The final US presidential debate
The final US presidential debate was less chaotic than the first but has not caused much of a stir as it offered little in the way of new information that could shift the results of the election in the market’s view – Stock Market Analysis Today: Final presidential debate offers little for markets.
Over the past five days, the cross-asset price action paints a clearer picture of what a Democratic sweep scenario means. Equities lower on the prospect of higher corporate taxes, yield curve bear steepening on higher fiscal deficit spending, US dollar down on the reflationary impulse and less geopolitical risk.
But before boarding the cash boats, investors need to fight off the mind games as they continue to ask themselves if they are too cautious ahead of the US election.
Joe Biden’s clear lead in the polls has forced them to consider whether they may miss the move if they wait any longer. The market always seems to go to the maximum point of pain before that realisation set in.
But I am not sure if we have hit the threshold or not, which would be a fair bit above SPX 3500 before the FOMO chase happens.
There is, however, a good reason for caution. Markets are pricing plenty of uncertainty around the outcome after election day, and who knows where the pools will be next week, which could be a massive game-changer for markets.
With so much political uncertainty clouding the view, which is being obfuscated by the Covid-19 haze, European equity futures are flat in early trading.
Risk of contested US election results rises
The risk of a contested US election edged higher on the disclosure by John Ratcliffe, the US director of national intelligence, of evidence of possible foreign interference in the upcoming US election.
The “risk-off” vice of a contested election had dwindled in the last couple of weeks alongside the Democrats’ continued strong showing in polls.
These headlines pushed the risk of a contested outcome back onto the market radar. It halted the race for Blue Wave short dollar positioning.
The Euro – Stock Market Analysis Today
European equities’ sombre mood should continue to put a lid on this week’s rally in EURUSD. Much of the news flow out of Europe remains familiar and concerning. Germany and Italy recorded another record day of new COVID-19 cases.
But just as worrying for the Euro were gnarly economic signals out of European data overnight. The French INSEE survey for October was down 2pts, weaker than expected.
The flash estimate for euro area consumer confidence in October was weaker-than-expected, suggesting the rebound observed over the past few months might have come to a halt.
Do not forget the European Central Bank (ECB) is on tap next week. And with Covid-19 cases and activity restrictions rising, the ECB could start hinting at further policy stimulus in December.
We get data out of Europe that could help shape the path forward for the board – advanced PMI today could be a critical tradable event, as will next week’s GDP data.
Pound drifts a little – Stock Market Analysis Today
GBPUSD drifted off a touch with the US dollar broadly trading a little firmer. There may be a little bit consolidation in the coming sessions as the US election draws near, and as such, the dollar may return to the driver’s seat.
Choppy session for the Australian Dollar
AUDUSD price action has been a little choppy in Asia today. The pair initially caught a bid on the open in equities futures, although supply emerged ahead of the resistance into 0.7145/50. As the US dollar regained some strength, AUDUSD drifted back down through 0.7110.
The Chinese Yuan + Asia FX – Stock Market Analysis Today
China regulators stepped into the Yuan debate today. SAFE said in a statement earlier that the Yuan is more stable than expected, with a relatively high degree of flexibility. SAFE expects the Yuan to fluctuate around a reasonably balanced level and said that regulators would monitor inbound and outbound capital flows.
USD/Asia vols have come off the highs, with USDCNH 1y 0.15 vol lower from 6.725 to 6.575 vol. As expected, it seems like there is a decent supply in CNH vols at these levels via vol swaps. On this move higher in USD/Asia, we have seen some renewed interest to put on fresh USD/Asia downside in CNH and KRW.
Gold losing safe-haven appeal to US dollar
With the US dollar hogging the “safe-haven” limelight so far, gold has become a bit of an afterthought, but I do not think it will take much to shift the market into overdrive.
Stock Market Analysis Today: Final presidential debate offers little for markets