The Trump Biden Presidential debate that was not
Anyone who was even remotely curious about the US presidential elections was tuned into the live debates, which fell at a convenient late morning timing in Singapore. What the debates lacked in substance, it more than made up for it in drama. Here’s what Jeffrey Halley, Senior Market Analyst at OANDA Asia Pacific thought about it.
Watching the first US Presidential debate in full flight, and although the content and the process have held no surprises, it has left me exhausted just watching it. Apart from the challenges of Mr Biden getting a word in sideways, there were no surprises, although the former is not really a surprise.
Markets have remained calm as no policy surprises have emerged from the debate so far. US equity index futures have rallied in Asia after falling overnight, as the uncertainty ahead of the debate has subsided.
Lost in the noise of the debate, and noisy it was, China has released another impressive set of data. Official manufacturing and non-manufacturing PMI’s outperformed expectations, rising to 51.5 and 55.9, respectively. The Caixin Manufacturing PMI held steady at 53.1, and both datasets are firmly in expansionary territory, highlighting that China’s recovery remains well on track.
Mainland China heads on holiday for a week from tomorrow and will be joined by Hong Kong and Taiwan. South Korea is on holiday today and again on Friday. The net effect will be to mute activity in Asia today.
Looking ahead, the next key data point will be Fridays’ Non-Farm Payrolls data. With no sign of any follow-up fiscal stimulus package from Washington DC, despite multiple calls from the Federal Reserve, markets will be concerned that the US recovery may stall. A poor number on Friday will amplify those fears and could set markets up for a weak finish to the week.
While today’s Presidential debate will be analysed and debated to death, the reality is, is that Mr Biden just had to show up and not slip up for it to be a Faustian victory. My initial thoughts are the debate will not move the needle on the Democrat lead in the national polls. The real race this election, is for the US Senate, and not the presidency, and whether the Republicans can block a Biden economic agenda, or whether the Democrats have a clear road ahead via control of both houses and the presidency.
Next week’s Vice-Presidential debate will receive more attention than is usual. With Mr Biden likely to be a one-term President, his running mate, Kamala Harris will be under the spotlight. While Mr Trump and Mr Biden are the present, and some may argue the past; Mr Pence and Ms Harris are the future, one that may arrive sooner rather than later. Their debate performances are arguably more crucial to the outcome of the US elections, then those of their bosses.
Asian equities move higher on China data.
Asian equities are mostly higher after strong China PMI’s and the presidential debate passing without incident from a market’s perspective. In Japan, the Nikkei 225 has fallen 0.85%; the market weighed down by the numbers of stocks going ex-dividend. South Korea is closed for a public holiday.
In China, the PMI data has lifted the Shanghai Composite by 0.50%, and the CSI 300 by 0.80%, with Hong Kong outperforming, leaping 1.30%. A strong rally in Evergrande shares lifting mainboard property stocks is also contributing.
Singapore and Kuala Lumpur and Taipei are 0.50% higher, but Australian stock markets are heavy into the end of the quarter. Banking, resources and retail were all lower today, causing the ASX 200 and All Ordinaries to fall 0.80%, in line with the weak finish from Wall Street overnight.
US index futures rallied during the Presidential debate, as no economic or policy surprises came out of the chaos. The dentists of Minnesota quickly took profits though as it came to an end, with the S&P 500 e-mini, Nasdaq and Dow Jones futures now all lower by 0.15%. Given how quickly the US futures retreated, Asian and European markets may struggle to make further gains today, with attention now turning to the US Non-Farm Payrolls data on Friday.
US Dollar falls on month-end flows.
Despite a gloomy session for Wall Street equities, the US Dollar still fell overnight, weighed down by the end-of-month, and end-of-quarter flows by institutional investors. The dollar index fell through support at 94.00, to 93.87, finishing the day 0.40% lower. The dollar index has now lost nearly 100 points from its 94.75 highs last week, with a failure of 94.60 hinting that the US Dollar short squeeze may have run its course for now.
That allowed the EUR, GBP, AUD and NZD to all rise by around 0.75% overnight. Despite this though, the majors are, for the most part, now trading mid-range on a weekly basis. With the US Presidential debate behind us, and significant holidays in Asia for the rest of the week, currency markets are likely to stay in a holding pattern until the release of US Non-Farm Payroll data on Friday. That data will set the tone for the direction of the US Dollar into next week. For now, it is a waiting game.
Asian currencies have weakened slightly today, as profit-taking lifts the US Dollar slightly this morning. Like the majors though, and ahead of regional holidays, local currencies lack a strong momentum one way or the other. Expect continued range-trading into the US data on Friday.
Oil’s brief rally ended unceremoniously.
Oil’s steady rally over the past week ended up hitting a wall overnight. Oil prices fell aggressively as traders took fright at the deteriorating consumption picture globally, led by European Covid-19 fears. With ample supplies on international markets, bullish positioning lost its nerve, Brent crude fell by 4.0% to $40.80 a barrel, and WTI fell by 3.50% to $39.15 a barrel.
What should be more concerning to oil markets is the divergences seen overnight. US API Crude Inventories posted a surprising fall but was wholly ignored by markets. Similarly, a much weaker US Dollar in the past 24-hours has provided no support to ailing oil prices. These divergences suggest that more downside pain is to come.
For its part, Brent crude fell through its 100-day moving average (DMA) at $41.65 a barrel overnight. The 100-DMA having provided rock-solid support for Brent prices over the past six sessions. Its failure is yet another disturbing negative development with support nearby at $40.50 a barrel—Brent’s multi-day lows around $39.30 a barrel form critical, must-hold support. Failure opens the door for deeper losses towards $37.00 a barrel.
WTI also fell through its 100DMA support at $39.25 a barrel overnight, having traced out multi-day highs at $40.80 a barrel. The 100-DMA now becomes intra-day resistance with initial support at the overnight lows around $38.45 a barrel. Failure opens up much deeper losses, possibly as far as $36.00 a barrel.
Gold climbs on a weaker US Dollar.
Gold continued its two-day rally overnight, powered by a weakening US Dollar and risk-hedging ahead of the US Presidential debate. Gold rose 0.85% to $1897.00 an ounce, having flirted with resistance at $1900.00 an ounce. With the debate having passed without incident from a purely financial markets perspective, some risk aversion positioning has been unwound, and gold has fallen to $1888.00 an ounce in Asia.
Gold’s rally has been powered by a weaker US Dollar mostly, with the debate flows being very short-term in nature as such gold continues to lack momentum of its own. It will continue to be at the mercy of US Dollar gyrations.
Despite the lack of momentum, gold has traced out a triple bottom at $1850.00 an ounce. That is also the location of its 100-DMA. Together, they form a formidable support zone, and it is hard to construct a bearish case at these levels as long as that holds. Gold has initial resistance at $1900.00 an ounce, and some stop-loss buying should come to market if that level fails. In all likelihood, gold will move into a new trading range between $1870.00 and $1920.00 an ounce ahead of the US Non-Farm Payrolls on Friday.