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GURU WISDOM

“Sometimes your best investments are the ones you don’t make.” - Donald Trump
 

MARKETS

The price of oil leaped higher thanks to tighter supply news and generally improved market mood. A strike threatened output in several facilities in Norway while any US fiscal stimulus would help spur some extra demand for energy.

The US dollar unwound all of Friday’s haven-related gains at the start of the new week. Some uncertainty was removed from the market thanks to signs the President is still healthy. The dollar had seen modest haven flows on Friday when Trump tweeted he had caught COVID-19. Weakness in the buck comes ahead of a speech from Fed Chair Powell on Tuesday where he will likely take a dovish tone given the weaker September jobs report.

The Dow Jones gained over 400 points (1.7%) while the Nasdaq gained 2.3%. However it was small cap stocks on the Russell 2000 index that led with a gain of 2.8%. Smaller American-focused companies should be the biggest direct beneficiaries of a second multi-trillion economic relief package. 
 

Stimulus hope

There are too many political scenarios that could play out in the next month before the election so investors are trying to trade some of the more quantifiable factors like the next stimulus bill. While hopes for a new deal triggered market optimism on Monday, most strategists appear to believe it is not likely until after November 3rd.  That’s because neither political party wants to bend to the other in the full view of the electorate. Conservatives want to reduce government spending while socialists wish to expand it. Should a second stimulus bill be passed and once the election result is known, it could setup stock markets for a classic ‘Santa rally’.
 

PMIs decelerate

Gains in the euro and the British pound were supported by better final September PMI data than expected. The Eurozone Composite PMI remained in expansion territory, though it has moderated for the past two months as the pace of the economic recovery slowed. Should the trend continue, the Eurozone will be on pace for contraction in October. With more regional lockdowns announced including in Paris, where bars will again shut – this looks all the more likely.