Politics has once again triumphed over economics judging from overnight market price action.  US Equities are off, the VIX is up, the US dollar is lower, US Treasury yields are lower and the Mexican Peso/Japanese Yen cross (-2.5%)  is still proving to the be the FX market’s weapon of choice when it comes to reflecting sentiment regarding the prospect of Donald Trump becoming the next leader of the free world.

A slightly better than expected US manufacturing ISM print (51.9 from 51.5 and 51.7 expected) would ordinarily have bolstered market confidence that the unfolding economic calendar is not going to derail expectations for the Fed moving on rates next month. The detail weren’t quite so good, in particular the fall in new orders, but overall the data was enough to bolster confidence that a recovery of sorts in manufacturing is under way. Construction spending was weak in headline terms (-0.4% against +0.5% expected) but upward revisions to July and August totalling 1.1% offset this and if anything support an upwards revision to Q3 GDP.

Overriding the data was, it appears, a Washington Post/ABC poll published in front of the US trading day showing Trump with one point lead over Clinton (46/45). This after a poll by the same people on Sunday night had scored it 46/45 in favour of Clinton (the first evidence that the previous news of a fresh FBI probe into Clinton’s emails had hurt her poll standings).  This set off the aforementioned chain reactions in market, and which look to have been compounded in the last couple of hours by the news that the FBI has, seemingly out of the blue, just released documents related to the 2001 FBI investigation into the pardon of Marc Rich by President Clinton.  Some folks are openly wondering whether this is some sort of payback for Hillary Clinton’s blasting of the new FBI investigation last week.

From an early US day high near 1.88%, 10 year US treasuries slumped to 1.81% at one point before pulling up to 1.83% as we write, while pricing for a December Fed rate hike has come in to around 70% from 77% this time yesterday. The VIX is up to 18.9 from 17.1, having been briefly above 20 and to its highest since early September. This has checked the upward progress above 0.7650 seen in the AUD/USD following yesterday’s China PMI data and then studiously neutral post-meeting RBA statement.  The latter has left us confident that barring a major shock in the coming weeks  the RBA has sent a signal that market’s should once again ‘chill out’ at least until February next year.

In commodities oil is down again but not by much but iron ore has added another $1 to a new post May 2016 high and steaming coal another $5 to yet another new cycle high.

Coming Up

There’s both local and international data interest today, ahead of the FOMC meeting outcome and accompanying statement that will be released at 5:00AEDST tomorrow morning. The latter should be a fairly benign affair, with various Fed officials having said in recent weeks that there is reason for the Fed to pass on November and await the next ‘set piece’ meeting in December and after the US election has passed – the latter now an even more pressing constraint.  With markets still pricing risk of a December rate hike at 70%, the Fed has no need to put markets any further on the scent.

New Zealand has its Q3 labour market data at 08:45 AEDST. The unemployment rate is seen stable at 5.1% with employment expected up 0.5% on the quarter and 5.4% one year ago.

In Australia, September building approvals are expected to have moderated slightly (consensus -3%, NAB also -3%). This would sill leave approvals 2.1% higher on a year ago, though this would be down from 10.1% in the year to August.

Offshore tonight, there are no trop-drawer releases, though they’ll be passing interest in the US ADP employment reading as a sanity check on current expectations for a rise in non-farm payrolls in the order of 175k to be released on Friday.

Overnight

On global stock markets, the S&P 500 was -0.58%. Bond markets saw US 10-years +0.36bp to 1.83%. In commodities, Brent crude oil -0.43% to $48.4, gold+1.2% to $1,289, iron ore +1.5% to $65.33. AUD is at 0.7651 and the range since yesterday 5pm Sydney time is 0.7642 to 0.7688.

For full analysis, download report:

• Markets Today: 2 November 2016 (PDF, 133kb)

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