Good morning,
Well that was an experience
For those of you that stayed up or woke up for the US Presidential debate, we now know what to expect from both campaigns with 6 weeks to go until the US electorate goes to the polls; a campaign of facts and expert opinion against a campaign of suspicion and chaos.
As we have said before there are very many similarities between the election and the Brexit scenario, for example:
- One option represents the status quo, the other a radically different approach
- One option has laid out policy ideas, the other has depended on slogans and bluster
- One option is (and has been) the overwhelming favourite, the other is definitely the outsider according to polls and betting markets
- Immigration is the number one campaign concern
- Both options are seemingly rather unpopular, according to polling.
- One option is completely priced in to asset markets, the other represents an almost unpriceable risk
I do not think that is a difficult call to work out which is which.
Difficult to draw conclusions yet
Similarly to Brexit, there is little benefit in solidifying expectations from the results of a debate or of the subsequent moves in markets; elections are won at the polls not in the performance of the Mexican peso.
According to CNN, Clinton beat Trump by 35 percentage points in their debate opinion poll but the takeaways from last night’s actions will have done little to move the needle for undecideds and independents; Clinton appealed to women and minority voters whilst Trump spoke to the white Republican heartlands. Neither can win without their base and this was a good chance to energise the party faithful.
We have to remember the effects of past debates; Al Gore beat George Bush in all three debates but went on to lose, largely due to the spoiler effect of Ralph Nader – an issue that Clinton has courtesy of the Gary Johnson Libertarian campaign – whilst no candidate in 40 years has won the election having been behind in the polls following the first debate.
Similarly, the performance in currency markets pointed to a Clinton victory. Mexican peso, Canadian dollar, South African rand and other emerging market currencies gained overnight with the yen the main loser on the overnight session. This reinforces our belief of broad yen strength in the event of a Trump win in 6 weeks’ time and measured dollar weakness should Clinton emerge victorious.
The next debate will see the Vice Presidential candidates go up against each other on October 4th with Clinton and Trump facing off again on October 9th and 19th.
German bank circling the drain
Elsewhere the focus yesterday drew down on the travails of the Europe’s largest bank, Deutsche Bank. Markets in February were hit hard over fears over collateralised debts offered by the bank and the ability for them to be repaid and weakness has once again been sparked by fears over profitability and the urgent need for a bailout by the German government.
Make no bones about it, Deutsche is a systemically important bank that has a balance sheet around 60% of the entire GDP of Germany – if you add in outstanding derivatives then that percentage rises to many multiples of the size of the German economy.
The Day Ahead
As such equities and generalised risk were on the back foot through yesterday’s session. Today’s data calendar is hardly the stuff of rabid excitement with Italian industrial data set to show a remaining weakness with CBI retail sales set to illustrate the mood of UK consumers post-Brexit ahead of Friday’s Index of Services data.
Have a great day.