Originally published by Rivkin
Following the second presidential debate on Monday between Hilary Clinton and Donald Trump there was a clear risk on bias for markets which were also boosted by gains in oil on speculation of further output cuts or limits. A poll by CNN following the debate suggests Clinton has a lead over trump by 57% to 34% while a YouGov poll also has Clinton leading although by a smaller margin of 5%. The Mexican Peso which has been a clear sentiment gauge for the election given the negative impacts Trumps protectionist trade policies would have on the country, initially strengthened +2% against the U.S. dollar before closing up +1.87%.
There was no key U.S. data on Monday, with the debate setting the tone for the trading day as Americans also celebrated Columbus Day. Both the S&P 500 & Nasdaq 100 finished trading positive, up +0.46% & +0.60% with all ten sectors of the S&P500 closing higher led by gained in Energy (+1.49%), Utilities (+0.86%) and Technology (+0.81%). The U.S. dollar index also closed higher, up +0.29% against a basket of its peers despite bond yields moving slightly lower. The yield on two-year debt declined -0.8 basis points to +0.846% as did the ten-year yield, down -0.6 basis points to +1.736%.
The key focus this week will be the release of the FOMC minutes from the September 20-21st meeting which will be released on Thursday morning 5am Sydney time. Money managers will be looking to these minutes to all but confirm the likelihood of a December rate hike. The probability of a rate hike calculated by Fed Fund futures is currently around 65% so we can be reasonably confident this is mostly priced in by the markets.
In Germany the trade balance (MoM Aug) widened more than forecast to €20 billion from €19.5 previously. The yield on German government debt rose, with the two-year yield up +0.8 basis points to -0.659% while the ten-year yield which is more sensitive to inflation expectations gained +3.6 basis points to +0.063%. Despite this the EUR/USD weakened -0.55%, weighed on by sentiment around an upcoming Italian referendum on the 4th of December and concerns over Brexit negotiations. Equity markets were higher, led by both the STOXX 600 & DAX up +0.69% & +1.27% respectively, all sectors of the Euro Stoxx 600 closed higher for the session led by gains in Energy (+2.01%), Telecommunications (+1.26%) and Basic Materials (+1.24%).
Oil prices gained overnight following comments by Russian President Vladimir Putin that Russia was willing to support recent OPEC efforts to stabilise prices by either limiting or cutting output, notably at a time when Russia is currently producing post-soviet records amounts of production. Both Crude Oil & Brent Oil gained +2.81% & +2.0% respectively as Putin said “Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same”. The USD/RUB strengthened +0.67% against the U.S. dollar, the first chart below highlights the strong correlation between the Ruble and the price of oil, the USDRUB falls as oil strengthens.
Elsewhere commodity prices gained following optimism around oil as measured by the Thomson Reuters CRB index which finished +0.98%, individually Copper gained +1.48% as did Natural Gas +2.32%. Precious metals posted modest gains for the day, spot Gold & Silver up +0.21% & +0.51% respectively, lacking any real conviction following recent declines.
In the U.K. the Pound’s recent declines continue to fuel inflation expectations with the currency falling a further -0.57% against the U.S. dollar while it was relatively unchanged against the Euro at 0.90. Yields on U.K. government debt rose, the two-year yield up +4.8 basis points to +0.227% and ten-year yields up +5 basis points to +1.029% respectively. The FTSE 100 continues to benefit from the weaker currency, up +0.75% while the more domestically focused FTSE250 was slightly lower, down -0.09%.
Locally the S&P/ASX 200 finished +0.15% higher with gains likely to be extended today with ASX SPI200 futures up 21 points in overnight trading.
Data releases:
· Australian Home Loans (MoM Aug) 11:30am AEST
· German ZEW Sentiment Survey (MoM Oct) 8:00pm AEST
Chart 1 – WTI Crude Oil & USD/RUB
Source: Rivkin, RivkinTrader
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd