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The end of Trumpism

By Marius-Cristian Frunza
Weekly Briefs

Donald Trump has suggested postponing November's presidential election, arguing that the postal voting could lead to fraud and inaccurate results. Such a decision should receive Congress's approval, but the likelihood that the Democrats back this idea is low. Biden, the Democrat candidate for the 2020 presidential election, is doing just fine in polls. Therefore, Democrats have no incentive to support delaying the vote. While President Trump's original ideas are not anymore a novelty,  this could be a small point from a bigger picture where Republicans lose both the presidential seat and the Senate.

Could this be the end of Trumpism? Could this event mark the end of America's leading role on the international scene?  What impact could we expect on financial markets?

Many business tycoons that supported Trump in 2016 are now going towards Biden for a straightforward reason. Businesses need first and foremost political stability and less scandal in the White House.  A strong US economy requires a President supported by his/her party and respected by his/her opponents. Moreover, the next President should be able to gather and reunite the country towards a common goal: post-pandemic recovery.

Needless to say that the end of Trumpism will challenge the US position on the international scene. We are witnessing a paradigm shift, where the US steps back from its historical role of sole global super-power. Good or bad, loved or hated, the US were since the fall of the Soviet Union, a reliable guarantor of the geopolitical equilibrium. Therefore, in a post-Trump era, we could observe an increasing turmoil in international relations, thereby leading to a regime of high volatility on the financial markets. High volatility is often synonym to an economic recession. Another consequence could be the de-dollarisation of world's economy. The Euro is already at its highest level since 2018 compared to the US dollar, and the trend should not change soon.

In a time of domestic crisis, men of goodwill and generosity should be able to unite regardless of party or politics.
John F. Kennedy

Market overview

Dow Jones, the leading US market index, had a very counterintuitive evolution in July. Social unrest, rebound of COVID cases and massive economic contraction in the second quarter seem not to hamper the stock market. Technology stocks are doing good, backed by the increasing profits of the leading Silicon Valley-based giants.

Does the stock market still have some agency?

In the short run, the answer is no. Low-interest rate, quantitative easing and hedge funds focused convertible bonds arbitrage are lifting the share prices. Monies are synthetic, so are shares' valuation.

Focus:

Kodak

Kodak's share went from an only few dollars to more than 50 USD in only few trading sessions.

Kodak had not much history until the company announced last Tuesday that the company had secured a $765m loan to produce chemical components which will be used in the fabrication of a remedy against COVID.  But this is most likely a bubble that could be short-lived.
The battle for treatment or vaccine to end the pandemic created several rallies. Most bubbles will explode because governments will choose only a few drugs.

COVID:

Pfizer going for the vaccine

Pharma giant Pfizer has begun an advanced trial of one of their experimental coronavirus vaccines on volunteers in the United States. The hopes related to this vaccine, fuelled Pfizer's share during July, despite hectic sales figures in the first semester.  The leading pharma companies are betting big on vaccines, and the investors seem to support them. Gilead, the leading producer of Redemsivir, is losing ground and its share lost more than 10% over the past two weeks.  

The big winner is Moderna, which started phase 3 of its vaccine testing. If successful, the vaccine will be Modera's first commercialized product.

Economy:

Germany faces contraction

Germany is the EU's industrial engine and the principal banker of the Southern and Eastern European countries. If the German economy faces distress, all Union member suffer.  Germany's GDP contracted by more than 11% in the second quarter amid the pandemic. The low demand impacted the German automotive industry particularly, and a foreseeable recovery should not be expected before 2022.

The future of the EU's economy has a lot of shades of grey. The Euro has a favourable position due to the de-dollarization trend, but it is not clear how the Brussels leaders plan to use this tactical advantage.

Cryptocurrencies:

Bitcoin is back

The US dollar is losing ground, central banks are printing money, and institutional investors start to believe that cryptocurrencies are not so bad. In fact, in 2020, everything that is scarce might have some value. Therefore, Bitcoin jumped last week directly above 11,000. Some technical sales may occur in the next days, but leading cryptocurrency should remain on a positive trend. More uncertainty in the traditional market means more momentum for Bitcoin.

Ether is also going through a good period as a result of the recent liquidity inflow in the cryptocurrencies market.

Market outlook

The Gold ounce consolidates its momentum, underlining that investors’ Gold rush is live. Both Bitcoin and Gold attract buyers with an increased appetite as they perceive these two assets as safe harbours. We expect to observe long term positive trend in Gold’s price. Bitcoin should have a similar pattern, but we could anticipate some swings, due to an increase in volatility after a significant period of relative silence.

The Dow Jones managed to remain above 26,000 and NASDAQ above 10,500 but some corrections could take place next week.


General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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