by Eli Wright
Global markets continue to be driven by the uncertainty surrounding tomorrow's US elections outcomes. Yesterday's announcement by FBI director James Comey that the re-opened investigation into Mrs. Clinton's emails has been concluded with no further action to be taken has injected a note of risk-on sentiment back into the markets this morning.
Asian markets reacted accordingly, the Nikkei closed at 17117.21, 1.61% higher than where it ended last week, down 3.1%; the Hang Seng gained, closing at 22839, up .87%: the Shanghai Composite inched higher, to 3131.52 up 0.2%.
In Europe this morning markets are reacting favorably to the positive news for Mrs. Clinton: the Stoxx 50 is currently up 1.37% to 2997, FTSE 100 is trading at 6781, up 1.43% at time of writing, and DAX is trading at 10403, up 1.04%.
US markets experienced increased volatility on Friday: The Dow and NASDAQ both reached three-month lows, each closing down 0.24% on the day, while the S&P 500 edged down 0.17% and recorded its ninth-straight losing session, the longest such streak since 1980. However, all three indices are up in premarket trading.
The VIX, which reached 22.51 on Friday—its highest level since June—is heading down, currently at 19.72, reflecting the markets' relief at the positive Clinton news.
US 10-year and 30-year bond yields are moving higher as risk appetite improves once again.
Barring any unexpected events outside the US, the week ahead will be dominated by news about the US elections, with many observers using Brexit as an analog for how markets might react in the wake of a surprise election result. Polls have largely been predicting a Clinton victory, and many analysts believe the market hasn't accurately priced-in the risk of a Trump win.
If there's anything to be learned from Brexit it’s that one shouldn’t necessarily trust the polls. Until the final outcome of the vote is known, it's probably best to go with the prevailing trend while bracing for the possibility of a shock to the markets, at least in the short-term.
Forex
Friday’s NFP results were mostly solid. The headline number came in lower than expected, with 161k new jobs compared to the 175k forecast. However, unemployment ticked lower to 4.9% (from 5%), and average hourly earnings rose 2.8% YoY. the US dollar edged higher vs the euro and other currencies. Irrespective of recent upticks in nonfarm payroll releases, indicating a strengthening US economy and the increased possibility of a December rate hike, at the moment the only thing traders are paying attention to is the US election result.
A Clinton victory would boost the dollar and provide knock-on support for the Canadian dollar, Australian dollar while safe havens such as the yen and Swiss franc could weaken. Perhaps the biggest gainer, however, would be the Mexican peso, which many see as a barometer of Trump's presidential chances. A Trump victory would send traders scrambling toward safe haven currencies and the Mexican peso would be widely expected to crater.
Commodities
Gold, perhaps the world's most popular safe haven asset, rose 2.6% during October, but is currently down 1.45% trading at $1285, with major resistance levels at $1400 and $1500 waiting to be breached. Indeed, according to HSBC Chief Precious Metals Analyst James Steel, gold will enjoy at least an 8% jump whoever wins the race.
Oil prices nose-dived at the end of last week, after yet another OPEC deal failed to materialize. Brent closed down 8.3% on Friday, at $45.56. Crude ended the week down 9%, closing at $44.11. However, currently prices are moving up.
Despite election uncertainty weighing on markets, in a positive sign for the global economy, industrial commodities ticked upwards: Copper rose 3.3% on the week, to close at $2.26, trading yet higher today, currently at $2.30. Additional industrial commodities, including aluminum, nickel, and zinc, are all up as well.
Stocks
The election's affect on US markets can't be regarded in simple positive or negative terms, with a Clinton victory viewed as a driver of upward momentum and a Trump win causing prices to fall. Rather, there are likely more complex possible outcomes: In the event of a contested election, markets could get damaged—when Al Gore challenged the 2000 election results, stocks plunged 11% post-election through December 20, a week after courts ruled in Bush’s favor.
Additionally, biotech stocks appear to dislike the idea of a Clinton victory. The S&P Biotech Index has fallen off a cliff—down more than 26% this year, compared to a gain of 2% for the S&P 500.
Major travel sector companies report later today: both Priceline (NASDAQ:PCLN) and Marriott (NASDAQ:MAR) report Q3 results after the bell; TripAdvisor (NASDAQ:TRIP) will report Q3 2016 results after the close on Wednesday.
Priceline Group, the leading online travel company by revenue, includes notable brands such as Booking.com and priceline.com, and generates about 80% of its gross bookings internationally. EPS is expected to be $28.30-$29.80.
Marriott recently became the world’s largest hospitality company, after completing its acquisition of Starwood Hotels and Resorts. Expected EPS is $0.90.