Trump VS Clinton: Are we going to swings in the FX space?

[donaldprice]

It appears that viewers both internaly and externally from the US will be watching the debate very closely and seems that Trump is going to viewed as the bad egg for the US economy, therefore we may start seeing some pressure in the dollar. Which may explain why we will see a nice spike in the EUR $, Cable, YEN and the DX itself of course. This is why i believe fundametaly watching the polls on the Hilary/ Trump campaign is going to be more significant right up until November the 8th, of which also the FOMC is also due to meet on the 2nd of November. 

Brief article from the FT as well below:

When US and global audiences tune in to Monday’s presidential debate, currency traders in Asia are likely to lead the way. Donald Trump’s bashing of trade deals and recent rise in polls has duly pressured the Mexican peso, while the Canadian dollar is also viewed in a vulnerable light.

Simon Derrick of Bank of New York Mellon says the dollar has often reacted on debate nights down the years. “The evidence from 1976, 1980 and 2000 campaigns is of particular interest, although almost all the elections have something worthy of note.”

But the most sensitive, transparent gauge, say analysts, will be the dollar-yen market.

Last week’s BOJ meeting was dramatic enough, and should in theory have moved the dollar/yen needle more than it did. The reason it didn’t, say forex analysts, is that everyone is terrified of a big yen spike against the dollar on Monday (Tuesday in Tokyo) if Donald Trump bests Hillary Clinton in their first verbal skirmish.

The underlying assumption behind trading is that the raised speculation of a Trump victory will weaken the dollar against the yen as the biggest Japanese investors bet on instability.

 

 

 

 

[dash1]

This is going to be extremely interesting. Does a week are US dollar mean higher stocks again?

[donaldprice]

Not necessarily, todays news is Deutsche Bank taking a massive hammering, hence why banks shares are in the red. Eu rules are no bailout, if Germany does, that means Italy will demand its ability to implement a similar stance. The equity rally may go on for a while longer but with QE proving to be useless and BOJ planning further rate cuts and Yellen being held hostage to wall street their may be a very serious domino effect, most notably a potentialy spike in the Yield curve in EURO, ASIAN AND US Goverment Bonds.   

[Mercury]

If Trump does well in the debate AND the polls go in his favour afterward (that will take a day or so to show) then stocks could take a bit of a blow initially as the general consensus (as  pointed out) is for Trump to be bad for the stock market.  However I can't see all this leading to a major rout just yet, a Trump win could do this, especially after poor Q3 earnings.

 

In the meantime I am wondering, from a purely technical POV, that IF we have already seen a market Top at the small scale Head & Shoulders on the US large Caps (1 of my scenarios) then we may see an extended complex retrace into EWT 1-2 before a larger drop.  It is unusual for such market tops to fall off a cliff, in fact I'm not sure I can find one as far back as we can go so I would anticipate quite a bit of edgy range price action over the coming week under this scenario.  Not something I would be keen to trade myself just yet...

[Mercury]

Speaking of what might happen in the debate tonight (or rather early tomorrow morning for Europeans), and if you believe a nod for Clinton is good for stocks and for Trump bad then what are the chances of each nod?  From a probability assessment POV Clinton is the politician and more experienced public speaker with the full might of the DNC behind her.  She is better educated, more erudite, more widely read and has more foreign policy experience, not to mention her experience as the First Lady.

 

Trump is more of a street fighter (although not really given he was born with a silver spoon in his mouth).  He is unpolished but clearly also smart (not Clinton smart but not stupid and I believe he has been playing down to the masses).  He has a tendency to put his foot in his mouth but then again soo has Clinton of late (The Deplorables...!  Idiocy to insult and alienate a huge swath of the population).  He is a  savvy business man and used to dominating meetings but can he keep his cool and not come across as a brash bully?

 

On balance you would imagine Clinton will have the edge.  Trump will need to go on a major offensive to score and avoid foot in mouth moments while doing it.  I would guess his handlers will save that for the next 2 debates and just seek to pass him off as possibly Presidential this time around.  Clinton would have to have another nutty (weird eye movements or a moment of physical distress that calls her health into question) to lose this one I think so best guess is continued downdraught on stocks into the debate and a rally post debate if Clinton comes out marginally the winner.

 

Either way expect increased overnight volatility...

[dash1]

Thanks for that. It looks like I really found the perfect forum such good insightful analysis from all of you.

 

I just assumed that after Fridays so called profit-taking and oil staging A small recovery US markets would have opened slightly higher. I guess the issues in Germany have seriously put any form of higher movement on that.

 

If I remember correctly, there is some housing numbers coming out of them soon.

 

Let us just sit back and see what happens.

[donaldprice]

Speaking of Deutsche Bank. Just taking time to review this, i cannot imagine the German chancellor not bailing the bank out as this would cause huge instability in Germany not to mention 100,000 jobs. Also remember what happened in 2008, once Lenham went everyone was immediately thinking nobody was safe, not stating that it would turn into this scenario, but history does repeat itself. This is the mess of not hedging or insuring your risk against these MBS and CDS derivatives. 

Interesting article:

http://www.zerohedge.com/news/2016-09-24/merkel-rules-out-bailout-deutsche-bank-depositor-bail-coming

 

[Mercury]

DB could be a catalyst for some of it  but my feeling (and it is just that!) is that wider nervousness is taking it's toll with no positive stimulus for stocks.  The US Presidential debate is a cause for nervousness as Trump closes the gap and people worry about a Clinton blunder.  There are plenty of geopolitical events too: Syria kicked off in a worse way after the so-called truce (was that predictable or what!); another shooting in the US; Russia and Opec on Wednesday; Merkel back tracking on immigration in desperation (too little too late I think).  So take your pick I guess...

 

Presidential debate notwithstanding I think we are in for a volatile and uncertain period on stocks and bonds, with probably an overall sideways movement, until NFP and into Q3 earnings.  Tough to trade in my view... 

[Mercury]

DB were one of the key banks caught out in the US subprime scandal (so much for the smart professionals eh?) and I think the current weakness is in great part an extension of that issue never fully resolved.  I think Merkel is on record as supporting bail-ins (in other words screw the shareholders rather than the tax payers), it is certainly an Eurozone position and to give in on DB means allowing the Italians to do likewise (cue the end...)  But if shareholders do get screwed then who would want to be a shareholder? (cue the end).  Interesting times...

[dash1]

I agree there is just to much uncertainty at the moment however, we will see a bounce at some stage this week I think

[donaldprice]

They will most likely not call it a bailout or Merkel will just wait until it gets so bad that the shares accelerate in terms of downward pressure, then she may intervene and come up with some solution. Bank shares as a whole have all been under pressure since 2008 to meet shareholder expectations. The banking sector in general has been in structural decline now for some time with even some of wall streets top household names laying of workers all over their global presence. It also does not help the fact that we the ECB has got neg deposit rates which the Germans having been screaming about for a long time, and this in itself hurts the balance sheets. I think the amount of fines that some of these banks have received over the years is mostly as a result of sheer desperation to meet targets and i can only feel sorry for some of the workers in the city and out, who are part of a culture of huge risk taking and feeling constantly under pressure. The public under the impression that bonuses compensate, yeh that is all fine if your paid in cash , in actuality its all in shares of which you cant cash in for a specified number of months of years. It really is modern day slavery.  

Usually in cases like Deutsche bank, they would have to go with a begging bowl to share holders to raise capital, have deep cost cutting and sell of some of its assets or get the government to buy some of its debt ridden assets. Either way dont buy this nonsense that Germany will simply let the bank go bust, they will grab on to DB hand before they fall of a cliff. 

They should take a leaf from the notebooks of some of the mining companies like Glen, Anglo, LMI and others, who went through similar situations.