The FX market is displaying a risk-off mood

Outlook:

This week brings earnings from major names (Facebook, Google, Twitter, et. al) at the same time the US Senate Commerce Committee is investigating whether social media platforms are exempt from letting users publish false crap. The economic calendar is light—new home sales today and Case Shiller tomorrow, along with the Conference Board consumer confidence. Thursday brings Q3 GDP and personal income and spending.

In addition, a bunch of central banks meet this week, including the Bank of Canada, the Bank of Japan, and the ECB. The US Treasury is offering (probably) $373 billion in new debt of various tenors. Wall Street guru Lynne points out that if rates have to rise to make the debt more appealing, equities will suffer, and they are already on the backfoot because of the earnings cycle, the election a week from tomorrow, and even daylight savings time kicking in next Sunday.

The FX market is displaying a risk-off mood, not yet in rip-roaring mode but with that potential. If risk-off takes off, the dollar will continue to make gains and the yields will reflect a safe-haven stance. We already see some evidence in the EM market.

But consider the source—and what is that? We are not sure of the source. If it's the European bourses reacting to the Covid surge in Europe, does that contaminate the US equity markets? Not a 50%-plus probability. US equity index futures are down, more than likely, on discouragement over the failure to get a second stimulus bill. US equities lead, they do not follow, and are terribly short-sighted. Besides, we get a ton of earnings this week.

What about risk-on emanating from the prospect of a Biden win? No dice. Biden has been leading all along and big banks have announced they expect a Biden win and can handle it.

At a guess, the soft risk assessment is not yet ready to burst into full-bore risk aversion. But it can wobble around and cause losses in key currencies, especially the euro, for a day or two. Maybe even a whole week, while we await Trump's October surprise. He has already failed with one attempted surprise—see below—but it would be naïve to imagine he doesn't have some others up his sleeve.

Politics: As of Friday, over 53 million persons had voted, more than a third of the total vote expected. The big turnout is in Texas, where more than 6.3 million people have already voted (2 million more than voted for Trump in 2016). In a hilarious development, the Texas State Supreme Court invalidated one voting place for drop-off ballots in the county that holds Houston, widely condemned as the most vicious of vote suppression. The court now allows drive-through voting, a victory for the County Clerk, who has an MBA and law degree from Harvard and Yale, and is black. Efforts by the Republicans to suppress the vote in other states is working less well than usual, too. People are waiting as long as 8-12 hours to vote. Three guesses who they are voting for.

Then there's California, which is a who-cares? 5.8 million early voters. California is winner-take-all and the high number of votes doesn't raise the electoral vote. Florida has a giant turnout, too, 4.7 million. If you study the maps at 538.com, Biden needs either Pennsylvania or Florida. wrote on Friday "We're now in the home stretch before Election Day, and we're way past the point where a normal polling error could let Trump close the gap. Still, he has a meaningful chance per our forecast — a little worse than the chances of rolling a 1 on a six-sided die and a little better than the chances that it's raining in downtown Los Angeles." Still, it doesn't pay to yield to complacency. The Trumpies are expected to turn out in droves on Nov 3. He can win Florida with the Cuban-Latino vote, for example.

In case some of the odd statements are puzzling, like Trump saying to Biden "you're the big man or maybe not" in the debate, here's the story: Hunter Biden purportedly left a laptop in a repair shop and the shop owner gave it to the FBI and copy of the contents to the far right. The NY Post and other outlets (Drudge Report) published the contents that show Hunter Biden used his name to financial advantage. This was supposed to be Trump's Comey-moment; Comey's second email investigation of Clinton's emails in late Oct 2016 convinced a tiny sliver of voters to stay home or flip their vote. But the Wall Street Journal applied proper journalistic standards to the story and declined to go along. The WSJ was also annoyed at being positioned as a "gatekeeper" for Trump's political purposes. The NYT has a lengthy story praising the WSJ on that stance, although noted writer Matt Taibbi (he of the giant squid accusation against Goldman in the 2008-09 financial crisis) claims it's a cover-up.

So, calling an opponent a crook didn't work the second time for Trump.

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