US election - Senate race is just as important as the White House

Local market had a surprisingly strong positive day ahead of US election day. It has been clear over the last few days that global investors are moving into Australia ahead of the US election risk to negate the market risk with currency risk. US election risk is not just about the Presidential race but the Senate status can also be very critical for the markets. If Trump wins the White House and the Democrats win the Senate, then the President will have very little policy options due to funding needs. If Trump wins the White House and Republicans hold the Senate, nothing much will change. If Biden wins White House and Democrats win the Senate, then they have control of all three layers and massive changes can be done. If Biden wins and Republicans hold the Senate, then the President will get somethings done but not all. Given that nearly 100m have pre or postal voted already, the counting process will be slow and delayed and will attract legal challenges from Republicans. The interesting dilemma is that we may know who is in charge of the Senate before knowing who is in charge of the White House. NY shopping areas are boarding up for civil unrest and legal challenges will exaggerate the situation. Just about anything can happen over the next few days while Covid pandemic numbers are near 100,000 new cases per day in the US. Europe is already moving into lockdown restriction for November with likelihood of that stretching well into December. Global growth downgrades and more money printing are coming!!!

RBA has cut rates to 10bps and announced $100b QE. It is purely aimed at helping asset prices remain elevated till they are not. It will do very little boost for the economy while digging an even bigger and deeper hole for the economy. RBA has just flagged that the economy is such a basket case that they are talking cryptocurrency for distraction. RBA timing for cuts in recent years are as bad the Aussie PM’s holiday schedule. The positive sentiment from a rate cut will probably be already forgotten as the pandemic electoral mess from US starts to weigh on global economy!!!

Overnight the US market followed global markets to deliver a positive day after manufacturing data from China and US stayed positive and slightly ahead of expectations. DOW lead the indices with +1.6% while NASDAQ was the laggard with +0.4%. Bonds, US$ and commodities were up...Gold up two days in a row after recent slide. The main risks remain with US election and pandemic lockdown restrictions. Neither are going away and Europe looks like restrictions may be longer than expected. Energy and Gold were the best sectors while Tech was the only negative sector.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!

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