Asia-Pacific shares have been boosted by a landmark free trade deal in the region signed on Sunday 15 November. The Regional Comprehensive Economic Partnership (RCEP) has been agreed among 15 countries including China, South Korea, Japan, and Australia. The deal is being termed by leaders as a major step towards multiculturalism and free trade in the region and has been signed after nearly 8 years of negotiations. Equity markets, already buoyed by positive vaccine news, have welcomed this development. The MSCI Asia Pacific Index is up 8% month-to-date (as of 16 November) in USD while the S&P China 500 Index is up over 4%, also in USD over the same period.

The CBOE Volatility Index (VIX) futures curve was expecting volatility to come down in November since before the US elections. Market optimism since the announcement of Pfizer and BioNTech Covid-19 vaccine has accelerated the expected decline in volatility. As of 16 November, VIX Index was around 23.6 compared to around 40 in the final week of October.

Key events on the calendar this week are as follows:

 
• Tuesday 17 November 2020                     US industrial production (Oct)

 
• Wednesday 18 November 2020                UK inflation (Oct)

 
• Wednesday 18 November 2020                Eurozone Inflation (Oct)

 
• Friday 20 November 2020                         Eurozone Consumer Confidence (Nov)

After a pullback in September, commodities regained their mojo in October posting a 1.4% gain on the Bloomberg Commodity Index. However, the performance was not equally distributed: agricultural commodities and industrial metals pulled all the weight, while energy, precious metals and livestock were a drag on performance. Most commodities witnessed a drawdown in the final week of the month as a cyclical sell-off affected the asset class. However, commodities fared better than equities during that selloff. Rising cases of COVID-19 and renewed lockdown measurements in various parts of the globe have led to fears about another knock to demand.

 
The October edition of WisdomTree’ s commodity monthly monitor can be found here.

Equities are making strong gains month-to-date in November as US election uncertainty looming over markets in October has now dissipated. Risk assets were boosted on Monday 09 November on the announcement of Pfizer and BioNTech Covid-19 vaccine. As of 10 November, the MSCI World Index is up over 9% (in USD), S&P 500 Index is up over 8.5% (in USD), Euro Stoxx 50 Index is up 15.2% (in EUR), and UK’s FTSE 100 Index up almost 11% (in GBP). 

S&L Investors closed out their long positions in gold, silver, and natural gas. S&L investors closed their 3x leveraged long positions in gold and silver in October. The two precious metals remained under pressure last month and prices generally moved sideways as broader market volatility ahead of US elections kept prices across risk and defensive assets in check. S&L investors also closed 2x and 3x leveraged natural gas positions possibly to lock in profits. Natural gas bucked the trend among energy commodities last month and experienced a strong price rally as hurricanes in the Gulf of Mexico caused production facilities to shut. Further support came from expectations of higher residential heating demand in the US between October and March.

 
The October edition of WisdomTree’ s short and leveraged global exchange traded product (ETP) flows report can be found here.

Key events on the calendar this week are as follows:

 
• Wednesday 11 November 2020   UK GDP (Q3)

 
• Thursday 12 November 2020   Germany inflation (Oct)

 
• Thursday 12 November 2020   US inflation (Oct)

 
Note: GDP stands for gross domestic product.

Yesterday (Monday 9th November), news of a potential vaccine for COVID-19 spurred a risk rally across equities and oil while gold and silver experienced sharp declines. Today, oil prices are still trading higher as fears of demand destruction that had held back the oil complex over the past month are subsiding. Gold and silver, on the other hand, are starting to reverse some of their losses. Yesterday’s moves are likely to have been overdone for these metals. On Friday 6th November, it looked like gold was outpacing other defensive assets like US Treasuries, but on Monday 9th November, with the sell-off in gold, gold looked under-priced relative to Treasuries. If Treasuries are the benchmark, gold has further to catch up. We believe silver will inevitably move in gold’s slipstream. We don’t think that the news of the vaccine changes the immediate challenge for central banks and the fiscal institutions. The period of monetary largess is still likely to take form which we believe is gold price positive.

 
If the vaccine is capable of speeding up the process of easing lockdown conditions, we believe it should have a beneficial impact on oil demand. However, we doubt the availability of the vaccine on a mass basis in the immediate future. Therefore, the pressure on the Organisation for Petroleum Exporting Countries (OPEC) to act and continue to tighten supply is still there. Their policy meeting at the end of this month will be a key time to demonstrate this.

With markets heading into risk-off mode again following renewed COVID-19 related lockdowns in Europe and elsewhere, gold’s defensive traits are being tested again. Just like in March 2020, gold’s initial reaction was down as the metal got caught up in investors’ de-risking and facing selling pressure as investors liquidate their holdings to meet margin requirements on other positions. However, gold is already showing signs of an uptick and we believe closely correlated silver will move up in its slipstream.

Oil prices are facing headwinds as the prospect of demand improving in the near-term looks slim in the wake of rising virus cases worldwide. Brent and WTI (West Texas Intermediate) oil prices were down over 11% in October. In contrast, natural gas prices were up over 32% over the same period as a cooler than expected October has created higher natural gas demand for heating in the US. Natural gas is a cyclical commodity and typically sees its demand rise during the US winter for heating purposes. Natural gas prices have recently bounced back from a 25-year low earlier in June.