Market Drivers September 27, 2016

Dollar rallies post debate
Abe has confidence in Kuroda
Nikkei 0.84% Dax 0.11%
Oil $45/bbl
Gold $1339/oz.

Europe and Asia:
No data

North America:
USD Flash PMI 09:45
USD CB Consumer Confidence 10:00

With economic news essentially non existent today, the price action in the currency market was dominated by US politics as traders reacted to the the first Presidential debate between Hillary Clinton and Donald Trump.

Mr. Trump, whose controversial remarks about trade and foreign policy have set investors on edge was seen as the loser, at least by the measure of reaction in FX where the dollar rallied broadly in relief. However, perhaps the clearest indication that Mr. Trump fared poorly was the the 2% jump in the Mexican peso which has come under relentless selling assault over the past several weeks as Mr. Trump surged in the polls.

Mr. Trump’s comments about building a wall on the border as well as a slew of protectionist rhetoric weighed heavy on the peso, as the Mexican economy would bear the heaviest brunt of his policy proposals.

It’s much too early to tell if the debate served as turning point in the campaign. The two candidates remained deadlocked in a virtual dead heat and although the debate was estimated to have drawn 100 million viewers the partisan nature of the election could mean that few minds were changed by yesterday’s event.

What is becoming clearer from an investment point of view is that volatility in the capital markets is likely to rise sharply as the political uncertainty surrounding the election intensifies. At this point it appears that neither candidate will be able to establish a commanding lead and therefore the outcome will be very difficult to handicap.

Indeed, the post debate analysis barely ended and the forces of risk aversion returned to the markets. Equities markets gave up their early gains with DAX dropping 0.82% by mid morning trade while USD/JPY gave up most of its gains trading at 100.35 versus 100.98 just a few hours earlier.

With little eco data on the docket in North America today risk aversion flows may dominate trade for the rest of the day. Although USD/JPY popped on the relief rally in Asia, those gains may not last. The pair remains under heavy selling pressure as US yields continue to receded from the near term highs and the short still eye the psychologically key 100.00 barrier as prime stop hunting territory. Therefore if stocks move lower as the day proceeds, that level may very well be tested by the close of New York session.

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