As much as there are 9 central bank meetings and rate decisions this week, including the central banks of the US, Australia, Japan and the UK this week will be one of the most political weeks in living memory.
US Presidential Election – 8 days to go
Friday afternoon’s publication of a letter reopening the investigation into Hillary Clinton’s email protocols has pitched the US election back into the mire and boosted the chances of a Trump win in 8 days time.
October surprises have happened in the past and not changed the course of the voting by a meaningful amount, save for in 2000 when George W Bush, who had campaigned as a family values born again Christian, was found to have been arrested in his younger years for drunk driving. He was 4 points ahead in the polls before the news broke and lost the popular vote by a point, but won courtesy of Florida’s electoral votes.
The last 10 polls have Clinton in the lead by an average of 4.3 percentage points and with a solid grip in the Electoral College, but expect the cacophony of the clown car that this election has proved to be to grow to a deafening crescendo as we head into election day next Tuesday.
Dollar reaction suggest knee jerk on the night
EUR/USD ran higher and USD/JPY cracked to the downside as the revelations hit the newswires – sterling was unable to do too much – which suggests that while we foresee a dollar run higher on the election of President Trump the initial, knee jerk reaction from markets may be a short hit to the USD on election night.
Reactions to data from the US is still somewhat muted; US GDP hammered higher on the preliminary announcement but will do little to change the minds of the hawks and doves on the FOMC. Hawks will see an economy strong enough to pull away from emergency levels of accommodation whilst those on the dovish side will still want to wait and see.
Look to polls for an indication of risk with positioning for the election likely beginning towards the end of the week.
Brexit news focused on the Bank
There were few people who had more headlines over the weekend devoted to them than Mark Carney. These were not all opinion pieces of what the Bank of England is likely to say at this Thursday’s Bank of England policy meeting and what projections will be part of their Quarterly Inflation Report. Instead most were focused on whether he should quit, like an England football manager after a run of bad results.
As we said last week, there are concerns over whether Mark Carney will serve a full 8 year term as Governor of the Bank of England. Ram these together with the now age-old concerns over trade agreement changes, and fears of investment and it is difficult to see why people wouldn’t be selling sterling.
The Economics Editor of the FT will likely have better sources than whatever lobby reporter suggested Jacob Rees-Mogg could become the new Governor of the Bank of England but we wait for a statement from Carney sometime this week on his future.
The Day Ahead
European and US inflation figures (10am and 12.30pm) will dominate proceedings as much as data can in a storm of political mudslinging and innuendo.