• Joel

Trump catches Covid! Here's how markets reacted

At 0554BST/0054EDT, US President Trump tweeted that him and Melania, the first lady, had tested positive for Covid-19.

The market, which was already in a somewhat risk off mood given the failure of US fiscal stimulus talks between US House Speaker Pelosi and Treasury Secretary Mnuchin yesterday evening, reacted immediately to the news with risk off flows;

S&P 500 futures immediately dropped to just above 3300 from previous levels above 3360 (they have now recovered to around 3340). Other US indices and global stocks were also hit.

Global commodity markets were also hit, aside from Gold, which immediately rallied back above $1900, where it continues to trade right now.

Facilitating the gold rally was an immediate bout of USD weakness; indeed, US political uncertainty (a USD negative) has now been taken a notch higher. We were already having to worry about the prospect of a contested election and not knowing who was going to be President for weeks after the contest should have yielded a result.

But now we have to contend with the worry that one of the candidates, the sitting President of the USA, might get seriously ill and even die (Trump is in a high risk category given that he is overweight and in his mid-70s). What would happen then? VP Pence to become President right as the election takes place? Would Pence then be on the ticket vs Biden?

It should be noted that Trump dying is still unlikely, despite him being in the at risk category, given that over the past 6-7 months, treatment has drastically improved (Remdesivir, steroids etc are all now understood to reduce the mortality rate).

Note also that if Trump gets seriously ill, he might not be able to participate in the Presidential Debates. A spanner truly has been thrown in the works here!

Anyway, back to the market reaction;

In FX, the big winner therefore was not USD, where DXY was knocked from overnight highs above 94.00 to trade back around 93.80. The winner was JPY; USDJPY shot lower on the news, touching 105.00 briefly from overnight levels around 105.60.

Amid the broad theme of risk off flows, typically risk sensitive currencies like AUD, NZD and CAD were have underperformed. 


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