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With November’s central bank updates now behind us, there’s one event this week that will dominate investor and market sentiment. The US Presidential Election. Tuesday’s culmination of 17 months of campaigning and spends of over $100m by both candidates is still hanging in the balance. Democratic nominee Clinton, having been cleared for a second time by the FBI, retains her lead over Republican Trump, albeit by a significantly slimmer margin than before the investigation was reopened. Yet it is still too close to call, and with the surprise British EU referendum result still fresh in the memory of investors, many are not counting out a victory for ‘the Donald’.
Thanks to the Brexit result, investors potentially have a template of what to expect in the case of a surprise victory according to the Financial Times: a sharp, decisive sell off of the US Dollar in the near term followed by an eventual recovery in the longer term. Whilst the immediate concern for many investors may well be a ‘Brexit-type’ sell off in the event of a Trump victory, currency investors will quickly turn their attention to expectations of a US Fed December rate hike. Would a President Trump keep his promise of removing Fed Chair Yellen, subsequently massively impacting monetary policy? Or would he surprise markets and stay out of the Fed’s business?
On the other hand, a victory for Clinton would mean the continuation of the status quo, cementing December Fed rate hike expectations, whilst markets breathe a sigh of relief that the long and controversial Presidential race is finally at an end.
Meanwhile in Europe, both the Euro and Sterling are seemingly at the mercy of the Dollar and its reaction to the eventual election result. The Euro has, at least for this week, broken free of ECB quantitative easing speculation and is focused wholly on which candidate wins across the Atlantic, with the subsequent expected impact on trade leading investor sentiment towards the Eurozone currency.
The Pound, however, has the added excitement of the ongoing Brexit position of the UK government after last week’s defeat in the High Court. The ruling that MPs must have a vote on the conditions of leaving the EU has put a spanner in the works of PM Theresa May’s plan to invoke the negotiation-triggering Article 50 in March next year, although the Prime Minister has maintained this timetable will be stuck to. As a result, the Pound enjoyed its strongest week trading against the Dollar since the referendum itself. Watch this space for any further commentary from the PM, trade secretary Liam Fox and their respective offices before she concludes her three-day trade mission to India this week.
Finally, Chinese macro data throughout the week will, as ever, impact market sentiment, although once again it could be overshadowed by a surprise in the election. Assuming a Clinton win, the data could be a driver for currencies as any major shock to the up or downside could take the spotlight away from the US.
Key data this week (Sign up here to get our daily live macro-calendar)
UK Economic Announcements
08:30 Halifax House Prices
Intl Economic Announcements
07:00 Factory Orders (DE)
09:30 Sentix Investor Confidence (EZ)
10:00 Retail Sales (EZ)
14:00 Labour Market conditions (US)
—
UK Economic Announcements
09:30 Industrial & Manufacturing Production
15:00 NIESR GDP Estimate
Intl Economic Announcement
N/A US Presidential Election
N/A Imports, Exports, Trade data (CN)
07:00 Industrial Production (DE)
—
UK Economic Announcements
00:01 RICS House Price Index
Intl Economic Announcements
N/A CPI, PPI (CN)
12:00 MBA Mortgage Applications (US)
15:00 Wholesale Inventories (US)
15:30 Crude Oil Inventories (US)
—
Intl Economic Announcements
13:30 Jobless & Continuing Claims (US)
—
UK Economic Announcements
09:30 Construction Output
Intl Economic Announcements
N.A US Bank Holiday
07:00 CPI (DE)
15:00 Consumer Confidence (US)
Technicals
Technicals
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