There isn’t much in the way of economic news that could attract much attention in the glare of the big US vote but today’s China trade figures could capture some attention from traders. Last month, disappointing export figures dragged on markets and increased concerns about the health of China’s economy. Today’s trade figures could impact sentiment toward China sensitive markets again including not only stocks but also commodities like copper and crude oil plus resource currencies including AUD, NZD and CAD because China is such a big driver of resource demand trends.
All eyes this week are focused on US markets with the really big election coming up and results due during tomorrow’s Asia Pacific trading day. The big rally that kicked off with the weekend news that the FBI has no plans to press charges against Hillary Clinton related to her emails carried right through the European and US trading days.
Several days of steady declines last week had left stocks in an oversold position and due for the bounce, but today’s action was particularly strong with indices advancing through the day and closing near their highs, a reversal of the late day weakness that had indicated distribution last week.
It appears traders have taken the FBI news as an opportunity to price in a Clinton victory, favouring stability over change regardless which may be better for the nation. In addition to the rally in shares, defensive havens took it on the chin with gold, bonds and JPY all falling off sharply as capital flowed back into risk markets. The market is not a perfect predictor of politics, however, and overconfident traders could be in for a surprise.
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 convinced that a Remain win was in the bag and drove Cable up to $1.500. That late pre-vote spike sucked in a lot of people who were then caught totally offside and left holding the bag with big losses when Leave won anyway and the Pound abruptly plunged into the $1.3000s.
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 Clintons’ 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 have been no major announcements after the US close today.
Significant announcements released overnight include:
UK Halifax house prices 5.2% vs street 4.9%
Germany factory orders 2.6% vs street 3 5%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
TBA China trade balance street $51.7B vs previous $41.9B
TBA China exports street (6.0%) vs previous (10.0%)
TBA China imports street (1.0%) vs previous (1.9%
12:00 am GMT UK same store sales street 0.6%
7:00 am GMT Germany industrial production street 2.0%
9:30 am GMT UK industrial production street 0.8%
9:30 am GMT UK manufacturing production street (0.1%)
All day US Presidential Election
7:45 am EST FOMC Evans speaking
12:20 pm EST
8:15 am EST Canada housing starts street 195K vs previous 220K
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