Round Two is a Draw

Daily Analysis - 10/10/2016

Presidential Election Debate Fireworks See Tepid Market Reaction

Financial markets suggest that the second US presidential debate that took place Sunday night had no clear winner, with US stock index futures trading marginally higher throughout the course of the debate. The Mexican peso, seen by many as a proxy play on the election, also went flat after gaining as much as 2.00% against the US dollar.

Clinton & Trump Trade Bitter Blows

The second presidential debate turned into a no-holds-barred attack by Donald Trump on Hillary Clinton, as the GOP nominee tried to shift focus away from the recent leaked tapes. The tension between the two was palpable from the very start, when no handshakes were exchanged when they met at centre stage. When asked to comment on the tapes, Trump aggressively denied having ever kissed or grabbed women without their consent, instead sniping that his crude words paled in comparison to how Bill Clinton treated women. The third and final presidential debate is slated to take place on October 19th. While the market reaction was largely muted, the Mexican Peso, which is viewed as a strong barometer of election sentiment, continues to gain ground versus the dollar after multiple Trump gaffes soured his probability of winning the Presidential race.

US Markets Down Post Weak Jobs Report

Major US equity benchmarks ended lower after choppy trading on Friday, snapping a 3-week winning streak as traders digested a weaker-than-expected jobs report. The economy added 156,000 new jobs in September while the unemployment rate edged up to 5.00% according to data from the Bureau of Labor Statistics. September’s job creation figures were a dip from the revised 167,000 jobs created in August, but remained above the Fed’s target of 100,000 new jobs per month. Most analysts said that though the numbers looked disappointing on the surface, it was not totally unexpected, with a December interest rate hike still in the cards. According to the CME Group's FedWatch tool, Wall Street’s expectations for a December rate rise were still hovering above 60.00% following the labour report, a development that will likely continue to harm equity valuations should more hawkishness from the Federal Reserve materialize.

Oil Under Pressure Ahead of Istanbul Meet

WTI crude prices felt added pressure during early Asian trade after the Russian Energy Minister remarked that his country will not commit to signing an output cap deal with Organization of the Petroleum Exporting Countries during this week’s World Energy Conference in Istanbul. OPEC had agreed late last month to slash between 200,000 and 700,000 barrels per day of their output to ease the global oil glut. However, doubts about the sincerity of the cartel members were further sparked when reports suggested that Iran and Iraq would not be turning up in Turkey. Although the deal in Algeria was cheered on by oil markets, the proposal has only been agreed upon in principle with many hurdles remaining. Crude futures for November delivery were last trading at $49.30 a barrel, down over -1.00% while Brent futures were down -0.80% to $51.51 a barrel.

French Central Bank Maintains Growth Forecast

The Bank of France kept its third quarter growth projection steady at 0.30% according to a note issued earlier in the session. The projection, based on the Central Bank's survey of business activity last month, confirms market expectations that the economy will rebound after the unexpected decline in output during the second quarter. Although the unemployment rate remains high at 9.90%, the pickup in inflation has been viewed as an optimistic sign, with headline consumer prices rising at a 0.40% annualized pace, reducing the risk of deflation in the economy. However, despite the optimism that the economy will grow during the third quarter after a -0.10% contraction during the second quarter, the country still faces headwinds in the outlook amid labour market reforms and lack lustre fiscal stimulus measures. In the meantime, the French CAC 40 is trading moderately lower, sustaining Friday’s losses.