US politics is playing an increasingly influential role in stock markets, with the bounceback this week driven by the possibility of targeted stimulus measures.
The market may be getting a little ahead of itself given the Democrats reluctance previously to engage in a watered down approach but desperate times call for desperate measures and the warnings coming from the Fed and others suggest that moment is upon us.
It may also help that the Democrats lead has widened in the polls which may give them some confidence that a more ambitious, comprehensive package can more easily be passed in January. In a last ditch attempt to close the gap, Trump may be increasingly tempted to take bigger gambles which could backfire and hand more of a lead to the Democrats. The decision to cancel the negotiations is seen by some as an example of this, not to mention his shift on Covid.
Trump has clearly ramped it up this week and the polls suggest voters aren't yet warming to what he has to say. That, of course, may change but Democrats may be feeling more confident. The vice-Presidential debate won't change the views of the electorate, which the Democrats may be happier with given their lead. It was far more civil than the exchange between the Presidential candidates, although they did shirk the tougher questions.
Naturally, we're all left speculating on whether the markets are positioning for - and therefore welcoming - a Democratic President or even a clean sweep. I remain cautious on this front. They may not view it as negatively as they did before and it may bring economic benefits in the near-term, but I wonder whether the relief we're seeing could be a reflection of widening polls and therefore the potential for the result being contested in the courts. I guess we'll see if the polls narrow again.
Near-term momentum with the oil bulls
A little profit taking on Wednesday hasn't deterred oil bulls, with WTI waltzing over the $40 barrier this morning. While longer term risks remain tilted to the downside, it's impossible to ignore the fact that outages in Norway and the Gulf of Mexico are supportive for prices, especially when in the case of the former we don't know how long it will last and the latter, how severe the damage suffered will be.
We're not talking small numbers either, 330,000 barrels equivalent of lost output in Norway. It's unknown how long the Norweigen strikes will last but should a resolution not soon be found, the outages could reach up to 966,000 barrels of oil equivalent per day by 14 October, around a quarter of total Norweigen output.
Hurricane Delta - now a category two storm and still strengthening - will reach the coast on Friday and the extent of the damage should soon be known. The Gulf represents 17% of US output, a substantial number of potential lost output if the storm strengthens and forces more evacuations. With eight weeks of Hurricane season still to run, it's a heavy cost on the industry.
Gold struggling to recover
Gold has struggled to recover the losses from Tuesday, with the yellow metal lingering below $1,900. The downtrend since August remains very much intact, despite the recovery since late September. A break through this weeks highs may make things more interesting though and could represent a momentum shift.
While I still think the decline since August is a corrective action, with more upside to come in the medium term, I remain unconvinced that the correction has run its course. There's clear support below around $1,850, if this goes then $1,800 could quickly come under pressure.
Related: Trump Taking Big Gambles