Dollar Mixed, Markets Quiet Ahead of US Elections

Usa - United States flag in speech bubble. marc

  • While all eyes are on the US elections, Asian markets will likely bear the brunt of any related market moves
  • Germany and the UK reported weaker than expected September IP
  • During the North America session, the US reports minor data
  • China reported weaker than expected October trade; KRW is outperforming despite news that Samsung has been caught up in the ongoing scandal

The dollar is mixed against the majors ahead of the US elections. The Scandies are outperforming while the Aussie and the Swiss franc are underperforming. EM currencies are mixed. KRW and MYR are outperforming, while TRY and RUB are underperforming. TRY made another all-time low near 3.1855 today. MSCI Asia Pacific was up 0.4%, with the Nikkei flat. MSCI EM is up 0.7%, with Chinese markets rising 0.4%. Euro Stoxx 600 is flat near midday, while S&P futures are pointing to a lower open. The 10-year UST yield is down 1 bp at 1.81%. Commodity prices are mostly higher, with Brent oil up 0.6%, copper down 0.8%, and gold up 0.2%.

US polls open shortly. Markets seem increasingly confident of a Clinton victory, with equities mostly higher today and the Mexican peso hanging on to its recent gains. We suspect activity will remain subdued during the North American session, with Asia likely to see the most election-related action tonight.

We identify the key swing states as Florida (29 Electoral College votes), Pennsylvania (20), North Carolina (15), Virginia (13), Georgia (16), Michigan (16), and Ohio (18). We believe early outcomes in the Eastern swing states could allow us to infer Trump’s chances overall. Of these 7 swing states, all but two of them (Georgia and North Carolina) voted for Obama in 2012. Real Clear Politics has all 7 as “Toss Ups.” Florida with 29 Electoral College votes is key.

Trump has to win close to a clean sweep of these swing states in order to get the 270 Electoral College votes needed to win, and so any early failures will set the tone. The polls will close at 7 PM ET in Georgia and Virginia, 730 PM ET in North Carolina and Ohio, and 8 PM ET in Pennsylvania. Florida has two time zones, so polls will close at 7 and 8 PM ET. So too does Michigan, and so polls will close at 8 and 9 PM ET.

Some of the battleground states could be called as early as between 8 and 9 PM ET if early results show a clear win by either candidate. If these races are a close call, however, then the winner might not be called until 10 or 11 PM ET. Either way, Asian markets will bear the brunt of any big market moves as a result of the elections.

Germany reported September IP. It was much weaker than expected, -1.8% m/m vs. -0.5% consensus. German also reported September trade and current account data. The former was larger than expected at EUR24.4 bln, while the latter was smaller than expected at EUR24.2 bln. Exports contracted -0.7% m/m, while imports contracted -0.5% m/m.

The UK also reported September IP. It was weaker than expected, -0.4% m/m vs. flat consensus. Manufacturing was firmer than expected, however, rising 0.6% m/m vs. 0.4% expected. Later, BOE Chief Economist Haldane speaks.

During the North America session, the US reports minor data. NFIB small business optimism for October and JOLTS job openings for September will come out. Canada reports October housing starts and September building permits. The only Fed speaker scheduled for today is Evans, who is not a voting member of the FOMC this year, but will be in 2017.

China reported weaker than expected October trade data. Exports had been expected to contract -6% y/y but instead came in at -7.3% y/y. Imports had been expected to contract -1% y/y but came in at -1.4% y/y. It’s worth noting that Finance Minister Lou Jiwei was replaced by Xiao Jie. Some believe this move heralds a more expansive fiscal stance, as Lou worked on limiting spending even as the economy slowed.

The Korean won is outperforming despite news that Samsung has been caught up in the ongoing scandal. Prosecutors raided the company’s offices searching for evidence that it provided illegal gifts to presidential confidante Choi as part of the influence-peddling scandal. Indeed, Samsung shares ended up 0.2% even as the KOSPI rose 0.3% so for now, Korean assets are not reacting to the widening probe. This outperformance will be hard to sustain.