Sunday's bombshell announcement that the FBI has closed its latest investigation into Hillary Clinton's emails, with no charges, has rocked world markets overnight with traders moving quickly to price a Clinton win back in.
A big relief rally is underway in world markets with capital flowing out of defensive havens and back into risk markets. US index futures are up 1.3%, with Dow futures pointing toward a 200+ point gain on the open today. Overseas, the FTSE, Nikkei and Dax have all gained 1.4%-1.6%.
In currency markets, the US dollar is back on top with traders speculation a Clinton win in November would be followed by a Fed rate hike in December. Gold is down 1.4% and back under $1,300. JPY, EUR and GBP are also down sharply. Resource currencies like CAD, NOK and AUD are holding their own boosted by a rally in commodity prices such as today's 1.7% gain in WTI Crude Oil. We could see another wave of renewed interest around 9:30 am EDT when US exchanges open.
This rally is giving me the feeling, however, of deja-vu all over again, to paraphrase Yogi Berra. Recall back in the spring during the Brexit campaign that traders had seen Leave gaining momentum and had started to price in a Leave win sending GBPUSD down toward $1.4000. Following the tragic assassination of MP Jo Cox a week before the vote, traders became overconfident that a Remain win was in the bag and drove Cable up to $1.5000. That late pre-vote spike sucked in a lot of people who were then caught totally offside and holding the bag with big losses when Leave won anyway and the Pound abruptly plunged into the $1.3000s. Then, as now, traders appeared to prefer the status quo over change.
This is still a really close race and there's no guarantee that Clinton will win, a lot of political damage has been done already by the ongoing questions about the Clinton's affairs and increased focus on the Clintons' associations with people like disgraced politician Anthony Weiner. One has to wonder if dragging out the Obama's and a litany of celebrities is a sign of strength or desperation, especially since it’s well known that Trump spent several seasons of his TV show firing celebrities for charity. Sunday's news may bring back some independents but is unlikely to cause Trump's committed supporters to waver. On the other hand, it looks like Latin voters are coming out for Clinton big time, but are they enough to tip the balance?
The FBI decision doesn't change the real October surprise, the huge increases in Obamacare premiums for many Americans, that had been shifting momentum back to Trump even before the FBI news broke. One of my big rules for investing is follow the dollar not the noise.
This vote looks like it's going to be really close, so whoever wins it's likely to be a surprise to many. Both sides spent time on the weekend in states that have been close for months like Florida, but they also spent a lot of time in states that have voted solidly Democrat lately like Pennsylvania and Michigan. Donald Trump even spent time Sunday in Minnesota which has voted Democrat for President in every election since 1976. The political fault lines appear to be shifting in what could end up being a generational realignment.
Because of the potential for a close race and even a contested result, complacency is particularly dangerous right now and traders need to be ready with a plan to take advantage of whatever happens. The next few days are a time of high risk, but also a time of high opportunity with the potential for high volatility and for potentially big swings in both directions.
There are no major corporate announcements overnight.
UK Halifax house prices 5.2% vs street 4.9%
Germany factory orders 2.6% vs street 3.5%
Upcoming significant economic announcements include:
There are no major announcements scheduled for North America today. The focus is all on the election.
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