Stock markets sold off to start the week with European indices getting particularly hammered. The Dax
fell 2.0% as Deutsche Bank fell 7.4% on the day. US indices, meanwhile, lost 0.8% on indications the US election race may be a lot closer than has been priced in so far.
Over the weekend German Chancellor Merkel indicated she opposes bailing out German banks raising particular concerns about Deutsche Bank from whom the US Justice department is seeking $14 billion in fines. I don't think the US government is interested in starting another global banking crisis and some kind of deal will be reached eventually that leaves the bank intact but this reminds the street of the precarious position of banks in Europe, particularly Italian banks.
Oil bounced right back from Friday’s decline as the big oil conference in Algeria got started with the main focus on side discussions between OPEC producers and Russia over how to stabilize the market and manage production.
With Iran, Libya and Nigeria still looking to restore lost production, the main focus for cuts has been on Saudi Arabia. The Saudis have been sending mixed messages. On Friday the Saudis suggested we probably would not get a deal this week but the foundation could be laid for further discussions later this year, sending oil down sharply. Monday oil bounced right back, with Brent and WTI gaining over 3% after Saudi Arabia suggested over the weekend it would be willing to cut production to January levels. Traders started to see the potential that these talks could lay the foundation for a deal at the next OPEC meeting on November 30th as a potential positive.
Anything can happen over the next few days and there's a lot of attention on these meetings so we may continue to see significant intraday swings
in oil potentially in both directions over the course of this week. This could also impact trading in energy stocks plus oil sensitive currencies like CAD, NOK, RUB and MXN.
MXN along with US stocks may also be impacted by tonight's first US Presidential Debate. Latest polls have the race as a dead heat with Hillary Clinton's lead over Donald Trump having dwindled from double digits to nothing over the summer. The Mexican Peso has reflected this shift weakening dramatically relative to USD over Mr. Trumps antagonistic policies toward Mexico. The Republican candidate’s hostility toward trade deals in general may also be dragging on CAD since the Loonie fell despite a big rally in oil prices.
Stock markets, on the other hand have completely ignored the possibility of a Trump victory. Although the VIX rose slightly on the day, it still remains below 15, close to the bottom of this year’s 11 to 26 range and clearly reflecting a lot of complacency about the election. Markets were also dead wrong about Brexit and therefore are vulnerable to a surprise readjustment. Should Ms. Clinton fail to slam the door tonight, political uncertainty in the US could have an increasing impact on trading over the next six weeks and exacerbate usual seasonal volatility.
It’s a very quiet day for Asia Pacific news with China industrial profits the only scheduled report of note. JPY has been strengthening again Because of this, today’s trading may be impacted more by political factors and the US debate which starts at 11:00 am AEST.
There have been no major corporate announcements after the US close today
Significant announcements released overnight include:
US new home sales 609K vs street 600K
US Dallas Fed (3.7) vs street (3.0) vs previous (6.2)
Germany IFO business climate 109.5 vs street 106.3
Germany IFO current assessment 114.7 vs street 112.9
Germany IFO expectations 104.5 vs street 100.1
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)
9:00 pm EDT US First Presidential Debate: Clinton vs Trump
7:00 pm EDT Bank of Canada Poloz speaking
11:30 am AEST China industrial profits previous 11.0%
8:30 am BST Sweden producer prices previous (1.1%)
8:30 am BST Sweden trade balance previous SEK 0.5B
8:30 am BST Sweden retail sales street 3.7% vs previous 1.1%
9:00 am BST Riksbank Ingves, Jansson speaking
9:00 am BST Italy industrial orders previous (4.2%)
9:30 am BST UK CBI sales street 5 vs previous 9
9:45 am EDT US Markit flash service PMI street 51.2
10:00 am EDT US consumer confidence street 99.0
10:00 am EDT US Richmond Fed (2) vs previous (11)
11:15 am EDT FOMC Fischer speaking
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