Big money investors have over the last six months poured cash into the markets at the fastest pace in 17 years as they fretted over COVID-19 and the upcoming presidential election, according to a new survey from Bank of America.

Cash holdings fell to 4.4% in October, down from 4.8% in September, and have now dropped 1.5 percentage points since April, the fastest decline since 2003. A reading below 4% is considered investor greed.

Respondents “said the recession is over, reduce cash, pause cyclical rotation, and price in contested election & February vaccine,” wrote Michael Hartnett, chief equity strategist at Bank of America. “We say sell SPX > 3600 and cyclical rotation via banks/energy to resume in Q4.”

Ticker Security Last Change Change %
SPX n.a. n.a. n.a. n.a.

TRUMP’S STOCK GAINS HIT REPUBLICAN RECORD

The Charlotte, N.C.-based lender surveyed 198 participants with $593 billion in assets under management between Oct. 1 and Oct. 8.

Thirty-four percent of respondents feared a second wave of COVID-19 was the biggest “tail risk” as expectations for the timing of a credible vaccine were pushed back from January 2021 to February 2021.

Absent the pandemic, investors were most worried about uncertainty caused by the upcoming presidential election, with 61% predicting the election will be contested.

Seventy-four percent of those surveyed said such an outcome was the one that would cause the most volatility. Another 14% forecast a Democratic sweep would shock markets while 8% feared a divided Congress and 4% were uneasy about a President Trump win.

On the economy, 60% of respondents said we are in an early-cycle phase as opposed to 26% who thought we were still in recession.

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President Donald Trump halted negotiations for a coronavirus stimulus bill last week, but has changed his tune in the days since, once again encouraging Congress to make a deal.

Meanwhile, Michigan residents and businesses sit idle, pleading for federal help.

“For small businesses to survive, we need immediate and direct financial support,” said Gricelda Mata, CEO of Lindo Mexico Restaurante near Grand Rapids. “That’s why it’s so frustrating to see the president of the United States cease negotiations until after the election.”

Trump argued in an Oct. 6 that the Democrats weren’t negotiating in good faith, saying “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major stimulus bill that focuses on hard-working Americans and small business.”

Within minutes, the stock market took a hit. Stock prices recovered the next morning after Trump tweeted overnight his renewed support for some form of stimulus payments.

Negotiations will continue Monday between Treasury Secretary Steven Mnuchin and Speaker of the House Nancy Pelosi, D-California, according to CBS News.

The sticking point has been, Democrats are pushing for a broader package while Republicans are seeking a smaller bill. Republicans have compromised up to a $1.8 trillion package while Democrats have compromised down to a $2.2 trillion deal.

Potential aid being discussed includes a second $1,200 stimulus check for Americans earning less than $75,000, a second round of Paycheck Protection Program forgivable loans for businesses, aid for the airline industry, restoring the extra $600 per week (or a lesser, compromised amount) for unemployed workers and more.

Business funding can’t wait until after the election, Mata said. While her restaurant has pivoted because of the pandemic, it’s one of many Michigan businesses that need help to keep up payroll.

“Before the pandemic, we

TOKYO – The dollar flirted with three-week lows on Tuesday as investors stuck to hopes that there will be large U.S. fiscal stimulus after the Nov. 3 election to shore up a pandemic-hit economy, supporting riskier currencies.

The dollar index stood at 93.036, just above Friday’s near-three-week low of 92.997. The euro traded at $1.1841, having gained 0.60% on Monday.

“It seems there is a strong optimism that eventually there will be stimulus. It is hard to argue against fiscal expansion given the coronavirus epidemic is almost like a natural disaster,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.

DOLLAR’S RECENT DIRECTION POINTS TO BIDEN WIN

While markets are getting sceptical about the chances of having a bipartisan package before the election, a widening lead by Democratic presidential candidate Joe Biden over President Donald Trump is leading investors to expect big stimulus after the election.

A Biden victory is also seen as negative for the dollar partly because his pledge to hike corporate tax would reduce returns from investments in the United States.

The dollar flirted with three-week lows on Tuesday as investors stuck to hopes that there will be large U.S. fiscal stimulus after the Nov. 3 election to shore up a pandemic-hit economy, supporting riskier currencies. (iStock)

Thus the dollar also weakened against currencies that are deemed “safer” – those that tend to have small or inverse relations with risk sentiment – such as the yen and the Swiss franc.

The yen strengthened to 105.34 per dollar while the Swiss franc traded at 0.9102 to the dollar, near its highest in three weeks.

Sterling traded above the key $1.30 level as hopes for a Brexit deal offset concerns about pressure

(Reuters) – Goldman Sachs said the outcome of U.S. elections would not impact its bullish oil and natural gas outlook and that an overwhelming Democratic victory could be a positive catalyst for these sectors.

Goldman reiterated its bullish 2021 view for both natural gas and oil, saying drivers for higher prices supersede the potential outcomes of the U.S. election.

“The recent gyration in oil prices, rallying on days of higher expected stimulus and weakening dollar, suggest that a Biden election and blue sweep could in fact prove a bullish catalyst for oil,” the bank said, adding that natural gas prices could rally too.

Opinion polls show presidential candidate Joe Biden with a substantial lead over President Donald Trump nationally, although with a narrower advantage in some of the states that may decide the Nov. 3 election.

Headwinds to U.S. oil and gas production would rise further under a Biden administration, with the potential for regulations raising the cost of shale production and reducing recoverable shale resources, Goldman added.

Biden’s climate priorities also point to a faster deployment of renewable sources of energy than currently expected, Goldman said, adding such an agenda would require new infrastructure, which alongside a likely large initial fiscal stimulus, would lead to higher oil demand in coming years.

(Reporting by Nakul Iyer and Eileen Soreng in Bengaluru. Editing by Gerry Doyle)

Copyright 2020 Thomson Reuters.

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(Bloomberg) — Traders across the world may be coming around to the idea that the U.S. election isn’t going to be the tumultuous event it was once expected to be.

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But the real believers seem to be in emerging markets.

Optimism that the November election result will go uncontested and speculation a U.S. stimulus package will be agreed whatever the outcome are damping concern about fluctuations through year-end. Yet, while U.S. VIX futures declined last week as bets on likely price volatility eased, the drop was slower than for emerging markets.

“It does appear that emerging-market investors are slightly more sanguine about risks through the end of the year than what you’re seeing in developed markets,” said Nick Stadtmiller, a strategist at Medley Global Advisors in New York. “As long as global liquidity remains ample, and as long as global markets at least hold their ground, I would expect emerging-market assets to perform well. Yields on many emerging-market assets are high, especially relative to rock-bottom yields on developed market assets.”



chart: EM volatility index trades at a discount to the VIX gauge for U.S. stocks


© Bloomberg
EM volatility index trades at a discount to the VIX gauge for U.S. stocks

Falling volatility may give investors more confidence to put cash into an asset class enjoying one of its best phases since the virus-induced global sell-off in March. Citigroup Inc. said last week the worst is over for developing-nation assets and Morgan Stanley is betting volatility will continue to ease as the outcome of the November vote becomes clearer.

Emerging-market equities and currencies climbed to an eight-month high on Friday, while local-currency bonds had their best week since May on the prospect of U.S. fiscal stimulus. One-month implied volatility on the Brazilian real, South African rand and Russian ruble fell by the most among peers last week, signaling improved appetite for risk assets.