Far away, so close – A US fiscal stimulus deal is still negotiated, but the election clock is ticking down. Valeria Bednarik, Joseph Trevisani, and Yohay Elam discuss the latest action in Capitol Hill and what it means for markets. They also look into rising European COVID-19 cases and the potential for a large EUR/USD move.

Yohay Elam:  COVID-19 cases have been rising in Europe for some time, but went under the radar. That has changed now, with an accelerated surge. Markets are taking note. Perhaps one headline that grabbed attention is the closure of Parisian bars, followed by a nighttime curfew in the City of Lights.

Joseph Trevisani: Markets seem to be unwilling to leave the dollar risk-on, risk-off scenario,  new situations are fitted into tat picture. That picture.

Valeria Bednarik: Yeah, European governments are trying to avoid total lockdowns, but the latest restrictive measures are pretty close to them. Fears are of another steep economic downturn, should lockdowns extend.

Joseph Trevisani:  Lockdown will produce another economic hit.

Yohay Elam:  In the first lockdown, many were hopeful that it would be temporary. A second closure is a blow to confidence.

Valeria Bednarik: indeed. and to grow. Hence, the run to safety.

Joseph Trevisani:  Yes, but the run has been mild, to say the least, it's more of swaying back and forth... the dollar hasn't really gone anywhere gone.

Valeria Bednarik:  Yeah, there's a lil issue in the way. The US presidential election.

Joseph Trevisani:  There is no sense of panic... of market movement, not yet.

Yohay Elam:  Is uncertainty creating paralysis instead of a downfall?

Joseph Trevisani:  No I think it is more a sense that we have been here before...we know how this plays out. In the US the focus is still stimulus or not...

Valeria Bednarik: Not paralysis, but a high dose of caution?

Yohay Elam: Or fatigue after circular headlines.

Valeria Bednarik:  Also!. Anyway, about the US stimulus, it's clear it will have to wait until after the election just two weeks ahead

Yohay Elam:  Indeed, the chances are falling. Trump and Mnuchin want a deal, almost at any price.

Valeria Bednarik: But not Democrats' price?

Yohay Elam:  Pelosi is unwilling to give Trump a win ahead of the elections, especially after Trump cut off talks,

Valeria Bednarik:  True..

Joseph Trevisani:  Yes, Pelosi is blocking it because it is to the Democrats election advantage.

Yohay Elam:  Senate Republicans are focused on the Supreme Court.

Joseph Trevisani: At least Ms. Pelosi's calculation is that it is to the Democrats advantage.

Yohay Elam:  Republicans are getting ready to return to their ideology of fiscal hawkishness and probably count out Trump.

Joseph Trevisani: If a bill passed stocks would soar...

Yohay Elam:  Indeed, markets love money.

Valeria Bednarik: Trump would celebrate that, but do his voters care?

Joseph Trevisani: Probably not much but it is a point and the election is much closer than the media is saying... very much like 2016.

Yohay Elam:  I think that Trump and Pelosi could agree on a bill worth $2 trillion. That would be good for both politically. But I think Senate Republicans would not go along.

Joseph Trevisani: I disagree... The Senate will sign whatever is put to them. The leadership knows their control likely rides on a Trump victory.

Valeria Bednarik: They could, but they won't.

Joseph Trevisani:  Pelosi is the issue.

Valeria Bednarik: The election is the issue. Without elections in the way, things would have been agreed upon far ago. That is true.

Yohay Elam: They could have been agreed before the measures expired in July. Democrats wanted $3.4 billion back then, they've compromised and agreed to $2.2 billion

Joseph Trevisani:  At the moment everything is about the election.  It could not be otherwise.

Yohay Elam:  19 days to go.

Valeria Bednarik: Anyway! to the point! what these all mean for markets?  Stronger dollar all the way to the election?

Yohay Elam:  Yes, a stronger dollar on risk-off. The Senate is very close. If Republicans hold onto the Senate, there's no stimulus.

Valeria Bednarik: And them fireworks depending on the outcome of fireworks anyway?

Yohay Elam:  I think that if Democrats win the Senate, it's a rally in stocks, dollar down. Gold surges. Huge stimulus bill.

Valeria Bednarik: Agreed.

Yohay Elam: Bank and oil stocks could be hit by fear of regulation. All the rest could surge.

Valeria Bednarik: So go Biden go?

Joseph Trevisani:  I think the market probably rallies whoever wins, but Presidency and Senate.

Valeria Bednarik: Yeah good point there.

Joseph Trevisani: Either way the priority will economic restoration, as defined in DC which means one thing, spending big dollars. So post-elections there will be a major stimulus bill.

Yohay Elam:  McConnell said he doesn't know if he'll have the votes for a big stimulus bill. If the GOP holds onto the Senate, I believe they'll dig in.

Joseph Trevisani:  The size and composition will be different if the Republicans win, but they will provide stimulus. Trump will demand it and if he wins, he will be in a strong position.

Yohay Elam:  Yeah, if he wins he could impose his will, contrary to his position now. If the dollar continues higher, will it make big gains against the euro, given rising cases?

Valeria Bednarik: That's no surprise at this point. Guess it's almost priced in.

Joseph Trevisani: The virtues of divided government.

Valeria Bednarik: Yeah, the EUR is among the weakest, and at this point, it has no raft to lay on.

Joseph Trevisani:  In Europe is it the cases or the possibility of lockdowns?

Valeria Bednarik: Lockdowns and curfews are already here... chaos will come with total lockdowns. Spain, the UK, France are "almost" there.

Yohay Elam:  Cases in Europe have reached American levels.

Joseph Trevisani: Would the markets be reacting if the government options were like Sweden rather than lockdowns? I think not. The US is not going to lockdown again....unless Biden wins ..and even then the priority will be growth..

Valeria Bednarik: True, and that gives the dollar another advantage. Now that the OMS changed once again course and said that quarantines should not be the main tool to combat COVID-19.

Yohay Elam: US priorities.

Valeria Bednarik: Yeah but the OMS is 8 months later supporting Trump and my neighbor Bolsonaro.

Yohay Elam:  Sweden performed worse than its neighbors, in terms of health and the economy. But maybe the US should go the Swedish way free healthcare for all.

Joseph Trevisani: But its economy is open and it is not facing another lockdown.

Yohay Elam:  Nor is Norway. Rich countries with great healthcare, faith in the system, etc.

Valeria Bednarik: You are mixing apples with tomatoes.

Joseph Trevisani: Probably not our fatality rate per million is far lower.

Valeria Bednarik: Exactly, rich, and highly educated countries.

Joseph Trevisani: Bean with sprouts.

Yohay Elam: All the charts are per population. Coronavirus chart- see how your country compares - Free to read - Financial Times 10-15-2020 3-50-41 PM.png oranges vs oranges that took a different path.

Valeria Bednarik: Less than 1 death x day x million inhabitants?? On average.

Yohay Elam: Seven-day rolling average of new deaths (per million).

Valeria Bednarik: Yeah, but all are below 1.

Joseph Trevisani: Ranked by deaths per million population. But without accounting for the different categorization of COVID fatalities.  For instance, Germany is strict the US very loose.

Yohay Elam:  Belgium's is broad and the Netherlands is narrow.

Valeria Bednarik: Yeah, most numbers are approaches, to say the least.

Yohay Elam: Here in Barcelona, we're back to working from home, which is good in terms of cost/benefit.

Joseph Trevisani:  full list, interesting.  You have countries one would assume are very similar like Germany and Belgium at opposite ends of the list.

Yohay Elam: Getting the same work done with little damage to the economy.

Valeria Bednarik: Yeah, thing is, not all jobs can be done from home.

Yohay Elam:  Closing schools has a steeper price down the line yep

Joseph Trevisani: NYC is largely working from home as well.  Mid-town is still deserted.

Yohay Elam:  Here in the old town, we went from overcrowded tourism to half-empty streets. Neighborhoods that are not of touristic interest are little changed.

Joseph Trevisani: Yes, same here, residential neighborhoods are relatively normal, except everyone is masked. Equities are falling in NYC, its stimulus or not, and today is not.

Yohay Elam: US retail sales are due out tomorrow. If they disappoint again, maybe that could push politicians to strike a deal?. Turning bad news into good news?

Valeria Bednarik: Honestly, I don't think so. It's all about politics now. If data were relevant, they would have agreed long ago.

Joseph Trevisani: Normally yes, but not now.  The election trumps all.

Yohay Elam: Yep, time is too short, maybe that's why markets are falling.

Joseph Trevisani: The only thing that will force a deal if the Democrats think that their obstruction is costing them at the polls.

Yohay Elam: Finally getting to grips that all these Mnuchin-Pelosi talks are going nowhere. It cost Trump to cut off talks. He changed his mind quickly.

Joseph Trevisani: I saw a poll yesterday that claimed the public is blaming Pelosi for blocking the deal.

Yohay Elam: Or at least it sent stocks down, which poll was it?

Valeria Bednarik: Well, depends on the public.

Joseph Trevisani:  Ill have to find it I'm afraid. I saw it in passing. I have my doubts about whether it would matter at this point.

Valeria Bednarik: We know that polls are overrated... yups.

Joseph Trevisani: If the Democrats were going to sign the logical point would be very close to the election where they could get credit for agreeing but it would be too late to have much economic or market impact. It's amazing, we live in a world drenched with media and information and yet. We don't know where to turn for accuracy.

Valeria Bednarik: Totally.

Yohay Elam:  Trump just told Fox Business he would increase his offer beyond $1.8 trillion. And McConnel said, "What I will put on the floor is a highly targeted half a trillion dollars, that's a lot of money". I guess stimulus headlines will continue moving markets. Even though chances are low.

Joseph Trevisani: Moving markets but not very much...

Yohay Elam:  I guess we can conclude that the dollar has room to rise on uncertainty, and the euro could fall on rising coronavirus cases.

Valeria Bednarik: Yups, ahead of some fireworks on Nov 3.

Yohay Elam:  Finally a big move in EUR/USD?

Valeria Bednarik: Could be, but I believe that caution will still be around.

Joseph Trevisani:  Seven months into the pandemic and three weeks from the election and it is risk-on, risk-off.  My question is after the election will the markets switch from the safety or not scenario to economic reality?  Meaning, will the US stimulus in January provide a different focus?. MEANING

Valeria Bednarik: My vote goes to economic reality.

Yohay Elam: I think government aid, in the US and elsewhere, will remain a significant market mover also in 2021 perhaps fading in 2022 yeah.

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