• As things stand, the outcome of the US election is finely poised
• Early doors, the ‘Biden playbook’ was seen, but as the former Vice President failed to take some of the key states, there was a shift in betting markets
• However, even that impulse could not be sustained with some of the key swing states (Pennsylvania, Michigan and Wisconsin) unlikely to have their results declared any time soon
• The key takeaway, however, is that Trump has performed better than polls guided, while Biden has not made as much progress in key areas as was expected
• In terms of Congress, the Democrats have not flipped as many seats as polls had indicated in the Senate
• Looking ahead highlights include EZ, UK & US Services & Composite PMI (Final), ISM Services PMI, ECB's Schnabel & Panetta. Supply: UK & Germany
• Earnings: Ahold Delhaize, BMW, Credit Agricole, Danske Bank, Intesa Sanpaolo, Qualcomm

US ELECTION UPDATE

As things stand, the outcome of the US election is finely poised: early doors, the ‘Biden playbook’ was seen, but as the former Vice President failed to take some of the key states he would have needed to in order to put the election to bed on the night (Southern states are still up in the air, while key state Florida is too close to be called), there was a shift in betting markets which pivoted and began pricing Trump as favourite to retain the Presidency. However, even that impulse could not be sustained – the close race in Florida, as well as the likelihood that some of the key swing states (Pennsylvania, Michigan and Wisconsin) will not have their results declared any time soon resulted in traders pricing in the prospects of a more protracted affair, and accordingly even the Trump enthusiasm waned in the early hours. Key focus has been on Florida and Texas; the former is being called for Trump by at least three major news organisations (Fox, CNN and AP), and the latter has recently been called by AP and Edison Research. Additionally, Biden will need to make progress in the likes of Pennsylvania (results possibly could be out as late as Friday), Michigan (results may be a few days) and Wisconsin (results could be out on Wednesday) – some are already calling Arizona for Biden, which has helped keep the uncertainty elevated. The key takeaway, however, is that Trump has performed better than polls guided, while Biden has not made as much progress in key areas as was expected; the former Vice President gave remarks in the early European morning, stating that the results may not be known until later on Wednesday, or even later in the week, but he was confident in his progress. In terms of Congress, the Democrats have not flipped as many seats as polls had indicated in the Senate, leaving the prospect of a status quo in play; the House is expected to be retained by the Democrats.

CORONAVIRUS UPDATE

US COVID-19 cases +86,190 (prev. +77,398) and deaths +510 (prev. +451). (Newswires)

France COVID stats: Cases +36,330 (prev. +52,518); deaths +854 (prev. +416). (Newswires)

UK COVID-19 cases +20,018 (prev. +18,950) and deaths +397 (prev. +136). While there were separate reports that the NHS has reportedly been told to prepare for deliveries of a vaccine as early as December. (Newswires/Sky News)

Dutch PM Rutte announced the Netherlands will impose new restrictions to reduce COVID infections from Wednesday which will remain for two weeks and that a partial lockdown will last until middle of December. (Newswires)

Senior UK government advisers have warned that current UK quarantine rules are undermining the “moonshot testing” programme which plans to use millions of 15-minute tests to screen large parts of the population. Separately, England Chief Medical Officer Whitty stated that the national lockdown is likely to be replaced by a revamped tier system and there was a “realistic possibility” of lifting current measures on December 2nd. (Times) UK PM Johnson is poised to avoid a major Tory Party rebellion in today’s parliamentary vote regarding the nationwide lockdown. (FT)

ASIA

Asian equity markets and US equity futures were indecisive as participants digested the early results from the US election which have so far proved to be a tighter than expected race with betting markets even pricing in a greater possibility of US President Trump winning the election with markets even reflecting as high as a 65% chance President Trump winning the election. The results so far have suggested that President Trump has outperformed the polls, although results from some of the key battleground states are still to be announced. ASX 200 (-0.1%) was dragged lower by weakness in the commodity-related stocks and with the largest weighted financials sector pressured as banks adjusted to the lower rate environment, while Nikkei 225 (+2.0%) outperformed as it caught up to the prior day’s global rally on return from the holiday closure and with the USD/JPY-risk dynamic in play. Hang Seng (-0.2%) and Shanghai Comp. (-0.1%) were negative as President Trump remained in contention for a second term and with weakness in Alibaba and HKEX shares after the suspension of the Ant Group mega-IPO which had been set to debut tomorrow, but with downside capped in the broader market after Chinese Caixin Services and Composite PMIs conformed to the recent slew of strong China activity data. Finally, 10yr JGBs are higher amid the overnight indecision and following improved demand at the 10yr JGB auction, while prices also benefitted amid a surge in T-notes which were underpinned amid a closely contested auction with the results likely to be prolonged.

PBoC injected CNY 120bln via 7-day reverse repos at a rate of 2.2% for a net neutral daily position PBoC set USD/CNY mid-point at 6.6771 vs. Exp. 6.6721 (Prev. 6.6957)

Chinese Caixin Services PMI (Oct) 56.8 (Prev. 54.8) Chinese Caixin Composite PMI (Oct) 55.7 (Prev. 54.5)

BoJ September Meeting Minutes stated that members agreed there remained extremely high uncertainties regarding consequences of COVID-19 and magnitude of their impact on domestic and overseas economies, although it also noted that exports and industrial production had turned to a pick-up, reflecting developments in overseas economies. (Newswires)

US has approved the sale of four drones to Taiwan in a deal worth almost USD 5bln. (FT) 

UK/EU

UK and EU Brexit negotiators are expected to advise a deal is possible and to recommend a new round of discussions in London beginning this weekend. (Newswires) EU’s Chief Brexit Negotiator Barnier is to signal today that Brexit talks have yielded progress, but no breakthrough has been made on key sticking points. (FT) An EU official confirmed difficult disagreements persisted between the UK and EU, with one source noting the two could take a break today to reflect on progress with talks expected to resume on the weekend. (FT)

FX

In FX markets, the DXY strengthened and briefly surged above the 94.00 level amid the election-related jitters and notable weakness across major counterparts in which EUR/USD aggressively slipped below the 1.1700 handle and with GBP/USD briefly giving up the 1.3000 status as all focus centred on the election results. The recent tone regarding Brexit talks have been slightly pessimistic with a UK PM Johnson spokesman stating there are still significant gaps between the sides in the most difficult areas of discussions, while reports also noted trade negotiators are stuck on fisheries and have failed to agree on a level-playing-field, although they are expected to recommend a new round of discussions this weekend. Elsewhere, USD/JPY momentarily reclaimed the 105.00 handle on the USD-strength which later slightly moderated, antipodeans suffered on the broad USD-strength and as CNH weakened on prospects of a prolonged US-China trade spat, while RUB bucked the trend and strengthened as President Trump remained in contention to win a second term in office.

New Zealand Employment Change (Q3) Q/Q -0.8% vs. Exp. -0.8% (Prev. -0.4%). (Newswires) New Zealand Unemployment Rate (Q3) 5.3% vs. Exp. 5.4% (Prev. 4.0%) 

COMMODITIES

Commodities were mixed amid the indecisive overnight risk tone with oil prices extending on gains from reports that OPEC were considering deeper reductions in production and with Algeria’s Energy Minister also stating that OPEC+ could consider a 7-month extension to current output cuts. Furthermore, the latest private inventory report was also supportive for prices after showing a significant surprise drawdown, while upside was also seen amid an early positive tone in stocks which was in-fitting with the Biden playbook and although stocks then fluctuated as the election deemed to be tighter than polls had suggested, oil prices remained afloat with WTI holding above the USD 38/bbl level. Gold prices were pressured and briefly declined below the USD 1900/oz level as the greenback strengthened and copper traded choppy in tandem with the fluctuations in stocks.

US Private Energy Inventories (w/e October 30th): Crude -8.0mln (exp. +0.9mln). (Newswires)

Saudi Arabia and other OPEC members are considering deepening oil production cuts amid rising COVID-19 cases in the West and fresh economic lockdowns in Europe that could curb oil demand further, according to WSJ citing oil officials. Furthermore, other source reports also stated that OPEC and Russia are studying deeper oil cuts to address weaker oil markets early next year. (WSJ)

Algeria Energy Minister said the OPEC+ group could consider as much as a 6-month extension of the current 7.7mln BPD cuts beyond December. (Argus Media)

BSEE estimated Gulf of Mexico offshore oil production shut-in is at 14.4% (prev. 28.0%) and NatGas shut-in 10.3% (prev. 15.9%). (Newswires)

US

The TPLEX was mainly steeper amid the pro-cyclical bias on Tuesday as investors further positioned for fiscal stimulus in what is mainly expected to be a Biden Blue Sweep (purely based off of polls, although betting markets are less convinced). By settlement, 2s +1bps at 16.8bps (highest since July), 10s +3.3bps at 88.1bps, 30s +2.8bps at 165.2bps; inflation breakevens were slightly wider as real yields didn’t rise as much; T-Note futures volumes were average, but again, not dismal. The sovereign selling began in earnest as Europe came to the scene and cyclical/value assets caught a bid; fast money and spec accounts were reported to be behind the Treasury sales, while real money accounts were on the bid. Furthermore, as the 10-year cash yield broke above the 87bps support level, algo sell programmes were reported to have been triggered and gamma hedging from MBS desks also at play, seeing CTAs follow suit as equity exposure was upped. The price action saw the 10-year hit the 90bps handle, although failed to sustain a move above it; the 95/96bps level is seen as key support, which is both a fib level and post-COVID high from back in early June. For the long bond, the benchmark didn’t quite hit the 169bps level from mid-October, although any further bouts of selling into election night will likely see that hit and draw into question the 176.3bps post-COVID high. T-note (Z0) futures settled 6+ ticks lower at 138-03+.