Written by: Craig Erlam | OANDA Europe
It's been an incredible week so far and there's still plenty more action to come, with Trump preparing the defence of his Presidency as Biden closes in on 270 electoral votes.
I find it remarkable how relaxed these markets are under the circumstances. This situation is anything but normal and should it boil over and faith in the system be undermined, the markets will be left very vulnerable. A 7% rally in the US on a week like this is absolutely extraordinary. Hopefully the faith investors have shown is rewarded because the last thing we need is an extremely messy conclusion to what has already been a hostile and divisive election.
As was to be expected, Trump is not giving up without a fight and his lawyers are hard at work trying to stop the count and gather evidence of voter fraud. They had been successful in temporarily halting the mail count in Philadelphia, but a challenge by the Democrats in the Pennsylvania Supreme Court was successful meaning it could resume. Meanwhile Georgia and Michigan have both dismissed another lawsuit from the Trump campaign.
Clearly this is how it's going to go over the next couple of days as the Trump campaign relentlessly tries to prevent Biden and the news agencies from declaring him the winner. It will be interesting to see how investors respond if his lawyers have any more success but as of now, they seem to be viewing it as nothing more than a desperate attempt to delay the inevitable.
Fed to hold until after the election
It's easy to get completely lost in the election and forget that there's anything else going on in the markets but, even without it, this would have been quite an action-packed week. The Bank of England increased its quantitative easing program by £150 billion this morning and revised down growth forecasts for this year and next, on the very day that the country entered its second national lockdown.
The Fed is extremely unlikely to join the easing club in the middle of a controversial election week, with the RBA having also cut interest rates and announced new bond purchases earlier this week. Like the ECB, the Fed is likely to wait until December when it has fresh economic projections. And who knows, they may even know who the President is going to be for the next four years. Although Trump's lawyers may have something to say about that.
Oil ends three day rally
Oil has enjoyed a remarkable recovery this week but it's finally running out of steam, with profit taking seemingly kicking in. Brent crude has broken and held above $40, which will come as a major relief for producers in the OPEC+ group. It was getting to a point where urgent action was looking necessary but the bounceback this week takes the pressure off, at least until the JMMC meeting in a couple of weeks.
Gold sets sights on $2,000
Gold has burst higher and hit a more than six week high today as the dollar came under pressure in anticipation of a Biden victory. The yellow metal flew through yesterday's high around $1,920 and the October peak around $1,930 fell soon after. The triggering of stops just above here likely contributed to the acceleration after this point as gold rapidly rose to $1,950 before profit taking kicked in. It seems those in the markets are far more confident that the race is done than everyone else and gold, like other risk assets, are reaping the benefits. Assuming they're right, it may not be long until gold is testing $2,000 again.
Bitcoin explodes above $15,000
Bitcoin has been driving higher since mid-October but the price exploded today as it smashed through $14,000 and then $15,000 shortly after. It's settled around these levels taking its gains for the day to a more modest 7%. I'm sure people will try and attribute this to the election and the narrative may suit some but the cryptocurrency hasn't been aligned with risk assets for much of the last month so I'm sceptical.
Central banks going back into easing mode may also be an explanation for some, with the low around $4,000 having occurred back in mid-March. Whatever the reason, a break above $15,000 for the first time since January 2018 is big and will certainly generate a lot more interest once again.