Japanese election sparks JPY weakness

European markets are on the rise, as we enter the biggest week for US third quarter earnings and a busy period for economic data. Despite the relative lack of market moving events today, this week’s release of earnings from five of the MAG7 does highlight a high likeliness of major volatility going forward. In a week that culminates in Friday’s US jobs report, the question of whether we are seeing a soft or even a non-landing will once again cast light on the trajectory of Fed rates in the months to come. The recent gains seen for the dollar and US treasury yields highlight underlying concern as we head into an election that throws up uncertainty and likely volatility. Nonetheless, with US indices continuing to show strength in spite of these risk-off dollar and yield indications, there is a clear sense that markets are front-running the election in anticipation of a surge in equities once the political uncertainty clears.

The Japanese Yen has taken a hit in early trade, following a weekend election that saw Ishiba’s attempt to consolidate power fail miserably. Following his surprise election victory, this snap vote had initially brought expectations of a strong victory in line with the historically strong LDP party. Nonetheless, with Ishiba leading his party to the worst election result in 15-years, his gamble looks to have spectacularly backfired, leading calls for the PM to step down just weeks after coming into power.

Crude oil has been hit hard at the open, following a relatively limited Israeli response in Iran which appears to have drawn a line under the issue, easing fears of a wide scale regional conflict between two military powers. Interestingly, despite the risks posed in the wake of the Iranian attack, much of the upside seen in energy prices had already been eroded prior to the weekend. This will count as a major victory for Joe Biden, who will have been desperate to keep a lid on energy prices in the lead up to the US election. For markets, there is a curious predicament over whether lower energy prices should be treated as a concern over weak global growth prospects, or grounds for optimism that inflation will continue to ease as we go forward.