A promising start to the week, with stock markets making healthy gains as investors look favourably on Trump's health updates and the ongoing stimulus talks in Congress.
While both of these would obviously be good news, there are still massive downside risks as far as the election and fiscal stimulus is concerned. Postal voting is going to cause a lot of confusion and disruption, in the best case scenario, while Congress still remains far apart on a stimulus bill and a compromise before the election is far from assured.
With just over four weeks to go until the election, I struggle to get too excited about days like today. I've been overly cautious in the past and could be falling into the same trap again but the downside risks for the coming weeks seem significant and investors may not look as favourably on a Biden victory as they are letting on, especially if the Democrats take the Senate. Higher taxes and more regulation aren't market friendly, although massive stimulus packages are useful.
The downside risks aren't just consigned to the US either, far from it. The UK is currently heading for a no-deal Brexit - although I remain optimistic a last minute compromise will be found - while Europe is seeing a worrying surge in Covid cases and current restrictions are proving sufficient. I struggle to not see more on the horizon which poses another threat to the economic recovery.
Oil jumps on improved risk appetite and Norway lost output
The optimism is spreading to commodity markets, where oil is up around 4% on the day, partially reversing last week's large declines. Also giving a boost to crude prices is a drop in output in Norway, where workers are striking over pay, reducing production by around 330,000 barrels equivalent per day. The strike covers six offshore oil and gas fields and affects around 8% of production.
It comes at a good time for oil prices, given how quickly Libya has ramped up output so even if temporary, it will take some of the heat off crude. Still, the outlook remains challenging and OPEC+ may need to step up again if they're going to support prices around the $40 mark.
Gold continues to struggle around $1,900
Gold is also enjoying a positive day, with the price moving back above $1,900 having ended last week marginally below. The rally continues to look weak, with the yellow metal struggling to gather any real upward momentum. Even if it does make a few more gains above $1,900, I won't get too excited as there are plenty of downside risks for risky assets in the coming weeks and at a time when the dollar is a preferred haven, that includes gold.