(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon: Trump, RBA, Powell, Lagarde... + Wed's VP Debate
Top of Mind…
- Touched on this wk in the Dragon’s New Month = New & Final Quarter = New POTUS piece
- Worth noting that the key Final Service PMIs yest generally came in stronger than expected with final EZ in at 48.0a 47.6e/p (yet obviously in contraction territory being sub 50), UK 56.1a 55.1e, US 54.6a/e & US ISM Serv. PMI 57.8a 56.3e 56.9p (again US data still holding up!)
- Today we got a few key things including RBA rate decision, as well as ECB’s Lagarde (@ 16:35 & @ 21:00 SGT) & Fed’s Powell (@ 22:40 SGT) set to speak at different events
- Tomorrow will be all about the VP debate – naturally viewed as that much more pivotal, with Trumps’ health status likely to be in a state of Limbo until at least 2H of Oct
- In regards to Trump’s tweet last Fri on having contracted Covid-19 – biggest likely change from the Dragon’s view is that the probability of fiscal deal prior to the election has gone up
- By no means a done deal or even significantly above 50%, yet aesthetics of POTUS catching the virus are likely Net-Negative from the republican camp… its not going to be a Bojo sympathy theme. This could force the Republicans to be more open to getting to an agreement with the Democrats. Obviously one can argue if it really makes any difference, with votes already coming in… yet hard to see when US politics has been rational over the last few years
- Its worth noting with Trump that we are likely not going to know just how bad a state he will be in, until midway this wk to end of the wk. If you recall Bojo was first at home, ordering curries & dropping jokes… then needed to be rushed to hospital.
- Whilst the dominant press coverage on Trump is rarely net positive, its does seem pretty clear that the updates from the Doctors have been with a positive spin & a lot of questions are being dodged. It’s also worth noting Trump seems to be on steroids – which traditionally are only given to folks who are really in bad shape around covid – as well as a number of other prototype cocktail of drugs.
- He is back in the White House, yet still under full care - & whilst his car drive publicity stunt has been criticized , clearly he was still well enough to do that. Again real MtM on his health is likely to be seen before mid Oct.
- CNN Cut: Trump returns to White House and removes mask despite having Covid
- Fox Cut: Trump discharged from Walter Reed, returns to White House
- From what KVP can gather, the cleanest pathway in the scenario of Trump falling to Covid-19 or in someway being incapacitated is that Pence becomes the de facto face of the Republican Ballot. And it almost surely raises the delta of the Dragon’s contrarian (yet changing consensus view post the debate last wk), view that this is going to be a blue tsunami
- Either way – one thing that few people seem to be keeping in mind, is that no one is talking about upside risk. And on election night – despite ballots that will still need to be counted (our understanding is they have to wait for election night to open the mailed votes) – we may have a scenario where it mathematically impossible for one candidate to catch up to another, due to the loss of a number of the key swing states
- So pay special attention again to the likes of Florida, Wisconsin, Pennsylvania & Minnesota
- As always anything is possible… yet current feel is that most folks are on the side-lines, with a potential net-short bias on equities & folks worried about election uncertainty
- That could change very quickly if we have a highly probable clear winner on/very close to election day – i.e. short-squeeze, to relief rally given uncertainty & big event-risk being cleared, as well as anticipation of a new administration getting the next fiscal bill in order
Not Caught Enough of KVP?…
Dragon's Must Reads…
John Hardy dropping a roadmap US Election Primer: The Final Sprint to November 3rd
We sort through important dates in this final sprint phase of the absurdly long US presidential election cycle. Historically, we have seen significant shifts in the polling in the final weeks leading up to the election. As well, we consider factors that can change the odds between now and Election Day on November 3rd.
Saxo’s US Election Cheat Sheet Which cuts into the three potential pathways into the elections, probabilities around them, as well as short & long-term positions across equities, bonds, commodities & currencies.
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea
This is the way