This Can’t End Well
The first trading day of November ended in angst and, if anything, it's a surprise to us that it hasn't been worse. The Swiss franc was the runaway top performer while the British pound and US dollar lagged. New Zealand jobs are due up next. The short AUDJPY Premium trade was stopped out at 80.50, shortly before sliding nearly a 100 pips. Another AUD trade remains open and in progress. 3 of the 4 trades in indices are over 150 pts in the green.
Risk aversion was the theme in New York trading as the S&P 500 fell 14 points to close at the worst level since July. The winners were the yen, euro and Swiss franc while the US dollar lagged. Gold and silver had the best day since the Sep 21 Fed meeting. Does that say something about tomorrow?
The rally in the Swiss franc in particular was notable as it came despite comments from Jordan who said the two pillars of SNB monetary policy are negative rates and FX intervention. EUR/CHF broke below support near 1.08 to the worst levels since the Brexit aftermath.
To us, the flight to Swiss francs screams of political risk. There is a small but rising tail risk that Donald Trump wins the election. He still has a brutal electoral map to overcome but the FBI investigation has clearly reinvigorated his supporters and given him momentum, something the latest polls confirm.
In the next day or two, we will get far more polling data from the post-FBI period and a further swing to Trump will cause some major jitters. Also worrisome is that she narrowly wins and Trump doesn't conceded. At best, it seems she will inherit the White House under a cloud of suspicion, not trusted and disliked.
Hawkish talk in the Fed decision may spark US dollar buying but there is a good chance any bounce is sold on election fears. Even position squaring could weigh on the US dollar, which is held at the most net-long since January.
Taking a step back, the price action today is a microcosm of the kind of we may see if Trump wins. The dollar will hold its own against commodity currencies and the battered pound but will fall against the euro and yen.
If somehow the political situation would calm, economic data shows the US in relatively good shape. Despite some poor regional numbers, the ISM manufacturing index was at 51.9 in Oct, up from 51.5 in Sept. The negative news was in construction spending, which was at -0.4% compared to +0.4% expected. That sets the stage for a small downgrade in Q3 growth.
Looking ahead, the first number on the agenda is NZ Q3 employment expected to rise 0.5% q/q.
|AIG Performance of Manufacturing|
|50.9||49.8||Oct 31 22:30|
|Employment Change (q/q)|
|0.6%||2.4%||Nov 01 21:45|
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