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Crude Oil Trims Recent Gains as Market Flashes Overbought Warning

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Crude Oil Analysis, Price and Charts

  • Oil supported by Norwegian strike, Gulf of Mexico disruptions.
  • Hopes of US stimulus bill boost demand.

Brent crude has rallied the best part of 10% this week, driven by favourable supply and demand tailwinds. On the supply side, an extended strike by Norwegian oil workers has crimped production, while vast swathes of the Gulf of Mexico oil industry have been shut down as Hurricane Delta nears. While supply remains under threat, oil will retain a bid although fresh demand will be the driver of the next move. This week US President Donald Trump said that there would be no new stimulus bill ahead of the election, before a quick volte face and comments about targeted stimulus measures and a renewed push for a larger stimulus bill. President Trump is now expected to work with speaker Nancy Pelosi to try and get a bill agreed before November 3.

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The daily chart shows how firm the bid for Brent crude has been around $39/bbl. This week’s rally also coincided with a strong rebound off the 200-day simple moving average and a break and open above the 20-dma later in the week. This area of support will likely be difficult to break in the short-term. To the upside, Brent needs to break above the last simple moving average (50-dma) with conviction before it sets up for a re-test of a cluster of high prints all the way up to $46.60/bbl. The CCI indicator at the bottom of the chart is showing crude nearing overbought territory, and at its highest level since the end of August, suggesting a period of consolidation may lie ahead.

Brent Crude Oil Daily Price Chart (January – October 9, 2020)

Crude Oil Trims Recent Gains as Market Flashes Overbought Warning

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What is your view on Oil – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.





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Forex

Trump Vs. Biden on Economies and Markets

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Trump versus Biden Policies Overview

  • The November 3 elections are around the corner, and the state of the economy thanks to the coronavirus pandemic is at the top of voters’ minds.
  • While a Trump administration would likely continuation of lower tax rates, a Biden administration might bring about the end to trade wars.
  • The composition of the Congress matters greatly, insofar as a mixed result could bring more gridlock to Washington, D.C. – regardless of whoever is the president.

A decade after The Great Recession, Americans are dealing with the worst economy since The Great Depression. Onset by the coronavirus pandemic, US growth cratered in the second quarter of 2020, with inconsistent evidence emerging of a widespread V-shaped recovery in the third quarter.

Now past the Labor Day holiday, we are officially in the US presidential election season, and the state of the economy amid the coronavirus pandemic is at the top of voters’ minds as they weigh sending back to the White House Republican Donald Trump, or Democratic nominee and former Vice President Joe Biden.

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Depending upon the outcome of the November presidential election, the US economy could take very different tracks. While there may be some agreement in terms of trade or infrastructure, Trump and Biden diverge on nearly every other economic policy facet – from taxes, to jobs, to the coronavirus pandemic recovery itself.

We outline below key areas and explain how we see them differ in a Trump or a Biden administration.

Taxes

Trump – Tax rates have been cut during the first Trump term, both at the corporate and individual level. Comments made during the campaign suggest that Trump would seek further cuts to both corporate and individual tax rates to help spur the economy’s recovery from the coronavirus pandemic.

Biden – Tax rates would be poised to go higher under a Biden administration, both at the corporate and individual level. But at the individual level, the Biden plan calls for an increase of 0.4%, while the top tax bracket would jump nearly 13%, back to levels seen under Obama.

Infrastructure

Trump – “It’s infrastructure week!” proved a well-worn quote during Trump’s first term, but nothing materialized despite repeated promises for a robust infrastructure spending bill. Trump continues to beat the drum, saying that he’d like to see a $1 trillion infrastructure program passed; the holdup may be Senate Republicans.

Biden – The Democratic challenger has released a $2 trillion infrastructure spending program, aimed at spurring development and investment in carbon-neutral and green energy solutions over four years. The plan was enhanced from its original $1.3 trillion spend over 10 years, insofar as increased spending on a shorter time horizon will enhance the US economy’s recovery from the coronavirus pandemic.

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Jobs/Coronavirus Response

Trump – The White House has been pushing for a skinny fiscal stimulus boost after the $2 trillion used to fund the CARES Act has been depleted. Against a robust automatic unemployment benefits program (seeking $300 per month, down from $600 in the CARES Act), the Trump campaign has proven hesitant about leaning into more deficit spending as the economy, particularly the labor market, has produced above-expectation results in the second half of summer 2020. Likewise, the Trump campaign has proven ambivalent about increasing federal spending to subsidize damaged tax revenue streams at the local and state level.

Biden – The economy will receive much more fiscal support under a Biden administration, insofar as plans outlined thus far suggest that Biden would seek to extend the $600 per month unemployment benefits program established vis-à-vis the CARES Act. Furthermore, a Biden administration would likely be more willing to use the federal purse to help localities and states that have seen their tax bases depleted thanks to reduced income tax and sales tax revenues.

Trade

Trump – The US-China trade warwas a hallmark of Trump’s first term. While there have been mixed signals about compliance on both sides of the deal, it is likely that a second Trump term would see the US-China trade war deepen. The trade conflict has started to take on a militaristic aspect in the South China Sea, and it would seem likely that a second Trump term would result in a rekindled US – China trade aggressions, as well as further tensions with allies like the European Union, Japan, and South Korea.

Biden – While a Biden administration would likely take a similarly hard line on China, there would likely be moderation in the US-China trade war, with some efforts at removing tariffs and trade barriers that were constructed during the first Trump term. But even if the US-China trade war doesn’t revert back to its pre-Trump status (Biden is truly starting to sound more like Trump on China), it would be likely that trade relations are normalized with allies like the European Union, Japan, and South Korea.

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Conclusion

The composition of Congress will also shape a future US economy. A Biden administration with a Democratic House and a Republican Senate will get little accomplished. Similarly, a Trump administration with a Democratic House and a Republican Senate – what we have now – will get little accomplished. Under both, even in a split Congress, it is highly likely that the federal deficit continues to rise, bringing the deficit hawks out of the woodwork.

Unless both chambers of Congress align with the president’s party after November 3 – either Biden has a Democratic House and Democratic Senate, or Trump has a Republican House and a Republican Senate – we will be stuck with gridlock, making the US economy’s recovery from the coronavirus pandemic all

the more anemic.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist





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Gold Prices May Fall Further as US Fiscal Stimulus Hopes Fizzle

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GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices down with stocks as US fiscal stimulus hopes fade
  • Key negotiations deadline looms, may sour market sentiment
  • Crude oil prices still languishing in a familiar trading range

Gold prices slide alongside stocks as hopes for a boost in US fiscal stimulus before next month’s presidential election soured. House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin reportedly made progress in negotiations but that is unlikely to inspire passage in the Republican-controlled Senate, where the majority seems to favor a $500 billion effort. The Democrat-led House as well as the Trump administration are aiming for something closer to $2 trillion.

Fading fiscal stimulus hopes are coupled with a Federal Reserve that is now seemingly content to be on the sidelines after offering markets a crucial lifeline earlier in the year, even as the recovery in economic growth appears to stall. Global PMI figures from JPMorgan and Markit Economics show manufacturing- and service-sector growth slowed for the first time in five months in September. Meanwhile, Citigroup reports that economic activity data has been weakening relative to forecasts since mid-August.

Not surprisingly, this has been damaging for market-wide risk appetite. The anti-risk US Dollar traded higher against this backdrop as capital sought out its unrivaled liquidity as a bulwark against adverse volatility. That understandably pressured gold, a standby anti-fiat alternative. That benchmark bond yields did not fall against this backdrop – as might have been expected in risk-off trade – probably compounded the non-interest-bearing yellow metal’s woes. The Fed’s hands-off stance was probably on display there.

GOLD PRICES MAY FALL AS US FISCAL STIMULUS HOPES FADE

Looking ahead, US fiscal stimulus prospects are likely to remain in focus after Ms Pelosi set a Tuesday deadline for reaching agreement on any pre-election program. S&P 500 futures are pointing cautiously higher in late Asia Pacific trade but optimism may fizzle – marking for a repeat of yesterday’s cross-market dynamics – if it becomes clear that additional support is not in the cards near-term. Third-quarter earnings reports from consumer-goods giant Procter & Gamble, aerospace heavy-weight Lockheed Martin as well as tech champions Netflix and Snap Inc are also on tap.

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GOLD TECHNICAL ANALYSIS

A tepid recovery in gold prices is struggling at resistance in the 1911.44-28.82 area, marked by former range support and a falling trend line defining the bearish bias in play since mid-August. Immediate support is in the 1848.66-63.27 zone, with a daily close below that seeming opening the way below the $1800/oz figure. Alternatively, a breach of resistance may set bring on a test back above $2000/oz.

Gold Prices May Fall Further as US Fiscal Stimulus Hopes Fizzle

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to mark time below range resistance in the 42.40-43.88 area. Support is in the 34.64-36.15 zone. A top side break may set the stage for a challenge of the $50/bbl figure. Alternatively, establishing a foothold below support probably targets the 27.40-30.73 region next.

Gold Prices May Fall Further as US Fiscal Stimulus Hopes Fizzle

Crude oil price chart created using TradingView

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— Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter





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How Will Markets React to the 2020 Election?

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US Elections Coverage Landing Page

  • U.S. elections are coming down to the wire, with less than three weeks to go until November 3.
  • A mixed composition of Congress could be the worst outcome for financial markets, while full Democratic or Republican control of Washington, D.C. could prove positive, regardless of specific policy outcomes.
  • The coronavirus pandemic makes the 2020 election cycle and the reaction in financial markets unlike any other election cycle in American history.

U.S. election season has dawned upon global financial markets, and the U.S. presidential race is coming down to the wire. Amid a haphazard federal response to the coronavirus pandemic that has culminated in U.S. President Donald Trump himself contracting COVID-19, challenger Joe Biden finds himself up double digits in the latest polls conducted through October 13.

A second term of Trump or a first term of Biden could have significantly divergent outcomes for the U.S. economy and global financial markets. But it’s not just the presidential race that matter, it’s not just about Trump and Biden. The composition of the federal government in Washington, D.C. will be a significant determining factor in how different asset classes respond; a mixed Congress could results in years of gridlock, as seen during parts of the Bush, Obama and Trump administrations.

Trump Vs. Biden on Economies and Markets

A decade after The Great Recession, Americans are dealing with the worst economy since The Great Depression. Depending upon the outcome of the November presidential election, the US economy could take very different tracks. While there may be some agreement in terms of trade or infrastructure, Trump and Biden diverge on nearly every other economic policy facet – from taxes, to jobs, to the coronavirus pandemic recovery itself.

How to trade the impact of politics on markets?

The global economy is showing increasing weakness and fragility ahead of the U.S. elections. The latest round of PMI readings in early-October suggested that the recovery is subsiding in parts of the developed world, mainly Europe and North America. Eroding economic fortitude exposes markets to geopolitical risks, with political threats rising elsewhere in Asia and Latin America.

How elections impact the US dollar

The U.S. Dollar has demonstrated a fairly consistent path since 1980. But 2020 is proving anything but a typical U.S. election year, thanks in part to the coronavirus pandemic and the ensuing response by the Federal Reserve. U.S. Dollar positioning heading into the election is the focus as the near-term monetary policy path appears to be set.

How elections impact Gold Prices

The U.S. Presidential election has a historical tendency to influence financial markets as a change in leadership often brings a shift in fiscal policy. For the price of gold, there has been greater responsiveness to the macroeconomic landscape change since President Richard Nixon took steps to end the Bretton-Woods system starting in 1971. After hitting a fresh all time high above $2000/oz in August, gold prices have settled closer to $1900 in September and through the first half of October. The November election could provoke another volatile move.

Will Trade Wars Persist after the election?

US-led trade wars with China and the EU are likely to continue under Trump administration, which has struggled to make significant progress: the latest round of trade data showed that the U.S. trade deficit in September was over +40% larger than it was in January 2017 when Trump took office. Multi-layered geopolitical issues not pertaining to trade may spill into trade discussions. But a Biden administration may ease tensions with EU, despite having few articulated incentives to relieve pressure on China.

How elections impact the VIX volatility index

Data from the last ten U.S. Presidential elections reveals the Dow Jones Industrial Average typically climbs around an election. Still, it is difficult to attribute any equity strength to an election singlehandedly as an infinite number of themes are at play in the market at any given time. While the well-known equity volatility index (VIX) has been trading sideways for the past three months, the latest readings in mid-October show that implied volatility for equity markets is still double what it was in January 2020.

— Written and compiled by the DailyFX Research Team





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