Originally published by Rivkin
U.S. equity markets were lower on Friday as news came out of the FBI reopening the investigation into Hilary Clinton’s email scandal 11 days before the November 8th presidential election. On average Clinton maintains a five point lead in an average of national polls collected by the New York Times, however this latest news of the reopening of the investigation certainly weighs on sentiment. The USD/MXN which is a barometer for Trump’s election chances dropped -0.7% on Friday and both the S&P 500 & Nasdaq 100 declined -0.31% & -0.64% respectively. The US Dollar Index fell -0.55% and two-year treasury yields declined -2.7 basis points to +0.857%.
Based on the polling data collected by the New York Times Hilary Clinton leads gives her a 90% implied probability of winning the election. This has clearly been priced into risk assets and the risk-off move on Friday is clear with the market modestly adjusting these expectations. With just 9 more days to go until the election Trump is likely to have a difficult time making up ground in the polls and no doubt will continue to try to make the most of this recent announcement. The markets are likely to be headline driven over this time as the election gets closer so some more volatility is to be expected. The first chart below shows both the S&P500 & VIX indexes, with the VIX spiking +24% over the past week from 13.02 to 16.19 signalling the market is pricing a 16% move in the index over the next twelve months.
Data from the U.S. on Friday showed that the economy expanded more than forecast for the third quarter, growing at an annualised +2.9% vs expectations of +2.6% and a previous reading of +1.4%. The rebound was primarily driven by increased exports and a rebuilding of inventory while consumer spending which accounts for around 70% of the economy contributed less than usual. Headline personal consumption for the same period missed expectations with a reading of +2.1 vs +2.6% expected while a core measure was higher than forecast, up +1.7% vs +1.6% expected. Elsewhere a measure of consumer confidence by the University of Michigan declined to the lowest levels since 2014 with a reading of 87.2 down from the 91.2 in September.
In Japan the Yen was little changed during Asian trading following CPI data on Friday before eventually gaining +0.36% as a result of U.S. dollar weakness. Year-on-year the headline CPI showed prices fell -0.5% in line with market forecasts while a core measure was lower than anticipated at 0.0% vs estimates of +0.1% and down from +0.2% previously. Both the Nikkei & Topix indices were +0.63% & +0.75% higher respectively although the late strengthening on the Yen on Friday night is likely to weigh on equities this morning with Nikkei 225 futures down -70 points.
In Europe German prices rose +0.2% (MoM Oct) in line with forecasts and up from +0.1% previously and year-on-year increased to +0.8% from +0.7% previously as anticipated. Equity markets were generally lower, both the STOXX 600 & DAX declining -0.27% & -0.19% respectively. The Euro surged +0.76% against the U.S. dollar and yields on German government debt were relatively unchanged, the two-year yield gained +1 basis point to -0.615% and the ten-year yield declined -1 basis point to 0.165%. The second chart below shows the Euro which edged modestly higher during European trading before jumping in U.S. trading following the news of the reopening of the FBI’s probe into Clinton’s emails.
Commodities were mixed as Oil prices declined with both Crude Oil & Brent Oil trading -2.05% & -1.51% lower respectively. Natural Gas and Copper were both higher, up +1.21% & +1.06% respectively while the Thomson Reuters CRB index was -0.44% lower given the heavy weighting to oil prices. Precious metals also benefited from the weaker dollar, spot Gold & Silver both gaining +0.64% & +0.80% respectively.
Locally the Australian dollar was up just +0.05% while the S&P/ASX 200 index was -0.22% lower. Meanwhile we should expect a relatively flat opening to trading with ASX SPI200 futures down just 3 points this morning.
Data releases:
· Japan Industrial Production & Retail Trades (YoY Sep) 10:50am AEDT
· Australian Private Sector Credit (YoY Sep) 11:30am AEDT
· Japan Nikkei Manufacturing PMI – Final (MoM Oct) 11:30am AEDT
· Euro-Zone CPI (YoY Oct) 9:00pm AEDT
· Euro-Zone GDP (QoQ & YoY Q3) 9:00pm AEDT
· U.S. Personal Income & Spending (MoM Sep) 11:30pm AEDT
Chart 1 – S&P500 (Blue) & VIX (Purple)
Chart 2 – EUR/USD
Source: Rivkin, RivkinTrader, Rivkin