4%) and Industrial Production (8.0%) all impressively outperformed on a YoY basis. Meanwhile, Japan Industrial Production recovered MoM but is still -9.0% on a yearly basis. Tokyo Core CPI for October remained mired in negative territory at -0.50%. Singapore’s bank lending was static in September. The data continues to highlight the outperformance of North Asia ex-Japan, versus the rest of Asia. The closer you are to a booming China’s event-horizon, the fast your economy accelerates to light speed.
Moving to China, the Communist Party plenum has finished with new five-year plans created. Although heavy on rhetoric and light on details – my understanding is we don’t get the full written versions until March – the overriding them seems to be domestic resilience. Lifting the wealth of the poor and increasing domestic consumption to shield the country from external shocks. That self-sufficiency is extending to innovation and technology. The buzzword being used is “dual-circulation” which appears to translate to having your cake and eating it—benefiting from a healthy external environment, but also a robust critical mass sized domestic economy. Overall, no policy bombshells appear to have been dropped.
China releases its official Manufacturing and Non-Manufacturing PMI’s tomorrow, with both expected to edge slightly lower to 51.4 and 55.2 respectively. A slight easing won’t upset the China applecart after months of impressive data, but an unexpectedly large fall could spike a risk-off move when markets open on Monday. With nerves frayed over the US election next week and Europe’s potential double-dip, poor China data would be the nail in the “buy-everything” coffin. South Korea sneaks in its Balance of Trade on Sunday, with China’s Caixin PMI’s due Monday as well. So, we have plenty of Asia-centric event risk for the start of next week.
Malaysia may also be a source of volatility towards the end of next week. Bank Negara makes its latest rate decision mid-week, but all eye will be on the long-delayed 2021 budget due to be tabled in parliament next Friday. The Malaysian king has told the country’s politicians to stop squabbling and get on with their day jobs of running the country properly. But Malaysia and politics in one sentence was never a metaphor for Swiss-like stability, and if parliament rejects the government’s budget, more political instability beckons.
Of course, the main event that will swamp all else is next Tuesday’s US election. The US Senate race remains too close to call and is the real election. The possibilities of extended and contested results remain high. A lot has to go right for a smooth result to appear on Tuesday US time. That is why the US equity market rallied in isolation overnight, and almost certainly means it is a rally to sell in to. I expect risk-aversion to remain elevated with US dollar and Japanese yen strength to prevail, and equity markets to remain wobbly. That situation could well extend for some time past election day, depending on the results. Precious metals are refusing to play the game, but I suspect that even with some negative sessions ahead, they may still stage a comeback into Tuesday.
In a nutshell, the world remains a very uncertain place over the next week on several fronts, and the buy-everything trade could quickly become the cry-everything trade if due caution is not exercised.
