Markets Hedging Against Possible Trump Win

November 2, 2016

U.S. opinion polls indicate a considerably tighter race between Trump and Clinton. International investors are extremely worried about a Trump presidency. Some people are withdrawing cash just in case. Best scenario may be a narrow Clinton victory, continuing Republican control of Congress, stalemated governance in Washington, and the uncertainty of what the Clinton emails might reveal.

But the expectation persists that the federal funds rate will be hiked in December and that today’s FOMC statement will corroborate such speculation. PMI manufacturing data provided further economic reasons for the Fed to act.

In these circumstances, the dollar is not enjoying its usual safe haven allure in times of uncertainty. The yen is filling in. The dollar lost 1.5% against the kiwi, 0.7% relative to the yen, 0.6% versus sterling, 0.3% relative to the Swiss franc and euro, 0.2% against the Australian dollar and 0.1% vis-a-vis the yuan and loonie.

Share prices were hammered in the Pacific Rim, droppeing by 1.6% in Hong Kong, 1.4% in Taiwan and South Korea, 1.3% in India and New Zealand, 1.2% in Australia, 0.7% in Japan and 0.6% in China. Declines so far in Europe amount to 1.1% in Spain, 1.4% in Italy, 0.9% in Germany, 0.6% in France, 0.5% in Greece and 0.4% in Great Britain.

As the main currency gauge of Trump fear, the Mexican peso has lost almost 4% in the last 1-1/2 weeks.

West Texas Intermediate crude oil dropped 1.8% to a one-month low of $45.85 per barrel. Gold, a handy commodity at extremely perilous times, is 0.9% higher overnight at $1,299.10 per ounce.

Bond yields have reversed course. Such posted strong gains last month, but 10-year sovereign yields are down today by six basis points in the U.K., 3 bps in Germany, and a bp each in the U.S. and Japan.

Euroland’s manufacturing purchasing managers index improved 0.9 points to a 33-year high of 53.5 in October. The flash estimate had been 53.3. Growth in jobs, orders, input prices, and jobs accelerated last month.

Among the members of the euro area, the October manufacturing PMI scores reflected the strongest growth in 15 months for the Netherlands, 33 months for Germany, 4 months for Ireland and Austria, 6 months for Spain, and 31 months in France’s case. Italy’s PMI slipped 0.1 point to a 2-month low but exceeded the 50 no change threshold with a reading of 50.9. Only Greece’s 5-month low of 48.6 was below 50.

German labor statistics were stellar. The jobless rate unexpectedly slid to a post-1990 unification low of 6.0% in October. Unemployed workers had been projected to dip by only 1K but instead tumbled 13K. On-year jobs growth was 0.9% in both September and the third quarter. Job vacancies continue to rise in Germany.

The British construction purchasing managers index improved to a 7-month high of 52.6 in October.

The Filipino manufacturing PMI settled back to 56.5 from September’s 9-month high of 57.5.

Poland’s manufacturing PMI dropped 2.0 points to a 25-month low of 50.2.

U.S. auto sales exceeded expectations in October.

Britain’s Nationwide house price index was unchanged on month in October and at a 7-month low in growth from a year earlier (4.6%). U.K. shop prices recorded a 12-month decline in October of 1.7%, a tad less than that in September.

New Zealand’s 4.9% unemployment rate last quarter was the lowest since the final quarter of 2008. Jobs rose 6.1% on year, but wage inflation stayed contained at 1.6%.

ADP estimated private sector U.S. jobs growth was 147K last month after 154K in September. This was less than forecast for a second straight time but sufficiently high to depress the unemployment rate.

Japanese consumer confidence weakened to a 2-month low in October of 42.3. That matches the reading last January and remains well below the neutral level of 50.

The New York regional PMI reading in October of 49.2 was below 50 for a third straight time. A post-election slide in U.S. share prices would have especially adverse implications for this area of the economy.

The FOMC releases a statement at 14:00 EDT (18:00 GMT). A rate increase is not expected. However, analysts will be watching to see the inclusion of language similar to the statement last year on October 28, which added “at its next meeting” to a sentence that began “In determining whether it will be appropriate to raise the target range…” Sure enough, the first and so far only hike of the cycle was made at the following meeting in mid-December.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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