Will the election narrative turn towards China?

Abraham George Macro View

What a lot of drama, what a weekend! With the US President’s health outlook in question, the markets were getting prepared for the worst. And all of a sudden Trump released a video, looking all fresh , and went for a drive to say hello to supporters outside of Walter Reed. The talks of being discharged started as well. With that the Dow futures opened higher by 130 points and finished the day up by close to 2%.

How did all this happen? A few days ago, biotechnology giant Regeneron released some encouraging news on a new therapy for treating COVID-19. Its drug, REGN- COV2 is a monoclonal antibody therapy. It’s basically a mix of antibodies that look like those the human body produces to fight off the antigens of the COVID-19 virus. They proved that the therapy was especially effective in patients who had not mounted an immune response to COVID-19 as yet.

So it didn’t come as a surprise that physicians gave the medicine to the most protected man on the planet to help a fast recovery. Looks like it has worked or is still working. The president had been preemptively talking hydroxychloroquine at least that’s what he claims, an anti- malaria drug that has proved to protect against COVID- 19. Soon after the president tested positive, he began a multi-day treatment of Gilead’s Remdesivir anti viral drug which was early approved for Emergency Use Authorization. On top of all these, he has received Dexamethasone, a common steroid also proven to be effective against COVID-19. So we all don’t know which treatment has been working for him.

But don’t be surprised if the president claimed that of all the medicines that he took it is the hydroxychloroquine that saved his life. That’s another discussion we don’t want to pursue here.

How will all this help or direct the election process which will happen in less than 30 days from now. With a virus from China now having threatened to take out the American President, will the election narrative change to something different? China was hardly mentioned in the first debates. And nothing relating to retribution or retaliation. This may come up soon as the talking point. If it does, the momentum will soon favour Trump.

Equities

There were more than three stocks that closed higher for every stocks that closed lower yesterday on the NYSE. All 30 of the Dow’s stocks closed higher yesterday and more than 90% of the stocks comprising of the S&P 500.

This indicates that there may be more left in this up move. However volume was at the lowest level since Aug 28. Another thing is that NASDAQ did not show the same excitement as the Dow and S&P 500. A move below 3325 in the S&P 500 will reassert the bearish move strongly.

Bonds

Bonds strongly broke below the ranges that we were alluding to. A strong move down now should not surprise us at all. Targets like 155 should be on the cards. Minor supports exist close to 167 but a move above 178^17 will force us to abandon the view.

Euro

The euro rallied to our maximum recovery point just under 1.1800. We are expecting a decline from current levels that should challenge the 1.1600 level.

Gold

We have two opposing views on gold. Our first premise is that the rise in gold from 1849 is a corrective rally that should top out under 1925. A clear break above 1925 can help gold to rise further and challenge its previous highs at 2072 or slightly more before it turns down again.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.