The Opening Belle

November 03, 2020 • Estimated Reading Time: 10 minutes

Green on the screen in Asian indices overnight.

Risk sentiment is pretty positive across the board.  

 Markets grinding higher through Asian session.

European Opening Calls:#FTSE 5706 +0.89%#DAX 11895 +0.90%#CAC 4733 +0.88%#AEX 548 +0.72%#MIB 18570 +0.92%#IBEX 6643 +0.87%#OMX 1759 +0.58%#STOXX 3045 +0.84%#IGOpeningCall— IGSquawk (@IGSquawk) November 3, 2020 

The economy and coronavirus appeared to be the defining issues for poll respondents in the final stretch before Election Day when voters were asked to name the three most important topics facing the country.

In the swing-state survey, 48% chose the economy, jobs and cost of living, while 41% picked Covid-19. The next biggest concern was political corruption, which 34% of voters chose.

The data signal Biden’s lead has a lot to do with the current occupant of the White House. More than half, or 54%, of swing-state Biden voters said they are primarily voting against Trump, while 46% said they are largely voting for the former vice president.

The motivation differs among Trump supporters. More than eight-in-10, or 84%, said they are mostly voting for Trump, while 16% answered they are voting against Biden.

It is going to be fascinating to see how this plays out.

If voter enthusiasm is a predictor, then only 46% of Biden supporters are voting for him.

This jumped out at me.

 This is incredible. 51% of people at Trump's rally tonight are not Republicans and 45% have not voted yet. Wow. https://t.co/OxWUg13bRR— Tony Nash (@TonyNashNerd) November 3, 2020 

According to those CNBC polls, Wisconsin is the swing state furthest from Trump's reach...

Given the source, it may well be #FakeNews but it's still got me thinking.

Just how enthusiastic is that anti-Trump vote beyond the Democratic base?

Back in the land of FX, Citi give their election views

Very short term:

  • There is a risk of a USD rally in the days around the election, particularly in the event of a contested result. This tail risk could lead to significant political and societal unrest, and cause a negative shock to risk assets and a USD rally.

Further out:

  • Regardless of who wins the November election, fundamental supports for the USD have been eroded since the onset of the COVID-crisis and are unlikely to reverse over the medium term. The Fed's uber-loose policy of QE and lower for longer rates and average inflation targeting is indicative of a lower USD over time. Meanwhile, US federal deficits are rapidly expanding at a time, which may also unfavor USD.

If Trump is returned to office:

  • Potential to derail the recovery in global trade and would likely be detrimental to the Euro

  • Euro down may lead USD up

If Biden becomes president:

  • Supportive for currencies that are strategic allies such as Europe, Japan and EM

  • Lower USD

  • Risk to oil exporting currencies like CAD

The elements of today's package are as follows:

  • a reduction in the cash rate target to 0.1 per cent

  • a reduction in the target for the yield on the 3-year Australian Government bond to around 0.1 per cent

  • a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1 per cent

  • a reduction in the interest rate on Exchange Settlement balances to zero

  • the purchase of $100 billion of government bonds of maturities of around 5 to 10 years over the next six months.

Is the RBA now out of firepower?

The short answer here again is no. The Reserve Bank is not out of firepower. We have additional monetary policy options and we are prepared to use them if the circumstances require.

In terms of interest rates, I think we have gone as far as it makes sense to do so in the current environment. There has been no change to the Board's view that there is little to be gained from lowering the policy rate into negative territory.

While a negative rate might lead to a helpful depreciation of the Australian dollar, it could impair the supply of credit to the economy and lead some people to save more, rather than spend more.

Given this assessment, the Board continues to view a negative policy rate in Australia as extraordinarily unlikely.

In subsequent comments, Lowe confirmed that the RBA would need to consider negative rates if global peers did.

Slight increase in focus on the AUD, Lowe would like it to be lower, also noting the wording of a "helpful depreciation' if negative rates were implemented.

Ultimately though, AUD isn't top of the agenda, and still broadly in line with fundamentals.

He also mentioned that the RBA can effectively create money without limit.

Who knew?

This is what drove oil higher yesterday.

Russian oil company sources tell Energy Intelligence that the companies may be willing to go along with an extension of Opec-plus production cuts at their current levels into next year, if current unsupportive market conditions persist.

Energy Minister Alexander Novak held video-link talks with Russian oil company executives on Monday to review the Opec-plus pact to limit oil output and support prices after demand took a big hit this year from the Covid-19 pandemic.

There were no official comments from Novak or the companies afterward.

But company sources said producers may be willing to postpone a scaling back of the production cuts scheduled for Jan. 1, after Brent crude prices recently fell below $40 per barrel.

The sources said Russian companies would not support an increase in the Opec-plus production cuts.

Under the original terms of the Opec-plus agreement signed in April, the alliance's joint production cuts are set to fall to around 5.7 million barrels per day on Jan. 1 from current levels of 7.7 million b/d.

However, an additional 2 million b/d of supply could push oil prices even lower because a recent surge in Covid-19 infections is already hurting demand, while Libya has been ramping up its output during a cease-fire in its civil war.

President Vladimir Putin has recently said that all options are open for Opec-plus, indicating that Moscow could agree to an extension of the current caps on output or "other measures," depending on market conditions (IOD Oct. 22'20).

Oil ministers from Opec countries, as well as ministers from Russia and other non-Opec members of the alliance are set to hold talks on production policy on Nov. 30 and Dec. 1.

Opec delegates have previously told Energy Intelligence that members of the alliance are mulling a proposal to roll over their production cuts at current levels for another three months until Mar. 31 (IOD Oct.28'20).

That would align closely with Russian producers' willingness for a rollover at current levels through the winter months, as described by a representative of one of the companies that took part in Monday's talks.

The source noted that demand typically dips during the Northern Hemisphere's winter months, while Russian producers also slow down their drilling during that period because of the harsh winter weather.

On the other hand, there is also a view among Russian companies that the Opec-plus production cuts should be gradually eased as planned, among other things because domestic demand is still healthy, with Russia not hit as hard by new coronavirus infections as the US and some European countries.

Looking ahead, it's all about the election.

But here's the calendar anyway.