Stock markets remained largely stable, while an air of uncertainty persisted in currencies and bonds as investors awaited the outcome of the United States’ presidential election, which appeared to be a close race according to surveys. Oil prices rose overnight due to delays in producers’ plans to raise supply, with Brent oil futures trading at $75.08 per barrel following a 3% increase on Monday. Asian equities largely advanced, with Japan’s Nikkei index surging over 1% as traders resumed trading after an extended holiday break. After Chinese Premier Li Qiang expressed complete confidence in the nation achieving its economic targets this year and the potential for additional stimulus, the Shanghai Composite index in China increased by about 2.4%, and the Hang Seng index in Hong Kong increased by about 2.3%. The Standing Committee of the National People’s Congress, the country’s highest legislative body, is expected to announce a specific figure for the stimulus during its meeting this week. A private survey revealed that China’s service sector activity experienced the fastest growth rate since July, which implies that consumer demand may be on the rebound. The dollar experienced a decline as the close presidential race resulted in the unwinding of “Trump trades.” Gold experienced a slight decline as a result of diminished anticipations of interest rate reductions.The US election day has finally arrived; since mid-September, US Treasury yields have been rising as Trump’s chances of victory have recovered. This suggests a ‘Trump trade’ is associated with higher yields, likely due to the threat of import tariffs. The Open Interest Positioning Indicator shows this move to higher yields has been characterised by the closing of long positions in 10yr UST futures, rather than the opening of new shorts, especially in October. This indicates a reduction in risk exposure leading up to the election, which makes sense given the closeness of the opinion polls. The impact on markets will depend not only on the election outcome, but also the potential for continued uncertainty in determining the final result.The impact of the US election on the UK rates market ahead of the Bank of England meeting may be more evident in the GBP/EUR spread than in the outright levels. The UK’s sensitivity to US rates markets could affect the BoE’s decision and future policy guidance. The relative performance of the UK rates market compared to the EUR rates market may provide more insight into the outcome of the BoE meeting, as both should be impacted by the US election news to a similar extent. The 10-year gilt-Bund spread at over 200 bps suggests that UK rates markets are already braced for a hawkish MPC.Strategists predict that the dollar will strengthen if Trump wins and weaken if he does not, with the exception of bitcoin, which is anticipated to increase in value due to Trump’s perceived leniency on crypto regulation. Options implied volatility for the offshore yuan against the dollar was at record highs, reflecting the tension and ambiguity regarding the potential consequences of another protectionist shift from the United States on global trade.The battleground states of Georgia, North Carolina, Pennsylvania, Michigan, Arizona, Wisconsin, and Nevada will be the primary focus upon the release of the results. The polls in Georgia shut at midnight GMT.
Overnight Newswire Updates of Note
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 1/11/24
Technical & Trade ViewsSP500 Bullish Above Bearish Below 5745
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EURUSD Bullish Above Bearish Below 1.09
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GBPUSD Bullish Above Bearish Below 1.3050
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USDJPY Bullish Above Bearish Below 148
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XAUUSD Bullish Above Bearish Below 2680
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BTCUSD Bullish Above Bearish Below 69500
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