ECB watching and US Presidential debate musing

So it looks like it was too little too late for Donald Trump at last night’s final US Presidential debate. Perhaps the final self-inflicted blow was when he refused to confirm that he would accept the results from election night, essentially questioning the integrity of the voting system and America’s democracy. It seems unlikely that he will be able to do enough to turn his campaign around, now that Clinton only needs a handful of Electoral College votes to win the Presidency. Added to that, rumours abound that Trump’s son in law is trying to set up a new Trump TV network, so the Donald will have somewhere to go on November 9^th.

Will a Clinton win be good news for the markets?

The markets’ reaction to the debate was fairly muted. US and European equity futures point to a higher open, and Asian stocks are also higher, however, the dollar has failed to recover all of its recent losses. Could this be a sign of election fatigue, or is the market also concerned about the prospect of a lurch to the left under a Clinton Presidency? Some of the policies that Clinton laid out during the final debate, including higher taxes, changes to the health care sector and green energy initiatives, could unsettle markets in the long-term, so any relief rally from a Clinton win in three weeks’ time could be short-lived. Read more here: https://www.cityindex.co.uk/market-analysis/market-news/40108972016/will-a-clinton-debate-win-spur-the-dollar-and-stocks/

ECB: a binary outcome for the euro

Ahead today the ECB is in focus. We have already sent out our preview, here is a link to it if you missed it:https://www.cityindex.co.uk/market-analysis/market-news/40109232016/ecb-preview-draghin-his-feet-on-future-of-qe-could-boost-eur/

Overall, we see no change at this meeting, however we could be looking at a binary outcome for the euro from Draghi’s speech. If he substantiates claims that the ECB is looking at tapering its QE programme early then we could see broad euro strength. However, if he primes the markets for an extension of the Bank’s asset purchase programme then the euro may come under pressure. Any sign that more liquidity is coming down the pipeline should be good news for stocks, however, Europe’s banking sector may struggle, as negative interest rates are bad for the lending business.

Round- up

Elsewhere, Nestle has cut its growth forecast for this year, claiming a softer environment, and price deflation in western markets. Its share price has been under pressure in recent weeks as a weaker economic outlook threatens its sales.

Rio Tinto released its latest quarterly production report, with increases in production for copper, aluminium and iron ore compared to this time last year. Its rival BHP Billiton said in its production report yesterday that there were some signs of a recovery in the market for industrial commodities. This could boost the FTSE 100 at the open, due to the importance of its mining sector. FTSE 100 futures currently point to a 5.5-point increase.

We believe that the markets could be fairly quiet in the lead up to today’s ECB meeting. The US Presidential debate may have secured a Clinton win next month, however it is no game changer for the markets. Draghi’s speech could set the tone for trading in the short-term, however, we believe that the real move will happen if the dollar re-embarks on its uptrend, and Treasury yields start to move higher once more. Until then, everything feels like it is on hold.