November is shaping up as a month to remember, with the dramatic announcement of a coronavirus vaccine clashing with worrying disease developments. What does it mean for the dollar, gold, and stocks? How will central banks and governments move forward? Valeria Bednarik, Joseph Trevisani, and Yohay Elam discuss the latest development and what's next.
Yohay Elam: Jobless claims are a good reflection of the US and European economies. The recovery continues, but it is slowing. Or in Powell's words, "the pace of the recovery is moderating."
Joseph Trevisani: Yes, however, the contrast to the retail sales figures is striking, including the lockdown months of March and April... overall sales are up 1% a month for seven months.
Valeria Bednarik: And in the meantime, more US cities announce curfews to try to contain the virus spread.
Joseph Trevisani: Yet claims run at 3 million new per month.
Valeria Bednarik: US President Trump has refused to impose a lockdown. Would that continue if finally, Joe Biden moves to the White House?
Joseph Trevisani: Probably, but lockdowns destroy the economy and lives...
Yohay Elam: The actual lockdowns depend on the governors, but leaders have a significant impact. The lack of a lockdown costs lives. Trump says the rise in cases depends on testing, well.
Joseph Trevisani: I doubt the President has the power to order a nationwide lockdown, and besides, many governors would refuse to obey, then what?
Valeria Bednarik: But many that don't dare today may dare under Biden.
Joseph Trevisani: They both cost lives. It's just that the measurement of one is more dramatic and covered by the media.
Valeria Bednarik: And a president always has executive orders.
Yohay Elam: By not politicizing mask-wearing, lives could be saved.
Valeria Bednarik: Agreed
Joseph Trevisani: No I think they most certainly will dare.
Yohay Elam: US hospitalizations are at a record high.
Joseph Trevisani: The data behind mask-wearing is flimsy. I am not saying don't wear masks..but if you look at countries where it is very high. It has no effect on the spread.
Valeria Bednarik: So, soft data, and a gloomy, uncertain near-future. The dollar is slowly grinding higher.
Joseph Trevisani: The problem is only stringent lockdowns work, and they destroy as surely as the virus.
Yohay Elam: The data behind mask-wearing is not flimsy. Look at Asia.
Joseph Trevisani: Correlation is not causation. Look at Europe.
Yohay Elam: Apart from masks, states could restrict some activities and avoid a full lockdown.
Joseph Trevisani: Yes which is what is happening. I went to my favorite restaurant and gave the owner, a friend of mine, a check last night. Restaurants in NYC are shut again.
Yohay Elam: Nice of you. We try to order directly from the restaurant and refrain from using delivery services that take a large cut.
Joseph Trevisani: I am too far for delivery. And the weather is not up to outdoor dining.
Yohay Elam: The big news of the week is the breakthrough of Pfizer and BioNTech en route to a covid vaccine. I think the mere announcement could boost the global economy. There are issues with production, storage, distribution, etc. But the hard part seems to be behind us.
Joseph Trevisani: It certainly boosted equities and for a while the Dollar.
Valeria Bednarik: Indeed. We now have a clearer picture, that in the case vaccines result, the economic comeback will take a while. Still, hopes move markets.
Joseph Trevisani: The problems are technical, surmountable quickly I would think.
Yohay Elam: Businesses that thought of closing could hang on. Going through restrictions or lockdowns is easier when there is light at the end of the tunnel. So I'm bullish on global stocks. But what's going on with the dollar?
Joseph Trevisani: Same here.
Yohay Elam: Relative strength of the US economy? Yields?
Joseph Trevisani: We don't have a clear picture of the future yet. So you have warring factions, The Warring States period if you like from Chinese history.
Yohay Elam: I think the dollar is set to fall. Because the Fed could buy more bonds, pushing yields lower, stocks higher.
Valeria Bednarik: Yeah. Stimulus coming one way or the other.
Joseph Trevisani: I think we have four warring factions. The risk-on, dollar lower faction, the risk-off dollar higher faction, the liquidity stimulus lower rates Fed faction, and the vaccine or US economy will be a stronger faction. None are strong enough to rule, so we have daily back and forth determined by the latest news flow.
Yohay Elam: North, south, east, west. For me, the Fed is the winner in any war...
Joseph Trevisani: Perhaps but the Fed has zeroed its direct rate impact but the bond impact remains open. It could certainly drive rates lower if it chooses.
Yohay Elam: The case curve is flattening in Britain. Will sterling shine?
Valeria Bednarik: Well, after three years of waiting, we will finally know if there's a post-Brexit deal or not, so guess shinning will depend on that.
Yohay Elam: Brexit is forever.
Joseph Trevisani: I have always thought there will be a deal.
Valeria Bednarik: Yeah, the question is what sort of deal.
Joseph Trevisani: I doubt it matters very much. I think only deal or no deal matters only.
Yohay Elam: With GDP jumping up and down so much, I don't think we'll fully know the impact of Brexit on the UK economy. At least not in the short-term.
Joseph Trevisani: Once a deal is signed... reality takes over and it will be adjusted by the bureaucrats to make it work. The political framework is not that important. The economic needs of the UK and the EU will rule. The relationship is far too important for it to be otherwise, or in another phrase, far too important to be left to the politicians.
Yohay Elam: I guess they'll poke each other, but the bigger rival is China, so there will be more cooperation between the EU, UK, and the US. In the short term, GBP/USD jumps up and down on every Brexit-related headline. But if you zoom out just a bit, the ranges are not huge.
Joseph Trevisani: Exactly the same for the Euro.
Yohay Elam: Perhaps EUR/USD and GBP/USD could provide "buy the dip" opportunities.
Valeria Bednarik: Seems more likely. As you said, until charts said otherwise, ranges remain in play.
Yohay Elam: Perhaps additional vaccine news could push these pairs beyond their ranges. Moderna, AstraZeneca, and J&J all use the same mRNA approach applied by Pfizer/BioNTech
Joseph Trevisani: As the vaccine becomes operational, we will see which of the warring states will win. I vote for stronger dollar faction...but then I usually do. I think there will be multiple vaccines. The potential market, shall we say, is huge.
Valeria Bednarik: Yes that's the picture.
Yohay Elam: I trust Powell to plunge the Dollar. What do you think Val?
Valeria Bednarik: I agree with you. Powell won't sit back. He has been calling for fiscal stimulus, and we know that we may get something from Congress once the election mess is clear. Still, in the current scenario, he will also have to jump in to support the economy.
Joseph Trevisani: US policy is in abeyance until January 20....at this point I would be surprised if even stimulus gets done before then.
Yohay Elam: Control of the Senate hinges on the two Senate runoffs in January. I think Republicans have the edge.
Joseph Trevisani: I think so too.
Yohay Elam: But for markets, if it's not fiscal stimulus, it's monetary.
Valeria Bednarik: But monetary will depend on fiscal stimulus. The smaller the package the more chances we have the Fed will jump in.
Yohay Elam: Yep.
Joseph Trevisani: The Fed would have to up its monthly bond-buying, which, if the recent Treasury moves are indicative would be opposed by the credit markets. Remember in early 2008 Bernanke was still saying..problem what problem, but the Treasury market was rising and rates falling.
Yohay Elam: Indeed, and Jean-Claude Trichet even raised rates in 2011. Central banking has evolved since then.
Joseph Trevisani: Indeed. One of the best examples of why experts are actually not.
Yohay Elam: Yep. Where do you gold going from here? It was hit by the vaccine news and now seems a bit lost.
Joseph Trevisani: Of Gold's two biggest rationales, inflation is already dead and armageddon may have been killed by the vaccine.
Yohay Elam: Indeed, so bulls have the only stimulus to rely on.
Joseph Trevisani: It seems so. And the timing is tenuous. If the vaccine works, and it seems to sit does, then the future, at an unknown remove is probably set. A return to normality...with much rebuilding and the inevitable new economic directions. As in the old phrase...There is as much money to be made in the destruction of civilization as in the building of one, and we sort of have both.
Yohay Elam: Indeed, the demolition of a building is added to GDP calculations, and so is the construction of a new one.
Joseph Trevisani: Yes and both have accelerated changes that were already underway. I think there are great economic opportunities ahead.
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