Where next for the US dollar and gold? Covid, jobs, and the elections all considered

The US economy is showing encouraging recovery signs with a fresh drop of jobless claims. Can this move the dollar? Valeria Bednarik, Joseph Trevisani, and Yohay Elam consider the economy, coronavirus, the elections, and also stimulus to discuss the next moves in the greenback, gold, and more.

Yohay Elam: The US reported a significant drop in jobless claims, to 787,000 in the week ending on October 16. After several weeks above 800,000

Valeria Bednarik: The last going straight into Nonfarm Payrolls...

Joseph Trevisani: Markets are more interested in DC stimulus than claims. Dow futures down 40..even though those are the lowest claims since the pandemic started seven months ago.

Valeria Bednarik: Agreed. The deadline that wasn't a deadline and progress that leads nowhere, surely hurting the mood today

Yohay Elam: Last week's jump to nearly 900K was skewed by California. It was revised down to 842K. So generally, a steady downtrend with occasional bumps in the road.

Joseph Trevisani: I don't think anyone really believed Ms. Pelosi's deadline any more than they believed Trump's withdrawal from the talks.

Yohay Elam: Markets seem to react to stimulus headlines despite the date

Valeria Bednarik: Yeah, guess we are all aware that macro figures will be awful for longer. Employment and inflation included.

Yohay Elam: Inflation seems off the radar, at least in the US. In Europe, it could still matter due to the "single needle in the compass"

Valeria Bednarik: Exactly, and employment has been out of the radar for years... When was the last time the market got shocked by employment, beyond the pandemic? I can't remember

Joseph Trevisani: The trend in claims is clearly down but yes the recovery in jobs is slowing.  As a practical matter, that is as a basis for policy, inflation has not been important for years if not quite since the financial crisis. Q3 GDP should be a record, the Atlanta Fed has it at 35.3% and it will be out on the 29th, so we will be hearing about it.

Yohay Elam: Indeed, falling off a cliff, a huge bounce, now a slow recovery, and what's next? China seems to be growing quickly. In Europe, there are fears of a double-dip recession. America will likely continue growing, but at what pace is an open question

Joseph Trevisani: Whoever wins the election another stimulus is guaranteed

Valeria Bednarik: The pandemic is far from over, and until we see some light at the end of the tunnel, there will plenty of open questions related to economic growth. Include there whether Chinese numbers are real or not.

Yohay Elam: The winter wave has arrived in Europe, already in autumn and at a harsher pace. So far, hospitals are not filling up, but it seems like a matter of weeks. On the other hand, vaccine efforts are in full speed

Joseph Trevisani: Perhaps, when diagnoses rose in the US, hospitalizations, and fatalities did not move very much, so there is hope.

Yohay Elam: The world seems much more prepared

Joseph Trevisani: I think we can assume the Chinese numbers are false.

Yohay Elam: Chinese PM Li Keiqang revealed that when he was a province governor. Many firms are using other data such as exports and imports to assess output. Railroad traffic, coal burning, and lots of other measures. I think the Chinese economy was hit harder early in the year, more than they are willing to admit

Valeria Bednarik: Meanwhile, the greenback is on the backfoot. Last week we all agreed that until the election the currency would be stronger... what did we miss?

Yohay Elam: I think markets are blinded by fiscal stimulus hopes. But who knows, NBA matches are sometimes decided with the buzzer, so maybe 12 days is a lot of time until the elections

Joseph Trevisani: The euro at least, has not left its August, September, and October range, 1.1700-1.1900

Yohay Elam: EUR/USD range trading, perennial frustration

Joseph Trevisani: On the stimulus, election calculations dominate everything.   At this point it is probably too late for any economic impact, so the question becomes will either side benefit from the passage but without tangible results. For that, I think it would be the Democrats who could claim to credit without providing timely cash which might help Trump.

Valeria Bednarik: LOL. Indeed, frustration is big there. Still, I still don't see how it could keep strengthening. As you said, the EU is closer to another recession than to start growing..

Yohay Elam: Europe has a more significant coronavirus wave, deployed less fiscal stimulus, and deflation is a real risk. Yet the euro rises. Maybe it is the calm before the storm

Valeria Bednarik: Yups, could be. The US in the meantime, is yet to see a second wave? Who knows. Another unanswered question. For sure, if Trump wins the election there won't be lockdowns, so the country will maintain the economic advantage.

Joseph Trevisani: We are without trend, the euro is starting to look like a sine wave. In August, 1.1750 to 1.1950 and then from 1.1700 to 1.1900

Yohay Elam: Cases are clearly rising in the US, while mortalities are only marginally edging higher. Europe is ahead of the US with the winter wave

Valeria Bednarik: At this pace, we will get heard immunity before vaccines.

Joseph Trevisani: I don't think there will be lockdowns if Biden wins either. His positions on the virus and lockdowns are solely to draw an election distinction against Trump. Once elected, he will discover the need for economic restoration, and the mantra will become open to the economy but protect the vulnerable. Perhaps not on November 4 but soon after. If that is true then I agree with Val the US economy moves ahead faster.  Will that break the dollar out of its stasis?

Valeria Bednarik: Hope so

Joseph Trevisani: The problem is the normal mechanism is the interest rate and the Fed has blocked that for two more years.

Yohay Elam: Biden said he'll push for masks

Valeria Bednarik: Well, If its any consolation, that applies to all central banks

Yohay Elam: In general, policymakers try to avoid lockdowns, which is the last resort everywhere

Joseph Trevisani: Masks are not lockdowns. They have no economic impact.  I used to trade the Tokyo market, so I became used to the calm zen of markets.

Yohay Elam: I think that the elections will unleash volatility. Yen zen

Valeria Bednarik: Yeah, also hoping that

Joseph Trevisani: If the election is contested yes. If there are riots because Trump wins, perhaps. But the US has historically been the safe haven. What happens, where do markets go if safety is destabilized? It's an uncomfortable question

Yohay Elam: I think the dollar remains a safe-haven even in case of a contested election

Valeria Bednarik: We are in an uncomfortable world pretty much since the year started.  And I agree with Yohay.

Yohay Elam: China and Europe are not ready to lead the world and I doubt they will in our lifetimes. China will likely become the world's largest economy in a few years, just by sheer population size, but I don't think that's where investors will flee to

Valeria Bednarik: How could they with so tight governmental intervention?

Joseph Trevisani: Agreed. I don't see financial investors trusting Beijing.

Yohay Elam: Government control, disallowing foreign competition, an authoritarian regime

Joseph Trevisani: I think you are probably right, its the dollar.  Talk about replacing the dollar as a reserve, as safety has been going on as long as I have been in the markets. Actually before, I remember it was a topic in grad school. It never happens because there is no alternative.

Valeria Bednarik: Exactly. Cryptocurrencies maybe? Still, there's a long way to go there

Yohay Elam: At this point, you cannot pay your taxes with Bitcoin, so there's a long way indeed

Joseph Trevisani: Crypto currencies have a problem with what I call the Matrix effect. No grounding in a place or jurisdiction. If you have a dispute where do you go to address it?

Yohay Elam: Indeed, so for now, it is just another speculative asset, but not a remote contender to be a reserve currency

Joseph Trevisani: Reserve and safety are not quite the same... but they are very similar. Until we are all in the Matrix, I think the dollar stays as reserve and safety.

Valeria Bednarik: Agreed. So we still have faith in the buck despite the election/stimulus noise?

Yohay Elam: In the long run for sure. In the short run, higher uncertainty is better for the dollar, and I think uncertainty could rise

Joseph Trevisani: I think the stimulus on-off dollar is about played out.   So where do we look for movement?  I'm not sure the elections will provide it. I don't see much pre-positioning for either scenario...

Valeria Bednarik: With stimulus, buy gold 

Joseph Trevisani: And for a truly contested election we do have a model, 2000, Bush-Gore. And I don't think markets were much affected. Ha yes, buy gold. I am going to do a piece on that comparison before the election since the odds seem to be rising.

Yohay Elam: Everywhere I look, I see comparisons to 2016, which makes sense, it was the most recent election. But 2000 is undoubtedly a great case to examine, especially in terms of market reaction

Valeria Bednarik: Everything this year will be a study case...

Joseph Trevisani: Yes, I think it is worth a look. If I remember it took a month to be settled. 2016 is the apt comparison for polling...Trump is sui generis. The preliminary Supreme Court ruling in 2000 halting the recount was on December 9, so just about a month after the election.