An unremarkable US vice-presidential debate is passing through asset markets with little fuss, and the “Blue Wave” continues to roll – Stock Market Analysis Today: Markets not fussed over US vice presidential debate.
The prospect of the Democrats sweeping all three levels of government continues to support stock markets in the run-up to the election day. If it happens, it would put the Democrats in a position to all but a rubberstamp an energetic fiscal stimulus bill while lavishing the country with significant investment in health care, education, and infrastructure.
The only way traders will shift from this bias is if Trump recovers in the polls and would hurt reflation trades.
A progressively priced-in Biden presidency and Democratic sweep of Congress via prediction markets have driven reflation trades over the past week, encapsulated by steepening in the US Treasury curve and higher stock markets.
The market’s non-fussed reaction to today’s televised debated suggests that the real debate about what is in the market price seems to be moving well past the November election, as expectations for a Democratic ‘blue wave” grows.
And if I am not mistaken, a large element of the market seems to think the election is a foregone conclusion. It is not prudent to draw that assumption so early, mind you. Still, the truth is playing out in the market regime shift repricing via higher stocks.
The tweet that was heard worldwide hinting that Trump remains open to skinny stimulus deals rebooted the market back on its upward path. The kick-start was given a further impulse when Speaker Pelosi signalled that she too would be available to some form of partial measures, notably for the airline industry.
Anyway, it looks like stocks are happy to play the waiting game stimulus is coming at some point in time. Ultimately, the market seems to have settled on the idea that a Biden win is bullish stocks.
China adjusts reserves: buys more Japanese bonds
According to figures from Japan’s Ministry of Finance and the Bank of Japan, China has bought JPY1.46 trillion in medium- to long-term JGBs from April to July this year, 3.6x the amount the previous year, the Nikkei reports.
China may be channelling some of its vast US Treasury holdings into JGBs, to reap greater yields on its massive reserves. Though the 10y JGB yield trades around 0%, by swapping JPY to USD, the yield rises to ~1.25%, compared to the current 0.78% yield of 10y UST.
Amid reports that Saudi Arabia is poised to return to its strategy earlier this year of ramping up oil production, the proof appears to be in the pudding with industry watchers reporting a significant increase in flaring across the peninsula.
The satellite data tracks anything hotter than 315°C (600°F), which is used as a proxy for oil production and points to a sharp increase over the past few weeks.
Should the market be concerned, eventually, but not today, there are too may stimulus tickets being processed today.
The US dollar is mostly steady against G10 FX, although the recent underperformance of the JPY may extend is US yields continue to rise as expected.
The British Pound
Choppy headline-driven price action persists in the GBPUSD. Given the back and forth rhetoric on Brexit as negotiations continue, headlines that the UK plans to walk away from talks if no deal is seen by Oct. 15 lead to another selloff in GBP.
However, later a more optimistic tone re-emerged, and GBP recouped some of its earlier losses.
Euro remains range-bound
EURUSD remains somewhat range-bound on the back of the US fiscal stimulus confusion. Still, the pair continues to be driven by US politics and broader risk sentiment to an extent suggesting we could push higher, but with limited legs due to EU problems of their own in the form of absentee inflation.
Stock Market Analysis Today: Markets not fussed over US vice presidential debate.