Risks are piling up

European stocks are tentatively higher on Friday, while US futures are looking a little flat as stimulus hopes continue to fade.

While Donald Trump has signalled a willingness to go big, after offering $1.8 trillion in aid, the Republican controlled Senate may not be on board which could be a major barrier to anything getting done before the election. It's a very bizarre situation in which everyone seems to agree that households and businesses need more support and yet, nothing may be forthcoming until January. At which point a signficant amount of damage will be done.

There's a significant amount of uncertainty for markets in the coming weeks which could pose a downside risk. Under the circumstances, they're doing very well. But you have to wonder how much investors can stomach. There seems to be an assumption that stimulus will be agreed, a Covid vaccine will be successful soon and the election won't be as disruptive as it could be. We all hope that's correct but there's plenty of risk in there.

Boris to lay out path forward for UK in negotiations

Closer to home, Brexit is another major downside risk as far as the UK and EU are concerned. Prime Minister Boris Johnson is due to speak today on the path forward for the UK in negotiations after this week's deadline was missed for negotiations, with the usual issues continuing to hold them up.

It would be a remarkable decision to call them off at this stage and one that could cause a big shock in the pound but I expect Johnson will instead perservere and maybe set a new deadline for talks to conclude. A concession on level playing field or fishing could be a welcome move if the government really wanted to turbo charge negotiations but maybe that's overly hopeful. The eleventh hour isn't upon us yet, although it's not far away.

Oil buoyed by inventories but risks tilted to the downside

It's been a very interesting week for oil. It started on a very negative note, with Norweigen strikes ending - keeping 966,000 barrels of oil equivalent per day in the market - and Hurricane Delta passing without major problems for producers in the Gulf. Yet, despite some selling, prices have been well supported, with inventory data, combined with Trump seemingly throwing his support behind a much larger stimulus package, lifting sentiment and crude.

Unfortunately for oil prices, the medium term risks are tilted to the downside. Global growth is likely to take another hit as Covid cases spike and restrictions are imposed, which will once again take its toll on demand. With Libyan output on the rise and OPEC+ pondering another reduction in cuts early next year, the bullish case for oil looks a little weak.

Gold remains in consolidation as risk events pile up

Gold has been in consolidation for a number of weeks now, floating around $1,900 as the number of major risk events pile up. With so many coming to a head in the next few weeks, I don't expect it to last much longer. The walls are closing in, with the yellow metal seeing support around $1,880 and resistance around $1,930 but that could continue a little longer yet.

Gold has aligned itself with riskier assets this year so a number of things could be the catalyst for an explosion higher, be it a Covid vaccine, US stimulus deal, perhaps even a smooth uncontested election. The downside risks remain considerable though which is why we're increasingly seeing this fence sitting. No stimulus or vaccine announcement - or further setbacks in trials - and a contested election in the coming weeks at a time when Covid cases are rising fast could be very negative for risk appetite and hit gold hard.

Thankfully, this is the least likely outcome, although that doesn't mean there won't be a nasty surprise or two along the way. For example, a stimulus deal before the election looks very difficult now, the economic consequences of which could be significant. Does the Fed have the firepower to make it all better?