As 2019 drew to a close, futures market participants began looking ahead to the busy calendar of 2020. A conclusion to impeachment proceedings against Donald J. Trump, a resolution to the U.S./China trade war, and a hotly contested presidential primary season highlighted early 2020’s docket. These three issues were perceived to be game changers, but each took a backseat to the coronavirus (COVID-19) outbreak.
Going into Q2 2020, there are more fundamental questions than answers. Let’s take a look at three issues that you’ll need to stay on top of until the end of the year.
1. Coronavirus Outbreak
The COVID-19 outbreak is one of the largest financial stories in recent history. Declared a pandemic by the World Health Organization (WHO) in March 2020, COVID-19 brought a swift correction to U.S. equities and a mass exodus to safe-haven assets.
It’s impossible to predict the final outcome of the COVID-19 saga. Massive funds have been committed to fight the disease, yet its eventual reach has yet to be quantified. In the event that coronavirus fallout is worse than expected, safe havens are likely to perform well. Shrinking GDP growth and lagging corporate earnings could also be catalysts for recession.
2. Monetary Policy
One result of the coronavirus outbreak was aggressive action from the U.S Federal Reserve (FED). On March 3, 2020, the FED instituted an “emergency” rate cut of ½ point. In addition, another ¼- or ½-point cut was expected at the FOMC’s scheduled March 18 meeting. Given the FED’s exceedingly dovish tone, central banks around the world quickly followed suit and began cutting lending rates.
FED policy is always a key fundamental driver of the futures market. However, it will be even more important as the U.S. attempts to avoid a post-coronavirus recession. The Federal Funds Target Rate is already at historic lows, which raises the possibility that the FED may adopt a negative rate policy or other forms of aggressive quantitative easing. Given the unprecedented nature of the COVID-19 outbreak, anything is possible.
3. The 2020 Presidential Election
Before the coronavirus outbreak and FED rate cuts, most participants in the futures market expected fireworks to surround the 2020 U.S. Presidential election. Donald J. Trump will be the first incumbent to run for re-election after being formally impeached. Although traders can’t predict the vote’s final tally, volatility is expected in the lead up to and the days following Election Day 2020.
If the futures market learned anything from 2016, it was that polling data is largely unreliable. Going into the 2020 election, traders will instead focus on two big questions from the Democratic side of the ledger:
- Which candidate? The 3 March “Super Tuesday” primaries brought a groundswell of support for centrist Democratic candidate Joe Biden. Following this outcome, many traders bid the equities indices based on their belief that Biden would on the November ballot. Should this dynamic shift, further market volatility is expected.
- A brokered convention? One of the scenarios being discussed in political circles is the possibility of a brokered convention. If Biden doesn’t capture enough delegates during the primaries to win the nomination outright, the convention (July 13 to 16) could end up being brokered. Short-term volatility is likely to sweep through equities and safe-haven products as a result.
Need Help Staying on Top of Futures Market Fundamentals?
This is turning out to be a historic year in finance. The COVID-19 outbreak, aggressively dovish FED, and U.S. electoral cycle are certain to have profound impacts on the markets.
A great way to stay on the cutting edge of the futures market is to consult Daniels Trading’s Insider Market Advisory. Featuring timely analysis, price outlooks, and actionable trade ideas, the Insider Market Advisory is a valuable resource for any trader active in 2020. Sign up for your free two-week trial today.
