US ISM Non-manufacturing number could be first ugly economic data point to remind us of the current economic woes.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly ABC Consumer Confidence rose to -48 vs. -50 expected and -49 the previous week

  • Australia Oct. Performance of Service Industries fell to 42.1 from 44.9 in Sep.

  • UK Oct. Nationwide Consumer Confidence rose to 55 vs. 47 expected and 51 in Sep.

  • Australia Sep. Building Approvals -7.2% vs. -1.0% expected


THEMES TO WATCH – UPCOMING SESSION

Events Today:

  • Switzerland SNB's Hildebrand to Speak (0810)

  • EuroZone Final Oct. PMI Services (0900)

  • UK Sep. Industrial and Manufacturing Production (0930)

  • UK Oct. PMI Services (0930)

  • EuroZone Sep. Retail Sales (1000)

  • UK Oct. BRC Shop Price Index (1030)

  • US Oct. Challenger Job Cuts (1230)

  • US Oct. ISM Non-manufacturing (1500)

  • US Weekly Crude Oil and Product Inventories (1535)

  • New Zealand Q3 Unemployment Rate (2145)

  • Japan BoJ to Publish Meeting Minutes (2350)

  • UK Oct. NIESR GDP Estimate (0001)

  • Australia Oct. Unemployment Rate and Change (0030)

Market Comment:

Barack Obama swept to victory by a margin that was widely expected and the Democrats also made solid gains in the House of Representatives. As election day got underway yesterday, there was a real sense that the market was going into "risk reduction" mode, taking off its heaviest positions before the results started rolling in. The USD and JPY tanked, equities were up sharply, bonds were also up (some might consider this strange if the supposed theme was higher risk appetite, but the market is already very heavily positioned on the short side in fixed income, so yesterday's move was likely simply position-trimming).
The USDJPY barometer was interesting to watch as it briefly shot higher in sympathy with equities and USDJPY was through the psychologically significant 100.00 level before diving for cover again - setting up yesterday's highs as a reasonable risk point for new attempts to short the pair. As the results began rolling in, the day's moves unwound further in FX, though equities remain close to their highest levels.

We have two scenarios for this rally in risk appetite we see here is unlikely to have significant legs. One scenario is that we move into a rangebound environment, with rallies in risk appetite capped, but downside volatility unable to work up a significant head of steam again as it did previously. This scenario would allow volatility to fall somewhat. The other possibility is that we go straight back to risk aversion mode. The scenario we don't look for is a for any continued heady rally in equities and JPY crosses, for example, beyond the next few days.

The very measured reaction to the news of the Obama victory suggests that this event risk was mostly priced in for the short term. In the bigger picture, of course, this event marks the starting point of a new era in market history and we will have plenty of time to think about the consequences of a new Democratic president with strong majorities in both house of Congress. This is a very different environment than the one under Clinton, for example, whose initiatives were hampered by Republican lawmakers for most of his presidency. With a population suffering and looking for change and one political party clearly in power, it is obvious that policy response will be a pivotal input in trading and investment opportunities for at least the next two years until the midterm elections of 2010.