Equities firmer on the day
RBNZ keeps rates steady
Nikkei 1.78% Dax 0.40%
UST 10Y 0.98
Asia and the EU
RBNZ on hold
North America Open
It’s been a relatively quiet uneventful session in Asian and early European trade with equities firmer but FX flat as many markets had bank holidays due to Armistice Day.
Stock index futures were higher by 1% but the continuing insistence by Trump that the election was a fraud and his refusal to enact a peaceful transfer of power is a risk that the market may be sorely underpricing.
So far markets have followed the stoic amusement of President-elect Biden who has generally ignored the noise from the White House and has proceeded to move ahead with the transition plans. But Trump has already caused incalculable damage to the institutions of democracy and the rule of law and has shown no indication that he is willing to accept the results while at the same time offering no proof of any fraud.
For now, the markets are content to ignore the theater out of Washington DC, but the longer the standoff lasts the greater the chance of a true constitutional crisis that could begin to weigh on investor sentiment. Combined with the rising hospitalization count of the COVID infections that could stress the healthcare system to the limit the two factors could create a sharp reversal in the equity rally as we approach the year-end.
In FX the action was generally subdued with EURUSD starting to feel some pain from the rising COVID count in Europe as the pair slipped below the 1.1800 figure while cable remained above 1.3250 but was off session highs.
The biggest event of the night was the RBNZ rate decision which kept rates on hold and scaled back its plans to move to negative rates for now. The news helped push the kiwi higher on the day with the pair rising by more than 65 pips towards the .6900 figure.
NZDUSD is perhaps the most emblematic risk-on currency in FX right now as the country has managed to avoid the worst of the COVID infections and has also managed to maintain civil relations with China unlike its bigger neighbor across the Tasmanian sea. If the bullish scenario of broad vaccine adoption and return to global growth takes place – kiwi stands to be one of the biggest beneficiaries of the trend and the pair could trade well above the .7200 figure if the risk-on flows take off.