Opening Bell: Futures Up, USD Down Signaling Clashing U.S. Election Outcomes

Key Events

Heading into U.S. elections on Tuesday, three of the four futures contracts on major Wall Street indices—for the Dow Jones, S&P 500 and Russell 2000—are all up more than 1%, while futures for the NASDAQ are +0.8%, potentially signaling that the underlying benchmark may underperform for a second day. A second day rebound for the indices, despite mounting virus cases, could be flagging a possible win for President Donald Trump’s reelection bid.

On the other hand, the USD slipped lower this morning, which some see as "net-short positioning ahead of the U.S. vote" suggesting "the dollar is somewhat less protected on the downside in the event of a Blue wave" in anticipation of a Biden victory.

Global Financial Affairs

U.S. stocks have been a statistical indicator for presidential outcomes since 1928, based on whether they are up or down within the three months prior to an election and have provided 100% accuracy since 1984 on an incumbent's chances. On Monday, stocks closed back in positive territory, which might signal a Trump victory, just as in 2016 they declined prior to the elections, foreshadowing the loss of Democratic candidate Hilary Clinton (then the incumbent party).

Of course, anything can actually happen.

This morning, the Stoxx Europe 600 Index opened higher and extended a recovery rally from a five-month low to its third day. Growth-sensitive cyclical stocks like oil and gas providers along with miners and bank shares led the gains. French international banking group BNP Paribas SA (PA:BNPP) surged 4.6% after posting a profit beat thanks to accelerated trading revenue.

Earlier, during the Asian session, regional indices finished firmly in green territory, with most major benchmarks closer to a 2% gain. Australia’s ASX 200, Hong Kong's Hang Seng and South Korea’s KOSPI led the gainers.

For Australian markets, it was the best session in almost a month after the country’s central bank trimmed interest rates and launched QE. South Korean shares gained the most in almost five months as the local mood was positively influenced by strong factory output data from major economies, including the U.S., China and the eurozone, easing concerns about another recession amid the continuing global pandemic resurgence.

Ironically, despite’s China data “soothing some nerves” ahead of the uncertain U.S. election, the Shanghai Composite lagged, (+1.4%), while Japan was closed for a holiday.

Yesterday, American equities rebounded from their worst slump since before the March lows, as dip buyers sought bargains in energy, materials and industrials shares, hoping Tuesday's election would finally remove the current primary risk to markets—the ongoing anxiety regarding what the next government might look like.

The Dow Jones Industrial Average outperformed, (+1.6%), while the NASDAQ drooped (+0.4%), as shares of Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) were sold off as investors stepped back into beaten down stocks that provide better value.

The return of risk-on appetites also prompted investors to sell off Treasuries.

Yields, including for the 10-year benchmark, rose. After Thursday’s new high confirmed the uptrend, rates are likely to keep rising.

The dollar fell for the first time after a four-day-straight rally.

The greenback found resistance at the 100 DMA as previously suggested, trading within a long a H&S continuation pattern that would extend the downtrend.

Gold rose for the third day, on dollar weakness.

While the precious metal bounced off the bullish wedge, it has to invalidate the rising, bearish flag—whose bottom is naturally drawn by the 100 DMA, which is itself a downside breakout of a bearish triangle. Its trajectory going forward will also likely be driven by fundamentals; it's viewed as a safe haven hedge against rising uncertainty, something in greater abundance right now.

Bitcoin, on the other hand, fell for the third straight day. Though the cryptocurrency was off its lows, just like it was yesterday, there remains lingering demand.

Oil climbed for a second day, extending Monday's biggest gain in three weeks, on rising expectations OPEC+ will postpone rolling back output cuts. In addition, the weakening dollar boosts the price of the commodity.

The two-day jump, with prices closing strong at the top of the session, creates a quandary for traders: as WTI reentered a range after crossing back above the 200 DMA, they increase the chances of a return to $42, if prices don’t fall back below $37. The next major move could be contingent on which direction oil moves today.

Up Ahead

• U.S. general elections take place on Tuesday.
• The EIA crude oil inventories report is released on Wednesday.
• Qualcomm (NASDAQ:QCOM) reports Q3 earnings on Wednesday Nov. 4 after the close; Alibaba (NYSE:BABA) and AstraZeneca (NYSE:AZN) report results before the market opens on Thursday.
• The Fed's policy decision is due on Thursday.
• The key U.S. Nonfarm Payrolls report prints on Friday.

Market Moves

Stocks

• The Stoxx Europe 600 Index gained 1.1%.
• Futures on the S&P 500 Index climbed 0.7%.
• NASDAQ 100 futures advanced 0.4%.
• The MSCI Asia Pacific Index increased 0.9%.

Currencies

• The Dollar Index decreased 0.5% to 93.66.
• The British pound climbed 0.3% to $1.2959.
• The Japanese yen strengthened 0.1% to 104.59 per dollar.
• The USD/TWD was little changed at TWD$28.92 per U.S. dollar.

Bonds

• The yield on 10-year Treasuries gained two basis points to 0.86%.
• Germany’s 10-year yield increased two basis points to -0.62%.
• Britain’s 10-year yield increased two basis points to 0.237%.
• New Zealand’s 10-year yield fell one basis point to 0.553%.

Commodities

• West Texas Intermediate crude gained 1.9% to $37.50 a barrel.
• Gold was little changed at $1,895.06 an ounce.
• Soybeans jumped 1.1% to $10.64 a bushel.
• Iron ore declined 1.5% to $112.77 per metric ton.