In Markets – A Note of Caution Ahead of Debate

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Equities give up gains in Europe
Cable pushes towards 1.2900
Nikkei1.32% Dax 0.67%
UST 10Y 0.65
Oil $40
Gold $1881/oz
BTCUSD $10754/oz.

Asia and the EU
GBP Mortgage Approvals 84.7K vs. 71K

North America Open
No Data

Markets were cautious today with equities giving up much of their Asia session gains in morning European dealing in listless, quiet trade as participants steeled themselves for the first Presidential debate at 0100 GMT.

Overall the tone in the market remains positive as investors continue to bet on the fact that the US will enact the 2nd round of fiscal stimulus by the end of the year and that along with the planned EU stimulus will serve as a major catalyst to economic rebound in 2021.

Much of that assumption however depends on the assumption that the US will have an uncontested election and a smooth transition of power. Under that scenario regardless of who wins the Congress is almost certain to appropriate between 1 – 2 Trillion in funds that should serve as a major boost to aggregate demand.

However, if the election is close and contested in every state, every county, every precinct the prospect of long drawn out litigation would cast doubt on any fiscal impulse until the Presidency is decided and would surely weigh on stock into the end of the year. That’s why today’s debate could be a crucial moment in the election campaign because it could potentially send momentum towards Joe Biden or upend the expectations altogether. Biden has held a strong 8% lead for more than three months and the very latest revelation that Trump paid only $750 in Federal taxes could further damage the President. But Biden can be error-prone while Trump instead of offering any explanation or apology for paying far fewer taxes than even those Americans near the poverty line will lean into his position arguing that he simply used the tax code to its full advantage.

The hyperpartisan election climate, President Trump scorched earth rhetoric, and Vice President Biden’s penchant for malapropisms could combine for a highly volatile night if either candidate makes a major gaffe. The markets, therefore, are likely to be very cautious all day long and if today’s sideways price action in EU trade is any indication choppiness will be the theme of the day.

Boris Schlossberg
Managing Director

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