Risk Assets Bounce as FBI Clears Clinton

In what has been a sore spot for the Clinton election campaign, the Federal Bureau of Investigation has determined that it will not bring charges for mishandling classified information against the former Secretary of State.  The weekly reopening interpreted the move with a sigh of relief as equities rebounded and Mexican Peso managed to regain some ground lost the previous week.  With most polls indicating that the race remains exceptionally close, markets will likely remain jittery and slightly more volatile than normal until the voting results are tabulated on Tuesday night and Wednesday morning.  With Clinton roundly regarded as the establishment candidate, a continuation of the status quo is likely to benefit stocks whereas a Trump victory could see stocks fall sharply as gold and the dollar benefit from his more conservative fiscal policy views.

While data in the week ahead is expected to be relatively limited, with US elections being the predominant focus, the minutes from the September meeting of Bank of Japan officials showed the continued struggle to reach the inflation target.  Although the Central Bank was comfortable with rising economic activity, they suggested that quantitative easing did not have the desired impact on the economy.  This accounts for their change in focus from asset purchases to interest rate targeting. The results show that targeting yields in bonds has so far been ineffective at restoring inflation which remains a serious concern amongst policymakers.  While they believed that it will take longer for inflation expectations to firm up, pushing back expectations of hitting the 2.00% target to March of 2019.  In the meantime, the Central Bank’s ability to add to the monetary base has sent the Yen lower against peers, with USDJPY briefly climbing above 104.50.