There are a couple of key themes playing out in the market right now but the main one is that everyone is waiting for the next big shove
It is that type of Monday once again as we look to get things started on the new week. Not much is happening as the market is keeping in narrow ranges and not really breaking stride as traders and investors continue to wait for more significant developments.
In that lieu, let's take a look at some of the things that are driving the market right now.
US election draws closer
Election uncertainty is going to be a major factor to consider in the next two months, as we move closer to the 3 November polling/voting date.
While the build up may keep market participants on their toes, that's pretty much a risk factor in itself. The fact that the market may not do much unless there is more clarity on who will win in the race between Trump and Biden.
The key risk here will be more towards risk trades and the dollar - fiscal management - so be wary that we could get some decent swings in the coming weeks should there be some significant bias in the polls leading up to election day.
US stimulus talks are at a stalemate
Additional relief isn't coming any time soon as we move off the fiscal cliff in the US. Congress has left town and Trump is agitated that money isn't getting to the hands of Americans and that may leave a big hole in the wallets of households in the short-term.
There's still much hope in the market that something will eventually come and that there will be relief measures one way or another. But the longer this drags on, this may eventually creep up to hurt risk assets once it starts to weigh on hard/macro data.
Precious metals on a wild ride
Gold topped $2,000 for the first time before encountering an ugly rout in the days after, falling back under the figure level as weak/late longs were shaken out.
Silver also rose to nearly $30 in a stunning rise (it was trading just under $20 on 20 July), before falling back down and now consolidating around $25 to $26 levels.
For gold, price action is somewhat supported by the key trendline support from this year but despite some calmer last few days, it is hard to discount the volatility that we saw last Tuesday as buyers are failing to reclaim $2,000 for now.
The wild ride in precious metals remain a key spot to watch with regards to the risk mood and the dollar, as ugly scenes here could also dent risk sentiment in the process.
US equities nearing a top?
US stocks are still continuing their good run of form for the most part over the past few weeks but is the all-time high going to pose a major challenge for the S&P 500? Or is this another hurdle that buyers will eventually clear along the way?
Cheap money continues to be the the number one driver and lawmakers as well as policymakers are not shying away from reminding the market that they will still do whatever it takes i.e. pressing the printing button to "bolster the economy".
The technical picture above is one to take note of over the next few sessions.
Treasuries go with another fakeout
At the start of the month, it looked like the bond market was finally going to play a role in dictating market/trading sentiment once again but that proved short-lived.
10-year Treasury yields broke below its April floor and moved towards 0.50% as 5-year yields hit a record low, but some days later we are now back in range once again.
That is leaving a lot to be desired still, with USD/JPY also experiencing a break under 105.00 only to see it correct back towards 107.00 in the past week.
The intraday movements in Treasuries are still pretty modest over the past few sessions but unless there is some firmer clues about a potential directional break, it is tough to see the bond market offering overbearing clues to investors for now.
US-China tensions still brewing
There is plenty going on with the US-China relationship these days but the number one thing to watch out for is whether or not any of the recent rise in tensions will lead to either side tearing apart the Phase One trade deal contract.
Yes, we all know that China isn't delivering on its end of the bargain on the deal.
But as far as market/risk sentiment goes, the facade or appearance that the deal is still in place matters much more as it means that there won't be a material - at least not so much - escalation in tensions between the two countries for now.
The recent spat on WeChat, TikTok is certainly something to watch out for but as long as both sides just stick to their guns and would rather get into a verbal argument, risk trades can take heart in that and march forward.
Not to mention that with the Chinese economy still recovering from the virus fallout and Trump eyeing the November election, both sides have vested interests not to shake things up too much in this whole ordeal - for now at least.
Coronavirus and the global economic impact
The global economy is recovering at a modest pace after bottoming out in April, with data showing much improvement from May to July. But how long can this pace be sustained? Will social distancing measures and restricted global travel cap the recovery?
Those remain key questions as we gauge the "new normal" across major economies.
Sure, things are getting better with time but how much "better" can things be when there are fears of a second wave brewing in many countries/regions once again?
The health crisis remains a key factor to keep an eye out for and in countries with less fiscal space to act, not addressing the virus situation will just lead to the economic and potentially financial crisis worsening in the coming months.
We have moved on from the first shock from the coronavirus earlier in the year but given how there are still many countries/regions struggling with the health crisis - and potentially more to come - this remains a spot worth watching just in case.
If anything, look towards the end of Q3 and Q4 for a better assessment on how the economic recovery is progressing. Should there be signs that the pace of the recovery is slowing down and headwinds are persisting, that could offer some resistance to risk assets.