The Opening Belle

October 05, 2020 • Estimated Reading Time: 10 minutes

Trump's condition is bound to drive risk sentiment this week and depending where you get your news, he is doing well and will be discharged later today or the illness is far more severe than reported because he is taking dexamethasone.

Reuters (as usual) has a balanced report.

My best guess is that his condition was a little worse than reported originally, and he is now improving, supported by every possible treatment he can get his hands on.

The markets seem to be taking it all in their stride, and Asian markets have started the week very positively (China still closed).

U.S. futures are comfortably in the green.

Europe looks to follow suit.

 European Opening Calls:#FTSE 5948 +0.77%#DAX 12781 +0.72%#CAC 4860 +0.73%#AEX 557 +0.66%#MIB 19218 +0.80%#IBEX 6800 +0.67%#OMX 1824 +0.56%#STOXX 3214 +0.74%#IGOpeningCall— IGSquawk (@IGSquawk) October 5, 2020 

The never-ending sagas continue...

One may actually find a resolution this week, the other might take a little longer...

Let's start with the U.S. stimulus bill.

Mnuchin & Pelosi have been talking all week, which is obviously a good sign.

On Friday, Pelosi said

“I’m optimistic. I’m always optimistic.”

“We always have to find a path — that is our responsibility to do so — and I believe that we will.”

McConnell also struck a more positive tone, commenting on Friday

“I think we’re closer to getting an outcome.”

This is a significant change since Wednesday, when McConnell stated that the parties were "very very far apart on a deal", describing the democrats plan as "too high" & "outlandish".

Politics.

There are still differences to overcome, as detailed in Friday's statement here;

What's a few billion between friends?

 WH’s McEnany on Fox on coronavirus bill: It seems that Nancy Pelosi is still yet again playing politics..We've also offered a one off bill for airline workers..we know that many airline workers have been laid off. So why not just do (a) one off, bill, something we all agree on— Chad Pergram (@ChadPergram) October 4, 2020 

Congress is on 24 hour notice to return, and they are getting into granular details now.

 đź‡şđź‡¸ On Thursday , Pelosi and Mnichin held a private phone call with Fed Chair Powell to discuss state and local funding, and municipal lending. This call has not yet been reported, and underscored the lengths to which the two principals are going to try to get a deal - Politico— Anthony Barton (@ABartonMacro) October 3, 2020 

This goes beyond 'optics' for the base.

It looks likely that this deal will get over the line early next week.

If/when it does, then expect risk to rocket.

If talks collapse however, then the disappointment trade is in play.

Brexit - Into The Tunnel?

Brexit will remain the focal point for GBP next week.

Johnson & Von Der Leyen spoke on Saturday.

“They agreed on the importance of finding an agreement, if at all possible, as a strong basis for a strategic EU-UK relationship in future,” they said in a joint statement.

“Progress had been made in recent weeks but ... significant gaps remained, notably but not only in the areas of fisheries, the level playing field, and governance,” it added.

The two leaders instructed their Brexit negotiators, Michel Barnier and David Frost, “to work intensively in order to try to bridge those gaps”.

Captain Obvious reporting there.

There are plenty of parallels with the stimulus bill.

The EU/UK are down to the finer details, and walking away from the whole negotiation at this stage really isn't a strong option.

In my humble opinion, a deal will be done at the very last minute (i.e. not yet) and we will continue to be tortured with pantomiming and grandstanding for the consumption of domestic audiences.

The deal has to be sold as a 'win' and 'hard work' on both sides of the channel.  

From a trading perspective, there should be plenty of continued volatility on the will they, won't they headlines, but no genuine resolution is expected yet.

Negotiations will continue, and this is how things stand (via the FT).

This thread is also worth a read (thanks to @priapusiq for sharing)

 A consequential day (& next few weeks! for Brexit). A few thoughts. There is no chance of a “tunnel” next week. Gaps on substance too large. Instead, talks will move into a “restricted format”. This is a more intensive process, involving fewer officials from both sides 1/— Mujtaba Rahman (@Mij_Europe) October 3, 2020 

Housing Market Crash? No chance.

Anyone calling for a housing market crash is going to be seriously disappointed.

Governments are following the crisis playbook perfectly.

Down under, lending laws are being loosened.

 An additional 10,000 eligible first home buyers will be able to purchase a new home sooner as part of our First Home Loan Deposit Scheme🏡.

This is part of the Morrison Government’s economic recovery plan to create jobs & rebuild our economy.

More👇 https://t.co/mo5PqTICYQ— Josh Frydenberg (@JoshFrydenberg) October 3, 2020 

First home buyers who purchase a new property before the end of the year can cash in a $25,000 grant and sign up a home loan with just a 5 per cent deposit.

The generous support will be unveiled by Josh Frydenberg on Saturday, with the federal government adding an extra 10,000 places to its first home loan deposit scheme for newly constructed houses.

Under the program, the government guarantees up to 15 per cent of the loan, so that first home buyers only need a 5 per cent deposit and can avoid paying thousands of dollars in lenders mortgage insurance.

The extra places are available until June 30, and successful applicants are also eligible for the HomeBuilder program, which provides $25,000 tax-free grants for new builds.

In the UK...

More than two million people who are comfortably able to afford mortgage repayments are locked out of the housing market because they cannot save up for deposits, which typically run to 15 or 20 per cent of a property's value.

Mr Johnson has asked ministers to work up plans for encouraging long-term fixed-rate mortgages with five per cent deposits. They are likely to involve reversing regulatory changes made in the wake of the financial crash that have required banks to stress-test applicants. By removing stress tests, banks would be able to offer 95 per cent loans, as was the norm 15 years ago.

It is understood that the Government could also accept some of the risk through a form of state guarantee to give lenders additional confidence.

Mr Johnson said: "We need mortgages that will help people really get on the housing ladder even if they have only a very small amount to pay by way of deposit, the 95 per cent mortgages. I think it could be absolutely revolutionary, particularly for young people."

In other news, another wave of lockdowns and restrictions looms large.

Madrid imposed new restrictions on Friday, and it seems others will follow suit as virus outbreaks occur.

In other news, I noticed this story over the weekend.  

For many observers, this is yet more damning evidence of the terrible orangeman.

For me, it's a classic example of the 'gotcha' media epidemic.

If he had released the news after the first test, then he would be labelled irresponsible for not waiting for confirmation before alarming the public.

Heads I win, tails you lose.

Regardless of the subject, it's a great example of how the media works.

When reading 'critical' news, it's always worth asking 'what was the alternative?'.

Something to keep an eye on for oil;

Looking ahead, the calendar is pretty full...

But there's really not much to get excited about.

Final PMI figures are unlikely to throw up any major surprises, and should simply serve to confirm the preliminary readings.

ISM data this afternoon the highlight.