Less Than Two Weeks For The US Elections

Less Than Two Weeks For The US Elections

Less Than Two Weeks For The US Elections

Good Morning

It's starting to feel like the calm before the storm. With less than two weeks to go before the US presidential election, markets are pretty range bound and lacking any directional conviction.

If you believe the polls, then this is going to be a Hillary victory, which should be a Dollar positive in the medium to long term, as it will be seen as a continuation of a theme and should then provide the Fed with a platform to get on and do what they've been threatening/promising and raise rates. There could be some short term dollar weakness as the market breathes a sigh of relief that Trump didn't make it and puts risk firmly back on the table.

However, once bitten and all that… investors won't be taking the polls at their word and we could well be in for a surprise. Markets don't do well with surprises, so at some point investors are going to have to position themselves for a possible worst case scenario. Much like the build up to the referendum, we don't think there's going to be too much of this positioning until much closer to the event, so for now it could be a boring few days ahead.

News that could keep us on our toes seems to be coming from Russia at the moment. The pace of passive break down between the US and Russia is gathering more and more column inches and there's a very interesting Bloomberg article this morning that gives the breakdown. A point well made, is that who knows what kind of West Russia will be negotiating with in two years time, with the possibility of Trump at the top of the US and a Europe even more dysfunctional than it is at the moment. In the meantime, there's the largest build up of NATO troops along the Russian border since the Cold War, with the UK committing fighter jets next year and the US bringing the infantry and tanks. Worrying all round really.

Back to the markets; a zerohedge article makes an interesting point on the mega-mergers that we've seen of late and the signals that they send. In the last week we've seen five multi-billion dollar mergers, which they think is the result of CEO's realizing there's no more organic growth to be had and that the merger is therefore the only way to bolt on top line. The article also points to a load of other indicators that suggest the market is at the top and struggling to break new ground, but says (and we hope they're right) that because there's not the blind euphoria that there was in the build up to the credit crunch, there isn't going to be anywhere near the correction we saw in 08/09.

They also say that there's a distinct lack of pick up in sales of even the most basic household goods, which doesn't bode well for the rest of the retail sector come Christmas and Thanksgiving, which could provide the market with a very real wake up call early next year when earnings are reported – adding to that, the Fed could well have just raised rates and the market will be adjusting to that reality too… The article is well worth a read if you like the more technical intricacies of the markets.

Overnight we've seen some more media pick up on the news we reported yesterday about China tightening their grip on foreign exchange to try and keep funds from flowing out of the country. There are some numbers against foreign outflows, which are estimated to be somewhere between $45-55bn per month. This isn't the $70bn a month we saw in the lead up to last Christmas and the subsequent stock market collapse in January, but it's not a million miles off and Beijing are understandably trying to get a handle on it.

Today we look forward UK GDP numbers, which could be interesting for Sterling. They're forecast to have grown by0.3% over last quarter – we still think there's room to the upside for that.

©Hamilton Court FX

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