Data for the week would not be particularly inflationary or deflationary, besides the strong selloff in energy prices due to the European coronavirus lockdowns.
It is all eyes on the US election this week in a bizarre set of circumstances in which, as we see below, the polling data clearly favours a Biden victory. But…
..new-voter registrations, crowd sizes and voter energy is clearly in favour of a Donald Trump re-election. Finally the mail-in ballot numbers — which have been enormous — favour a Biden win.
So is it possible for the Don to Trump Joe Biden on Tuesday? He did it with Hillary Clinton, right?
Although it was inconceivable that Trump could beat Hillary and did, the difference at the time on polling was a tiny 3 points compared to an average of 7.2 points to Biden at the time of writing. A Republican win from these numbers would be unprecedented.
One aspect of voting that does need to be considered is a phenomenon that has turned up in the 2016 election as well as Australia, Brexit and the UK General Elections. This has been a polling bias against the left-wing that is probably worth a few points in the U.S. election.
Whatever the result is, it seems likely that it could be contested, with Morgan Stanley showing a 65% chance of not seeing a clear result on election night.
This is probably responsible for the sale of risk last week into an environment likely to be low on liquidity. Markets could be soft going into the election.
After the result, we expect that liquidity will take a couple of days to return to normal and a return to zombie markets the week after in the case of a clear election result. This would promote the deflationary scenario where a fiscal stimulus bill may not be announced until the new year. The potential for this deflationary scenario combined with low liquidity could mean that we see some moves.
If there is a clear result it will be a surprise and markets could also respond well to that in a risk-on and inflationary fashion. Again, liquidity could come back slowly and take a couple of days.
Bitcoin has begun a secular bull-run, taking the wind out of digital asset markets. After months of talk about institutional buying of the asset and several specific announcements of it, bitcoin has traded at $14k and even looks like it has the potential to slip higher again.
Although this has initially been at the cost of other digital assets, bitcoin trading higher is always bullish for the entire digital asset space long-term.
Institutional investors who are interested in bitcoin will naturally begin looking at other digital assets. As it has been for so many before it, Bitcoin is the gateway drug to the whole space.
BTC/USD Chart: Daily
Volumes are not particularly high yet for bitcoin.
Sentiment is into greed, although is not yet stratospheric.
USD has been bid during the bitcoin bull-run while gold has been weak. Although the relationship had been a weaker USD and a stronger gold, there has been some break-down of relationships recently.