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 favorite 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 had been on Florida and Texas; the former was called for Trump by at least three major news organizations (Fox, CNN and AP), and the latter has 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 have already called Arizona for Biden, which has helped keep the uncertainty elevated. During the European morning developments on the Senate race saw Republican Daines take Montana, which was regarded as a toss-up, and the most recently developments have the Senate tied on 47 with 6-remaining. The narrative, and price action, intensified following a press conference from President Trump where he stated the results have been phenomenal and that 'we will win this, as far as I am concerned we already have”, called for voting to stop and said they have plans to go to the supreme court, commentary which increases the likelihood of a contested election and as such saw pressure in the equity space, crude futures but the DXY wasn’t too altered. Post-POTUS, updates attention has been around: Pennsylvania, Michigan, Nevada, Wisconsin, & Georgia. For Pennsylvania (20 EC) & Georgia (16 EC), and returning to Trump, he believes Republican’s have won the states. A declaration which prompted the Pennsylvania Governor to caveat that over 1mln mail-in-ballots are yet to have been counted. Moving to Nevada (6 EC) where Edison has reported that counting will not resume until 17:00GMT/12:00ET on Thursday with outlets reports the candidates both on 49% with ~85% of votes tabulated. Finally, Wisconsin (10 EC) projections have been volatile with reports initially indicating a Trump victory but as Milwaukee absentee ballots are incorporated this has switched to a Democratic win (as expected) with around 89% of votes tallied; note, the Wisconsin recount threshold is a 1pp. As we approach US hours pricing via Betfair Exchange has moved from a Trump victory to a Biden one, ~61% Biden victory, with the odds via Betfair for the election as a whole correlating most recently with those for Michigan (16 EC) which has Trump in the lead with 76-89% of votes tabulated. Overall, 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. However, the narrative has most recently turned back in favour to the Democratic candidate as indicated via the aforementioned Betfair pricing. 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.

Current status quo (via NY Times):

-        Presidential Election Result: Biden 227 vs. Trump 213; 98 remaining 270 needed

-        Senate Election Results: Democrats 47 (2 flipped) vs. Republicans 47 (1 flipped); 6 remaining 51 needed

-        House Election Results: Democrats 190 (2 flipped) vs. Republicans 181 (6 flipped); 64 remaining 281 needed

CORONAVIRUS UPDATE

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)

NHS England Chief Exec says they are preparing the health service to make a start on administering vaccines prior to Christmas if one is prepared. Separately, Oxford Vaccine Trial Chief says the first steps in finding out whether the vaccine works could happen in 2020; difficult to say whether a vaccine could be deployed before Christmas but there is a small chance of a vaccine pre-Christmas (Newswires)

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)

EU Markit Comp Final PMI (Oct) 50 vs. Exp. 49.4 (Prev. 49.4); Services Final PMI (Oct) 46.9 vs. Exp. 46.2 (Prev. 46.2) Data collected 12-27th October; before France & Germany announced lockdown

UK Composite PMI Final (Oct) 52.1 vs. Exp. 52.9 (Prev. 52.9); Services PMI Final (Oct) 51.4 vs. Exp. 52.3 (Prev. 52.3) Data collected 12-28th October; thus before UK announced lockdown

EQUITIES

European cash equities trade mixed (Euro Stoxx 50 -0.3%), after opening with firm losses across the board in light of US President Trump prematurely declaring victory in the US election, whilst  calling for voting to cease and stating that he plans to go the US Supreme Court. This sparked risk aversion across market as participants were seeking certainty from the election, something that did not come to fruition as the race remains tight with key battleground states to officially release results later this week, whilst the Senate race remains neck and neck. However, since then, the release of further projections in some states pointing to Biden has narrowed betting market odds, with implied probabilities suggesting a near-50% split for either candidate on Betfair. In terms of US equity futures performance, e-mini NQ outperforms (+2.2%) with some suggesting a reversal of the recent growth/momentum vs. value/cyclical trades that were placed on the back of a prospective “Blue Wave” which appears to now be off the cards, ES (+0.4%) and YM (-0.1%) lag in comparison with noteworthy underperformance in the e-mini Russell 2000 (-1.6%) as it bears the brunt of the unwind in positioning ahead of the election.

Back to Europe, major bourses were posting varying degrees of losses throughout a large part of the session, with the peripheries initially experiencing modest underperformance on account of their exposures to the financial sector which lags alongside a lower yield environment. Conversely, the SMI (+1.0%) is propped up by the outperforming healthcare sector as Roche (+2.6%) and Novartis (+2.3%) benefit from early defensive flows. Overall sectors are now mixed but Healthcare retains top spot whilst Banks and Oil & Gas reside at the bottom of the pile, the latter amid losses in the crude complex. In terms earnings-related movers this morning, BMW (-1%) shares are on the backfoot despite an increase in net and revenue, as the auto name noted that group profit before tax is likely to be significantly lower than in 2019. Thus, alongside the broader losses in the auto sector, Daimler (-1%) and Volkswagen (-1.2%) are pressured in tandem. Meanwhile, Credit Agricole (+1.5%) erased opening losses as earnings took the helm of the stock’s price action after the bank topped revenue and net forecasts whilst provision came short of expectations. Elsewhere, postal names are fuelled after bpost (+11%) delivered an upgrade to its FY adj. EBIT guidance, feeding upside to the likes of Royal Mail (+6.8%) who also remain underpinned by a broker upgrade at JP Morgan Chase.

FX

USD - It remains to be seen whether Trump can pull off another victory against the odds, but for now the fact that he is still in with a chance of securing a 2nd term as US President is enough to keep the race alive and prevent challenger Biden from crossing the line. The final outcome may not be known today and markets are in the process of rewriting the playbook that was scripted on the premise that the latter would win via a landslide and perhaps resulting in a clean Blue Sweep. Moreover, the ongoing uncertainty has prompted a change in broad risk sentiment from outright bullish to cautious as is often the case when a major event hangs in the balance. Hence, the DXY has rebounded sharply from lows going into the election and as early vote counts came in, with the index now hovering near the top of a wide 93.070-94.308 range vs Tuesday’s 93.284-94.057 extremes ahead of a busy agenda on paper, including ADP as a proxy for NFP, but with the firm focus on whether Trump stays in the White House or Biden becomes the new resident.

AUD/NZD - In-fitting with the aforementioned too close to call battle for the Oval Office, it’s neck-and-neck down under for the dubious accolade of worst performing major between the Aussie and Kiwi. Indeed, while Aud/Nzd meanders within a 1.0707-1.0650 band, Aud/Usd has recoiled from 0.7200+ to sub-0.7100 and as low as 0.7050 at one stage, while Nzd/Usd is back below 0.6650 compared to peaks not far from 0.6750 in wake of NZ labour data revealing a steeper decline in jobs growth and spike in unemployment, albeit close to consensus.

CAD - The Loonie has also unwound gains vs its US counterpart after a wild overnight session and awaiting Canadian trade for some independent direction or at least temporary distraction from the 2020 US Election, with Usd/Cad around the middle of a 1.3300-1.3095 range.

GBP/CHF/EUR/JPY - Sterling seems to have survived another test of 1.2900 support against the Greenback, but is capped ahead of 1.3000 and well off dizzying 1.3100+ heights for Cable on the US Presidential limbo that poses additional hurdles for a UK trade deal and perhaps prospects of reaching a Brexit agreement with the EU that is already proving extremely elusive. Meanwhile, the Franc is back below 0.9100, Euro under 1.1700 and Yen beneath 104.50, but with decent option expiry interest at the 105.00 strike (1.4 bn) providing some support before any retest of circa 105.35 lows.

SCANDI/EM - The Nok is suffering from more pronounced fallout from the volatile, fluid and fragile market tone as it retreats through 11.0000 vs the Eur again, while the Cnh and Cny are both weaker on the basis that strained relations between Beijing and Washington are highly unlikely to improve if Trump triumphs. Elsewhere, the Rub looks somewhat betwixt and between against the backdrop of Brent recapturing the Usd 40/brl handle, but no conclusion in the US Presidential race.

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%)

FIXED INCOME

Some calm and consolidative trade after the overnight and early EU fireworks set off by Trump’s impressive showing in the US Presidential Election that the polls were pretty much handing to Biden on a plate. However, the contest has proved to be a much tighter affair and it could yet be all still to play for until the end of the week or at least late on Thursday when the state of Nevada will resume vote counting. Hence, Bunds, Gilts and US Treasuries retain a firm underlying bid, albeit off peaks of 176.83, 136.29 and 138-30 respectively and the spotlight may now switch for a while to today’s agenda that comprises ADP, final Markit services PMI and ISM before EIA inventories for the crude complex.

COMMODITIES

WTI and Brent front month futures have regained composure after experiencing downside on President Trump’s victory announcement alongside his intention to head to the US Supreme court. Price action overnight and in early EU hours have largely (and unsurprisingly) been dictated by the US election and accompanying risk sentiment, with WTI Dec back above USD 38.50/bbl (vs. low 37.26/bbl) whilst Brent Jan reclaims ground above USD 40.50/bbl. In terms of fundamentals, sources yesterday suggested that OPEC and Russia are mulling deeper output cuts early next year in a bid to strengthen the oil market, although no final decision has been made ahead of the JMMC (17th Nov) and the decision making OPEC/OPEC+ meetings on Nov 30th and Dec 1st. Elsewhere, spot gold and silver prices continue ebbing lower on account of the firmer Buck, with the yellow metal back below USD 1900/oz (vs. high 1916/oz) and spot silver sub-24/oz (vs. high 24.50/oz). The firmer Dollar has also weighed on the base metal complex with LME copper and lead on the backfoot.

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