US CPI tomorrow – Presidential debate will have more effect on financial markets than usual

Outlook

We get US CPI tomorrow but it looks like the presidential debate tonight will have more effect on financial markets than usual (and more than CPI). Wall Street is not happy about Harris’ proposed tax hikes and may respond to a clear Harris win with a hissy fit in equities. But politics rarely has a big or lasting effect on markets.

More likely to shove FX one way or another are central banks meetings, and not the Fed’s. Thursday the ECB is universally expected to cut rates, and next week (Sept 19), the Bank of England is expected to sit on its hands but whisper loudly about the meeting after that in November.

So, if everybody is cutting and by the same amount (except Japan, which will defer another hike for a while), where does that leave us? Looking at other data, probably. In that case, consider the wild improvement in UK labor market statistics (ahead of GDP tomorrow).

Employment rose 265,000 over the past three months, the most since May 2022 and double the Bloomberg forecast. The 3-month unemployment rate fell to 4.1%, the lowest since Jan. As for labor cost-push on inflation, average weekly earnings fell to 4% in July from 4.5%, the slowest since Nov 2020. Post-Covid is over, maybe. Regardless of central bank blather, the UK is back. 

Forecast

Today’s outcomes so far may well be the usual pullback Tuesday. We expect continuation after that, meaning an ongoing dollar recovery.

This time the presidential election could well have an effect. If Trump is seen as somehow “winning,” it’s dollar negative, although it’s tricky, because the rise in risk could just as well raise risk aversion and that tends to favor the dollar (in the perverse way we saw during Trump’s actual presidency). 

Tidbit: The dollar posted a gain against the Chinese yuan yesterday on an opening gap and was a big enough move to trigger a buy signal in the parabolic (for the first time since end-July, and that lasted only three days). Parabolic is notoriously laggardly but also often wrong. Still, the dollar rose over the 20-day for the first time since late July. The story (mostly from Bloomberg) has it that China has been interfering in this market to the tune of as much as $100 billion, although nobody really knows. We can’t take the move as reflecting meaningful sentiment, but it may be a start. On the fundamentals, it’s the yuan that should be crashing.

Tidbit: Tomorrow is the anniversary of 9/11. Plenty of political and natural disasters have a death-toll higher than we had on 9/11, but that’s not the point. The point--it was first attack on US soil since Pearl Harbor. Let’s hope they haven’t stopped teaching it in schools as they have with 1619, the women’s vote and other civics/social studies.

Political Tidbit: The presidential debate is being held tonight and will have a huge influence on the outcome of the election. One theme we keep seeing: let the voters see Trump’s incoherence, lack of self-control and nastiness. He loses votes when he is seen performing. 

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