Last week's US employment report, under normal circumstances, would have been largely seen as a broadly US dollar positive story but investors are more concerned about the prospect of a Trump presidency as the US election campaign reaches its conclusion this week.
Last week’s US employment report, under normal circumstances, would have been largely seen as a broadly US dollar positive story. Not only did it show that wage growth was starting to show signs of edging higher, coming in at 2.8%, but the headline payrolls number was good enough at 161k to more or less guarantee the prospect of a Fed rate rise in December.
That it didn’t was less because of the data and more to do with the fact that investors are more concerned about the prospect of a Trump presidency as the US election campaign reaches its conclusion this week.
That prospect looks much less likely now than it did on Friday after the FBI confirmed over the weekend that it had completed its review into its reopening of the inquiry into Hillary Clinton’s emails, 650,000 of which were found on the laptop of disgraced former Democratic congressman Anthony Weiner, who also happens to be the former husband of Hillary Clinton’s senior aide Huma Abedin. FBI director James Comey said the new emails didn’t change the FBI’s original conclusions in July, when they chose not to prosecute Mrs Clinton.
While the timing of Mrs Comey’s intervention is likely to be a welcome relief for Clinton, it hasn’t been received as enthusiastically by Trump supporters, who suggested that the FBI had caved to political pressure, probably on the basis of the speed that they arrived at the conclusion since the announcement on 28 October that the case was being looked at again.
Markets overnight appear to be pricing in this reaffirmation of the FBI position, as the US dollar rebounded and equity markets look likely to follow suit this morning, after both fell heavily last week on fears about the unknown quantity a Trump win would mean.
Last week’s uncertainty saw the S&P 500 post its longest daily losing streak in decades and European markets also fell heavily with the FTSE 100 in particular getting hit particularly hard, as a result of a double whammy of a heavy slide in crude oil prices, which suffered their worst weekly slide since January.
A record build in weekly inventories as well as another rise in the rig count weighed on oil prices along with reports, which were denied that Saudi Arabia had threatened to open the taps wide if Iran refused to cap its output at 4m barrels a day.
While today’s markets look set to open higher after this latest intervention from the FBI and the prospect of Hillary Clinton winning tomorrow has increased, it’s unlikely that Donald Trump will go quietly into the night if he loses, which means that investors are likely to remain cautious ahead of tomorrow’s finale.
Having come off the back of its best week since 2009 the pound will also remain in focus, despite last week’s High Court ruling as the political temperature around Brexit and any potential negotiations continues to remain high.
The risk of higher prices in the shops continues to dominate the headlines after Walkers Crisps and Birds Eye said they would have to look at raising prices by as much as 10%, or shrink packet sizes in lieu of the decline in the pound.
While shrinking packet sizes is nothing new to consumers, it’s been happening for years now, shrink-flation it’s called, it is unusual for food producers to announce it in advance, which might suggest that the recent furore surrounding Unilever may well have cut through to food manufacturers, amidst concerns they could be accused of potential price gouging or profiteering.
EURUSD – the euro closed up at the 1.1140 area but needs to clear the 200 day MA at 1.1180 to suggest a move higher. It seems likely any pullbacks should find support at the 1.1020 area as well as the 1.0950 area.
GBPUSD – the pound posted its best week in seven years against the US dollar last week pushing up to 1.2560 before slipping back over the weekend. The low prior to the flash crash was 1.2605 and it needs to overcome this level to suggest a move towards 1.2800. We have support back near the 1.2330 area while the main support still remains down at the recent lows around 1.2100.
EURGBP – last week’s slide below the 0.8950 area has seen us move down toward the 0.8850 area, and could take us all the way back towards 0.8780. A recovery back through the 0.8960 area is now needed for a return to the 0.9050 area.
USDJPY – last week’s sell off took us down to 102.54, and could see us fall towards the 101.20 level in the short term. We would need to see a recovery through the 104.30 area to mitigate this risk and argue for a retest of the 105.00 area.
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