Daily News Letter 11/9/2020

The dollar hit a 10-week low on Monday as investors heralded Joe Biden's election as U.S. president by buying trade-exposed currencies on expectations that a calmer White House could boost world commerce and that monetary policy will remain easy.

Biden crossed the threshold of the 270 Electoral College votes required for victory on Saturday by winning the battleground state of Pennsylvania. Republicans appear to have retained control of the Senate, though the final makeup may not be clear until runoff votes in Georgia in January.

The prospect of more gridlock also means that expectations for a massive U.S. fiscal stimulus package have been lowered, which has sent bond yields down in anticipation of less borrowing and more quantitative easing from the Federal Reserve. The buoyant mood sent equities surging and the safe-haven Japanese yen slipped a fraction to 103.42 per dollar - just below an eight-month high made on Friday when the dip in U.S. yields deterred investment flows from Japan.

The yuan, particularly sensitive to the election outcome because of a perception that Biden will take a softer or more predictable line on China, was also boosted by strong Chinese trade data over the weekend to stand at 6.5758 per dollar.

Selling was held in check by underlying virus worries and because Donald Trump, the first incumbent to lose a re-election bid in 28 years, has made no sign of conceding while fighting legal battles to overturn the result. Traders are also wary of fresh lockdowns as coronavirus cases surge, with the global tally of infections topping 50 million on Sunday as cases in the United States surpassed 10 million.

He cited the possibility of fresh lockdowns in the United States or hoped-for European stimulus ultimately disappointing as major risks to the dollar's decline. Europe's fiscal and monetary responses to a second wave of coronavirus infections, which have already prompted new restrictions on everyday life, will be in focus when European Central Bank President Christine Lagarde speaks on Thursday.

Later on Monday are appearances from Bank of England Governor Andrew Bailey and chief economist Andy Haldane at 1035 GMT and 1400 GMT, where talk of negative rates is in focus. Dallas Fed President Robert Kaplan makes a speech at 2200 GMT. On Wednesday, the Reserve Bank of New Zealand meets, with expectations it will hold rates but lay the framework for going negative next year.

In emerging markets, the beaten-down Turkish lira rose more than 2% in the wake of the ouster of the central bank chief and the resignation of Turkey's finance minister over the weekend.

Investors retreated from the greenback over the expectation that a Biden administration would mean a steadier U.S. foreign policy and the continuation of a soft monetary policy, as announced by the Federal Reserve during the previous week. Biden won the state of Pennsylvania on Sunday, thereby obtaining the 270 electoral votes needed to win the election against incumbent president Donald Trump.

However, Trump is refusing to concede and continuing legal action to contest the result. Adding to the uncertainty is which party holds the Senate majority, with four races yet to declare winners, some investors warned that it was too early to say whether market volatility has finally calmed down.

However, some investors are betting on the Republicans retaining their majority in the Senate, boosting stocks but putting downward pressure on the greenback. Should their bets be correct, the divided Congress would create more work for the Federal Reserve as the Democrat agenda on taxes or regulations is thwarted.

Bank of England Governor Andrew Bailey and chief economist Andy Haldane are due to speak later in the day, with the focus squarely on negative rates. Dallas Fed President Robert Kaplan is also due to speak later in the day.

Oil rose toward $38 a barrel and gold climbed for a third day as President-elect Joe Biden prepared to transition into the White House even as Donald Trump rejected the outcome of the U.S. election. While Biden declared victory and prepared to navigate America’s pandemic-hit economy out of the crisis, the unresolved status of Senate control may dampen prospects for a major stimulus package before January.

Meanwhile, Trump’s campaign team mounted lawsuits in key states after alleging election fraud. Biden inherits a divided country and an economy ravaged by the coronavirus as infections race toward 10 million. Already, a second wave of Covid-19 has led to lockdowns across. Europe, fueling concerns over a slowdown in a global oil-demand recovery amid rising crude supplies from Libya.

Officials from the Organization of Petroleum Exporting Countries and allied producers offered support for a review and delay in the group’s plans to roll-back output curbs, lifting oil prices last week. Investors are assessing the implications of Biden’s leadership on U.S. foreign policy and its stance toward China and key oil producers Iran and Venezuela.

A potential U-turn from Trump’s combative “America First” approach could bring improved relations with allies and China. Biden has also pledged a range of first-day actions once inaugurated, including rejoining the Paris climate accord. In the physical crude market, traders were keeping close tabs on Libyan production after state-run National Oil Corp.

reported Saturday that output now exceeds the million-barrel-a-day level -- the most since December. Incremental production from the African nation comes as Brent’s 3-month timespread remains firmly in contango, where prompt prices are cheaper than later-dated ones, a market structure that signals oversupply.

In Asia, foreign oil purchases by China slumped to a six-month low last month amid lower seasonal demand, even as overall imports are seen rising 10% this year as its economy continues to show strong signs of recovery. The region remains a bulwark against faltering oil demand worldwide as the virus spreads unabated across the U.S. and Europe, spurring more stay-home measures.

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