In this news, we discuss the Take Five: Markets hoping for clear result in U.S. vote.
1 / ELECTION DAY
November 3 is election day in the world’s largest economy, a particularly tense vote due to the COVID-19 pandemic, the candidates’ different political platforms, and the potential for a delayed or contested outcome. No wonder volatility gauges are on the rise.
President Donald Trump lags behind Democratic challenger Joe Biden in opinion polls, though neither is really feared by the markets – the former symbolizes the status quo and the latter is expected to spend a lot to stimulate the economy.
The VIX’s “fear gauge” is near its highest since June, however, however, fueled by coronavirus concerns and a focus on the immediate consequences of the election – specifically, Trump’s claims that the ballots postal voting will cause fraud. Still, futures contracts on VIX imply that market fluctuations will subside in the months following the election.
What the markets want is a clear result. Then the focus can shift to the winner’s strategy on pandemic, stimulus, and trade.
-After America First, some investors bet on a Biden boost abroad
For a graphic on Looking Beyond the U.S. Elections:
2 / TICKET YUAN WAY?
The yuan has become Asia’s preferred vehicle for playing the Trump-Biden contest, so much so that authorities have quietly intervened to prevent it from becoming a one-sided bet on a Democratic victory.
The yuan is up 7% since May and remains firm despite the central bank’s efforts to make long positions expensive. A clear victory for Biden could well provide legs for the rally.
The idea is that Biden’s freer approach to world trade will sink the dollar, while Trump raises it by keeping the pressure on China. But Biden’s advance is just one reason the yuan is on a tear – it also has to do with China’s handling of the pandemic and its return to growth in a year or so. almost all other major economies will retreat.
-Chinese banks have seen exchanging dollars for yuan to curb earnings-traders
-China is gradually abandoning the use of the “ X factor ” in the management of the value of the yuan
For a chart on the Chinese yuan and the PBOC:
3 / RELAXATION OF THE STIMULUS
Some are worried about a slowdown in central bank stimulus, just as lockdowns are once again slowing activity. European, Japanese and Canadian policymakers have all recently chosen to keep their powder dry, and the US Federal Reserve’s November 4 meeting is also expected to go off without incident.
But others can intervene. The Reserve Bank of Australia is expected to expand its bond purchases on Tuesday to target longer-term debt, lower the cap on short-term yields and cut spot rates.
On Thursday, the Bank of England could extend QE by £ 100 billion to support an economy ravaged by coronavirus and Brexit. It can also indicate whether interest rates could fall below zero and, if so, when.
-The slowdown in money printing leaves governments to take over
-Bank of England set to return to the stimulus pump
-Australian banks are complaining about having too much money, there may be others
For a chart on the central bank’s balance sheets:
4 / TURKEY PROBLEM
The Turkish lira fell nearly 30% in October – its worst month since August 2018, hit by the usual toxic cocktail of geopolitics and unorthodox politics. Now, he also seems vulnerable to US sanctions on the purchase of Russian missiles, if Biden enters the White House.
Its economic data also offers little respite, with a huge trade deficit, a tourism sector hit by COVID, double-digit inflation and impending debt repayments.
After the central bank failed to raise interest rates in October, markets are wondering how much the lira needs to fall before policymakers are forced into a sharp emergency rate hike.
-A phony risk threatens Erdogan and Turkey’s besieged lira
For a graph on European profits:
5 / BURN, NOT WIN
This is the annus horribilis for the travel industry in Europe. After disastrous figures from IAG, owner of British Airways, the third quarter results of Ryanair, Wizz Air, duty-free retailer Dufry and airport manager Fraport should not contain much good news.
Discretionary consumers fared better; an MSCI gauge has lost 10% this year, compared to 57% for airlines. And after a strong pace for luxury giant LVMH, investors will be hoping for optimistic profits from Hugo Boss, Luxotica and Richemont.
The focus is on how airlines cope with cash consumption and to what extent consumers are reducing non-essential spending. But new locks mean recovery is harder than ever. Citi, for example, expects Dufry sales to return to pre-pandemic levels only in 2023.
-Europe’s profit optimism diminishes with virus resurgence
For a chart on the Turkish Lira timeline:
Reporting by Sujata Rao and Karin Strohecker in London, Danilo Masoni in Milan, Ira Iosebashvili in New York and Tom Westbrook in Singapore; Edited by Hugh Lawson
Original © Thomson Reuters
Originally posted 2020-10-30 05:36:12.