The chaotic presidential debate had little time to stir markets before hopes for a stimulus package stole the show. Will Congress remain more important than the next Commander-In-Chief? What is inspiring investors? Valeria Bednarik, Joseph Trevisani, and Yohay Elam discuss the latest in US politics, the Non-Farm Payrolls, the dollar's recent reluctance to move, and gold's new role.
Yohay Elam: President Donald Trump and former Vice-President Joe Biden bitterly clashed and markets retreated. Hours later, Democrats and Republicans seemed closer to a fiscal stimulus deal and investors cheered. Should investors watch the elections or perhaps the talks on Capitol Hill?
Joseph Trevisani: I think markets are watching the stimulus talks. Equities were rocky for weeks before the debate. Markets love government money.
Valeria Bednarik: You can't have one without the other, so guess we need to keep watching both... Although I have to agree with Joseph's statement. Money keeps the financial world rolling.
Yohay Elam: I agree, markets. Money, whether from central banks or from governments.
Joseph Trevisani: I don't think the debate registered with the markets..largely because I don't think there is a pronounced preference. Wall Street contributions are heavily slanted to Biden as they were to Clinton, but I think that is more of a bet on possibility than politics.
Yohay Elam: We did see S&P 500 futures retreat when Trump refused to say if he would accept the election results. But otherwise, indeed, debates do little to move voters and little to move markets.
Joseph Trevisani: I think he said 'fair and not fraudulent' results. Yes, I don't think the debates will matter to markets...Trump is a known commodity and Biden is a charter member of the DC-New York establishment...
Valeria Bednarik: The debate provided nothing of substance, beyond that particular line. It can hardly be considered a "presidential debate" there was no debate at all... but again, I have to agree with you. Debates don't matter. Elections do.
Joseph Trevisani: Well, I have always found the idea that the candidates should get up and argue policy like two academics rather silly.
Yohay Elam: Trump rallied his base with his bullying, and Biden rallied his supporters with conveying a message of safe and sound pair of hands. There are fewer undecideds than in 2016.
Joseph Trevisani: Mr. Trump's temperament is a question for voters, Mr. Biden's fitness for office is a question. Both were on display.
Yohay Elam: So indeed, the debate probably did little to change hearts.
Joseph Trevisani: Probably not. But there are two more comings.
Yohay Elam: Waking up at 2:30 AM that doesn't move markets is useless, but I will not miss the next ones.
Joseph Trevisani: I think, as I wrote in my debate piece, Mr. Biden's risk is greater. As Churchill said of Jellicoe, He is the only many who can lose the war in an afternoon. It was interesting. Since I covered it, the whole family watched my twins too.
Yohay Elam: Biden has a strong lead, so keeping the debate to a tie is a win for him.
Valeria Bednarik: Debates aren't meant also to present plans? strategies? A list of what they would do for their countries? I do agree that's silly to think they should argue like academics, but I think is worst this debacle of insults we saw.
Yohay Elam: A few hours after the US debate, there was one in New Zealand.
Joseph Trevisani: Trump was trying to rattle Biden, the tactic and the behavior is identical to what Biden did to Paul Ryan in 2016. It is bullying to an extent, but the logic is impeccable. The pressure is part of the brief, if Biden can't stand it from Trump on stage how will he manage the actual pressures of the job?
Yohay Elam: It wasn't academic but a fierce argument about policy fierce argument but civilized...
Valeria Bednarik: I would add "barely." Barely civilized. I mean, those two are battling to lead the world's largest economy. What example are they giving by calling each other names, and constantly interrupting? How does it not a terrible issue?
Yohay Elam: Civilized in New Zealand, not in the US, sorry!
Yohay Elam: The interruptions were mostly by Trump heckling.
Valeria Bednarik: Misunderstood you.
Yohay Elam: Biden joined later on.
Joseph Trevisani: And Wallace.
Yohay Elam: Wallace allowed Trump to interrupt also in the time dedicated to Biden without cross talk. A poor moderator. Trump lashed at Wallace when Wallace asked him about a healthcare program. As if it were a nasty question...
Joseph Trevisani: Wallace was badly biased. Just one example: he asked Trump about 'white supremacists' but nothing to Biden about Antifa and BLM. At any rate, I don't think the markets had much interest.
Yohay Elam: Perhaps markets see the race as over. FiveThirtyEight gives Biden an 80% chance. The Economist 88%.
Joseph Trevisani: The one exception would have been if Biden had a 'moment' but he did. not. About the same as their odds for the last election.
Yohay Elam: Trump can still win, but there is an equal chance of a massive Biden landslide. Markets have a short attention span.
Joseph Trevisani: I am not sure markets will have a response even on election night.
Yohay Elam: Or perhaps care more about the stimulus.
Valeria Bednarik: And what would happen to Wall Street if Biden wins? and to the greenback?
Yohay Elam: As the market love government money, they would get more with a Democratic clean sweep. A Republican hold of the Senate would block tax hikes. Markets would cheer that. But would be more worried about fiscal austerity imposed by the GOP.
Joseph Trevisani: In general I think markets would prefer Biden, not because of policy, in fact, Trump's economic policies are traditional Republican, but Trump is an outsider, Biden is an insider to the DC circuit.
Yohay Elam: Markets rallied in 2016 on Republicans´clean sweep and the promise of tax cuts. Trump is in power for nearly four years, he is the insider now The economic policies of the Democrats, regulatory, Green New Deal, energy are not favorable to business or markets.
Yohay Elam: When the economy was growing at a steady pace – growth during Obama´s years was similar to under Trump regulation mattered. I think that now, in crisis, stimulus matters more.
Joseph Trevisani: Yes I agree. A stimulus is the market focus.
Valeria Bednarik: Yups, but we are not getting anything clear from that front. Despite the latest efforts, they can't agree on a deal. I guess they will try harder to clinch an agreement before November 3.
Yohay Elam: Perhaps a deal depends on the NFP.
Joseph Trevisani: Which is why I am dubious it will pass. it would seem to benefit the incumbent since he is responsible for the economy in the voters' minds. Good point. Will a stimulus give a boost to hiring in October?
Yohay Elam: After the robust August numbers, Republicans lowered their offer to below $1 trillion. They raised it after the unimpressive retail sales report. As far as I understand, Dems want over $2 trillion and Republicans offer $1.6 trillion.
Valeria Bednarik: Which they can expand, yes, they are closer than ever.
Yohay Elam: I think that it takes time for stimulus to impact hiring, but not that much time. Perhaps November´s numbers could show the effect of stimulus beginning in October.
Joseph Trevisani: That should hardly mater. I mean whats half a trillion between enemies? Yes which may have been part of the Democratic plan altogether.
Yohay Elam: Hmmm
Joseph Trevisani: Delay the stimulus until it will have no economic effect before the election but the party and Biden will still get credit for signing. Very plausible tactic.
Yohay Elam: Dems passed a $3.4 trillion bill in May. If Republicans had gone along, the economy would be doing better. Helping Trump
Joseph Trevisani: Yes.
Yohay Elam: I think that Pelosi and McConnell are more ideological than political in their dealings.
Valeria Bednarik: In May, nobody was thinking that in October we were going to be where we are. Remember growth back in Q3?
Yohay Elam: In June, coronavirus seemed to be getting under control and fiscal hawks were not eager to provide more help. I think that with the second wave and a slowing recovery, they now see the need.
Valeria Bednarik: Exactly.
Yohay Elam: For markets, the sooner the deal, the better. And the bigger the better.
Valeria Bednarik: indeed. As said, easy money is the market's motor.
Joseph Trevisani: Yes.
Yohay Elam: The dollar is moving nicely as a safe'haven currency. Up with the debate, down with stimulus hopes.
Valeria Bednarik: Yes. Gold, on the other hand, is hesitating. Guess the market is also waiting there for some extra money.
Joseph Trevisani: Markets are waiting for it I agree.
Yohay Elam: Gold is not the safe-haven it used to be, or perceived to be. Moving with stocks lately.
Valeria Bednarik: Yups, King Dollar leads the way.
Joseph Trevisani: Gold seems to be hesitating. Perhaps because armageddon is temporarily off the table and so is inflation. But the dollar too is hesitating. Waiting for better US news, but maybe the election too?
Yohay Elam: Maybe the dollar is taking a break alongside the Fed? The Fed made it clear it will not raise rates for many years, but officials are not eager to change any other policy anytime soon.
Valeria Bednarik: Well, I don't think so. It's old news right now. The market is not interested in what happened, but in what will happen.
Joseph Trevisani: Central bank rate policy is moribund. No one is going to raise rates. The policy has moved on to their extra programs, credit market purchases...
Yohay Elam: The Fed is urging elected officials to provide more stimulus, seeming to say "we're done for now"
Joseph Trevisani: But even there...rate policy is at a dead-end. Zero rates and negative rates do not revive economies.
Yohay Elam: Innovation revives economies.
Joseph Trevisani: The Fed may soon be saying "'We're done.....' Yes, and innovation is purely private sector...though government funding can act as seed...
Yohay Elam: Government funding behind many of the technologies that were later harnessed by the private sector GPS, Wifi. We need both.
Joseph Trevisani: Exactly. I think it was DARPA, the US Defense Department's advanced project program.
Yohay Elam: And at least made way for fiscal stimulus talks to move markets and perhaps now the NFP will move talks. Time for NFP guesses? #NFPGuesses.
Valeria Bednarik: I would go for 1.2 million. Better than anticipated.
Yohay Elam: The FXStreet calendar shows a consensus of 850K, so that is a big beat.
Valeria Bednarik: Yeah, I'm optimistic this time.
Yohay Elam: I'll be cautiously optimistic. 950K. Will you have the rosiest forecast, Joseph?
Joseph Trevisani: I will. 1.2 million.
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