President Trump has tested positive for COVID-19. The implications of this could be numerous and it is far too early to gauge its true impact. Firstly and primarily, someone in their mid-70s getting coronavirus is worrying and whatever your politics, it is something that no-one should wish on another person and we wish President Trump a speedy recovery. When we look into the impact of the news, this is where things get far more complicated. What are the implications to major markets of Trump’s mortality and for the Presidential Election? There will be some wild conspiracy theories banded around, and a lot of conjecture over how this impacts on the election. Ultimately, it means uncertainty and volatility. Accordingly, markets are initially reacting with flows into safe havens, but this will be a volatile session. Does the dollar benefit from this or not? When the leaders of the UK and Brazil were struck with COVID, their currencies were sold off, however, the dollar is still a classic safe haven. The yen seems to be a safe bet right now, as is gold. However, how long with markets be reacting to this? US traders still need to respond, and there is the added volatility impact of Nonfarm Payrolls today. Equities have fallen sharply in the US and there is a knock-on impact in Europe today. Risk off also means oil is sharply lower. However, events such as these tend to generate knee-jerk reactions that unwind. Unless Trump’s mortality is called into question, it is likely that this move will be short-lived. It just depends upon how long. In the meantime, be prepared for a bumpy road on major markets.
Wall Street closed with solid gains as the S&P 500 added +0.5% to 3380. However, futures have fallen hard early today, with the E-mini S&Ps -1.2%. However, it is worth noting that futures are already +1% off initial lows from the reaction of the Trump news. Asian markets closed broadly lower (Nikkei -0.7% and Shanghai Composite -0.2%). European indices are broadly lower early today with FTSE futures and DAX futures both around -0.8% lower, but again well off earlier lows. In forex, the initial reaction was very much risk-off with JPY and to a lesser extent USD outperforming. The magnitude of this reaction is already unwinding though. It appears that AUD seems to be the worst hit of the major currencies so far. In commodities, it is a positive reaction on precious metals, with both gold and silver around half a percent higher, whilst oil is being hit hard and is almost -3% down.
The Nonfarm Payrolls report dominates the economic calendar today but there are also some other important data points to watch out for. In the European morning, we see flash Eurozone inflation at 1000BST, with headline HICP expected to remain negative at -0.2% year on year in September (-0.2% YoY in August), whilst core HICP is expected to improve slightly to +0.5% (from +0.4% in August). Then focus turns to the US Employment Situation at 1330BST, with the headline Nonfarm Payrolls expected to show +850,000 jobs in September (although this is down from the +1.371m jobs in August). The US Unemployment rate is expected to continue to reduce, to 8.2% (from 8.4% in August). Furthermore, Average Hourly Earnings are also expected to have grown by +0.2% on the month meaning the year on year growth is at +4.8% (+4.7% in August). Later in the US session the revised Michigan Sentiment is at 1500BST with the slightest of upward revisions to 79.0 (from 78.9 at the flash reading, up from a final reading of 74.1 in August). US Factory Orders at 1500BST are expected to have grown by +1.0% on the month in August (following a jump of +6.4% in July).
Chart of the Day – Silver
Silver has been flying around in the past few sessions as the recovery has been called into question. Wednesday’s sharp bear candle caused a stir, but the bulls got back on track with a decisive positive reaction yesterday. The safe haven flows this morning are helping to develop support now and it is interesting to see that the old $23.40 low is being seen as a basis of support today. This leaves the near term resistance at $24.40 in prime position to be tested now. If the bulls can leave $23.12 (Wednesday’s low) as a higher reaction low and pull above $24.40 this is the basis of a new recovery trend and arguably a new bull phase. Therefore, the importance of support at $23.12/$23.40 is growing. The encouragement for the bulls grows with the fact that once through $24.40 there is just minor resistance at $25.20 before a recovery into the overhead supply at $25.85. Momentum is just a little sluggish for now, but there is upside potential in a recovery too. We just need to watch the Stochastics which are struggling a little. It means that if the bulls pull up short of the $24.40 resistance, the recovery does become more questionable.
With markets broadly risk negative today (on Trump’s COVID test) we have seen the dollar regaining some lost ground. On EUR/USD this means a drag back. However, it is interesting to see that the market is still trading within the 1.1695/1.1750 band of resistance. Despite a brief intraday jump to 1.1770 yesterday, the market continues to close below 1.1750 and EUR/USD remains stuck around this crossroads. The four week downtrend is falling at 1.1775 today and this market remains on a crucial knife edge. It is difficult to say the lasting reaction that this Trump news will have on the dollar. Add Nonfarm Payrolls into the mix and it could be a volatile session today. Reaction into the close tonight (after the US has had time to react) will be a key indicator. A close back under 1.1695 tonight would reinstate the negative bias for a test of 1.1610 again. Closing above the downtrend line would be a positive move for EUR/USD for a continuation of a near term rally.
The Cable rally just hit the brakes a little yesterday, with the resistance at 1.3000 still intact as the market has fallen over at 1.2980. Although there were long upper and lower shadows to the candlestick (indicating elevated volatility but also a lack of conviction), a negative close is being followed by further downside early today. There is still this sense that Cable is a (volatile) consolidation play within the range 1.2670/1.3000. Turning lower and closing below 1.2860 again today would turn the bias negative again within this range. A move under 1.2800 would then open the range lows again. This is still a market trading on a lot of different variables right now (Brexit trade talks, Presidential election, broad risk-on/risk-off) and we can add in Trump’s COVID infection and Nonfarm Payrolls today. It remains a difficult play.
A rally that was already fatigued has turned sharply sour this morning as the yen has taken on significant gains on the news about President Trump’s COVID infection. Resistance was forming around the three month downtrend and 55 day moving average yet again, but this has turned into sharp selling pressure on USD/JPY early today. Support built up above 105.20 throughout the past week has been broken and hourly indicators are turning sharply lower. With Nonfarm Payrolls later today and US traders yet to react to the news on Trump, this is likely to be a session packed with volatility. How the dust settles tonight will be interesting. A close under 105.10/105.20 would be technically negative, with Stochastics bear crossing and RSI falling away, both with downside potential. Closing consistently below 105.10 really does re-open 104.00 once more. Unless the bulls can react quickly, this looks very much to be once more as a Dollar/Yen rally being a chance to sell.
Gold seems to be taking back on board the safe haven flow today as markets react to the news of President Trump’s COVID infection. An early slide lower overnight has been bought into as gold has swung higher. This may though only be the start of the intraday volatility today as trader try to process so many potential scenarios (and conspiracy theories). The technicals show that gold is looking to now trade back above $1900 again, which begins to generate a more sustainable positive bias. The market is now trading inside the important band between $1902/$1926. The old support at $1902 is the start of a whole range of August/September lows and should now become a basis of resistance. So if the market can close clear above $1926 (which is the 23.6% Fibonacci retracement of $1451/$2072) which was for so long considered to be a key closing support, then the outlook will really begin to show signs of sustainable improvement. The rally throughout this week is beginning to look as though it is one of substance. For today, there is so much to pull markets around, and the reaction in the US session will be key (not least because of Nonfarm Payrolls). The hourly chart shows support between $1880/$1889 building in importance near term.
Brent Crude Oil
Strong selling pressure hit Brent Crude as the new front month contract came in, leaving a decisive negative bias now forming on Brent Crude. Add in the risk negative news regarding President Trump and this leaves the bears in control. The ranging period between $39.30/$43.80 is turning sour, with momentum turning deteriorating, but also with downside potential on RSI, Stochastics and MACD. The support at $39.30 will now be eyed. A closing breach of $39.30 would give the medium term outlook a negative bias too and open the key support of $37.00. Given how the market broken decisively clear of the $41.30 pivot yesterday, this is now a key near term basis of resistance, whilst the hourly chart shows that $41.00 is becoming a pivot too.
Dow Jones Industrial Average
An uncertain session of gains has seen the Dow pull clear of the 27,445/27,580 pivot and leaves technical improving once more. However the uncertainty of yesterday is being pulled lower early today with he news that President Trump has tested positive for COVID-19. Futures are falling and the pivot which is now a basis of support is set to be tested again. It is difficult to know how sustainable this reaction is today, but safe haven flows are meaning that equities are under pressure. For the Dow, a close below 27,338 would be a technical break down again in a move that would re-open the September lows once more at 26,535. Resistance is being left at 28,040 and will be bolstered if the market now breaches 27,338.