Market Overview

2 October 2020

Gold Spikes and Stocks Shrink as Trump Tested Positive for Corona

Gold prices prudently jumped above $1915 per troy ounce at the very beginning of the European morning trade, as many on the market decided to keep their investments out of harm's way. It happened just as an immediate response when U.S. President Donald Trump tweeted that he and the first lady of America tested positive for the coronavirus. "We will begin our quarantine and recovery process immediately. We will get through this TOGETHER!" he shared with his social network followers. It comes after Hope Hicks, one of his closest aides, was tested positive. 

The White House representatives officially confirmed the information later, but Mr Trump was last seen by reporters returning to the White House on Thursday evening and "did not appear visibly ill", according to the Associated Press. Shon Conley, the president’s personal physician since May 2018 and a US navy veteran also known as the doctor who acceded to Donald Trump's request to be given the drug hydroxychloroquine, which proved that it cannot be used as a precaution against the virus, said in a memo that Trump, who is 74, and Melania, who is 50, “are both well at this time” and “plan to remain at home within the White House during their convalescence.” He added the president is expected to continue carrying out his duties “without disruption” while recovering. 

Yes, Mr Trump is not the first world leader to have tested positive. Boris Johnson, the U.K. Prime Minister, and Jair Bolsonaro, the President of Brazil, were infected. Both of them have recovered, but Mr Johnson had to receive regular oxygen treatment for about a week to help his breathing. But of course, Trump's age is putting him, at least formally, at a higher risk of serious complications from the coronavirus. The news seems to bathe the country of the United States even deeper into uncertainty just a month before the presidential election. Even if Trump develops no symptoms, the situation forces him to cancel campaign meetings. It is not clear how Mr Trump's positive test will affect arrangements for the second presidential debate, which is scheduled for October 15 in Miami, Florida, probably a crucial state for a presidential race. 

The vice president, Mike Pence, and his aides had no immediate comment on whether the vice president had been tested or if he had been in close  contact with Trump. Pence was also planning to participate in the debates for vice presidents vs Kamala Harris in the near future. There was no immediate comment from the Biden campaign too on whether Joe Biden had been tested since appearing at the debate with Trump or whether he was following any additional safety protocols. 

Another point of tenderness for Donald Trump is that his rival, Joe Biden, regularly wears a mask in public, something Trump mocked him for during Tuesday night’s debate. "Are you questioning the efficacy of masks?" the moderator of discussion asked Trump. "No, I think masks are okay... I mean, I have a mask right here. I put a mask on when I think I need it... When needed, I wear masks... I don’t wear masks like him,” Trump said of Biden. “Every time you see him, he’s got a mask. He could be speaking two hundred feet away from me, and he shows up with the biggest mask I’ve ever seen.” Some of Mr Trump's family members who attended the debate were seen not wearing masks too, although they kept an appropriate distance from other people. 

So, the very fact of getting infected somewhat undermines Trump's position in this regard, while many investors could feel that a possible second term for Donald Trump would lessen the potential sum of risks for the market in the long-term. Despite the so-called trade war with China, the markets performed an impressive rally in the first three years of Trump's presidency, before the viral collapse, and the major composite indexes even climbed quite well in course of the economic recovery. In case of another win by Donald Trump, another four year of his presidency could add more habitual attributes to the market movements. 

The European stocks opened today on the negative territory but then bounced almost to yesterday's closing prices. So far, the U.S. S&P500 broad market index has not fallen deep below 3,300 points on the news, as expectations for the profitability of the world's leading companies are still high, and markets are doubting whether they need to sell off profitable papers just on the first information on Donald Trump's COVID-19 test. But it may be incorrect to rule out any options at this stage of digesting all the risks vs weighing other fundamentals. A slide of the S&P500 index down to the area of 3250 or even under 3200 points landmark bottom of a powerful technical correction, which already happened in September, is still a possible scenario. But that is not a given move, just one of the chances, so even a very slow price recovery is still a possible option for the averaged stock assets. 

There has been more and more nervousness in the markets over the last few weeks. Many investors were very disappointed with the very nature of the presidential debate, where rivals interrupted each other's words many times, slung mud at each other and practiced a lot of their abusive vocabulary. There were a lot of hopes for direct talks on a stimulus bill between the White House's financial minister Steven Mnuchin and the House Speaker Nancy Pelosi this week, and the S&P500 index was almost near 3400 points just at the start of their meeting. The White House offered Pelosi a $1.6 trillion package against Democrats' $2.2 trillion proposal. 

The Republican's counter-offer included $400 a week in additional unemployment insurance, and it was less than the $600 the Democrats requested. The stimulus bill would also include the subsidies for the airline industry to stop a wave of layoffs as the aviators pledged to reverse the cuts if Congress agreed to roll out aid. But Mrs Pelosi showed somewhat of a subtle, optimistic approach: "This isn't half a loaf. What they're offering is the heel of the loaf," Pelosi said in a Bloomberg TV interview. Yet, probably the majority of the market is still feeling that they will both find a compromised solution after all as it is difficult for both sides to explain to the electorate why they cannot agree, at least, on an intermediate sum for the bill instead of the prospect of blocking any aid to the American people and businesses that are financially suffering at the moment. 

This maybe the main reason why the biggest companies in the tech sector such as Apple, Microsoft, Google, Amazon and Facebook pushed the broader market higher on Thursday before the viral test information from Trump, as together these companies make up a quarter of the weight of the total S&P 500 capitalisation. 

As for the foreign exchange market, it seems that major currencies have not yet decided whether to "vote" for the U.S. Dollar now as it could play the role of a protective asset in such a situation, or whether it is better to stay away from the Greenback because of the whipping up of pre-election hysteria in the United States. The U.S. political system already has a big potential problem this year with a possible rejection of the voting results, which may be followed by lasting recounting of absentee ballots by mail. But now a new headache has arrived.

 

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