· U.S. dollar hovers in calm before election; Aussie slips on RBA cut
The U.S. dollar hovered just below a one-month high on Tuesday, as investors opted for caution in the hours ahead of polls opening on election day in the United States, while the Australian dollar slipped after a central bank rate cut.
Markets are singularly focused on the election result, but rather than outright bets on a particular outcome many traders have flocked to the safety of dollars so that they are well positioned to take advantage of volatility when results arrive.
Against a basket of currencies, the dollar held at 93.996, just under a month-high hit on Monday. The safe-harbor yen has also ground higher in recent weeks and it was steady at 104.72 yen per dollar through the Asia session.
Opinion polls have consistently showed Democrat challenger Joe Biden leading President Donald Trump.
Analysts said a Biden win could weaken the dollar as he is expected to spend big on stimulus and to take a freer approach to trade – boosting other currencies at the dollar’s expense.
But with battleground states too close to call and with the prospect of either a Trump victory or an inconclusive result likely to support the dollar, selling was limited.
The yuan is also in the headlights – steady on Tuesday but expected to move with the election news because a re-elected Trump could stoke Sino-U.S. tension.
“A surprise Trump victory could reignite fears of tariffs,” said Mizuho chief Asia foreign exchange strategist Ken Cheung in Hong Kong.
“In our base-case scenario of a Biden victory, we look for more room for yuan appreciation with our target of 6.50 at 2021-end, given the waning risk of a new trade war and China’s robust recovery.”
· The Chinese yuan is ‘a long way’ from achieving reserve currency status, says strategist
The Chinese yuan has “a long way” to go before it comes anywhere close to challenging the U.S. dollar’s status as a reserve currency.
That’s according to David Roche, president and global strategist at Independent Strategy.
“Dethroning the dollar — which the euro tried to do, and settled at a miserable 18-20% of all the international things that go on — is very, very difficult,” Roche told CNBC’s “Squawk Box Asia” on Monday.
· A Biden victory would help boost emerging markets: Strategist
Rob Mumford of GAM Investments explains how a Biden win will result in a weaker U.S. dollar and provide a “very supportive backdrop” for emerging market equities.
· Investors brace for another wild ride on U.S. Election Night
The chief executive of hedge fund Hercules Investments has set up a trading strategy geared to benefit from a momentary spike in volatility he believes will occur when investors adjust their positions in response to the election result.
With the market swings that followed President Donald Trump’s unexpected victory in 2016 still fresh in investors’ minds, many have spent the last several weeks reducing their exposure across assets and hedging their portfolios against post-election volatility, while a few have developed strategies that could produce handsome profits - provided they work.
“This is one of the biggest events of the year,” said Dennis Dick, proprietary trader at Bright Trading LLC. “The uncertainty here makes the trading interesting.”
Others have prepared strategies that could benefit should volatility persist into Wednesday’s trading.
Analysts at TD Securities estimate the S&P 500 could climb 3% and 10-year Treasury yields could rise 15 basis points on Wednesday if Democratic nominee Joe Biden wins the presidency and his party wins 51 seats in the Senate, while the benchmark index could rise 1% and 10-year yields drop 10 basis points if Trump wins and Republicans keep control of the Senate.
An unclear election outcome, however, could result in more severe moves that day, with the S&P 500 tumbling as much as 5%and yields on the benchmark 10-year Treasury note falling by 15 basis points.
Some investors will seek to add to their favored positions should asset prices fall.
Mike Zigmont, head of trading and research at Harvest Volatility Management, said he had temporarily sold off his portfolio, which includes short options positions, in order to bypass any market whiplash.
“This particular event is so wrapped up in emotion and so complicated and so cloudy that it throws all kinds of risk into the mix that we just don’t usually come across,” Zigmont said.
· Biden leads Trump narrowly in Florida on eve of election: Reuters/Ipsos
A final Reuters/Ipsos national poll showed Biden with an outright majority among all likely voters: 52% said they were backing the Democratic nominee while 44% said they were voting for the Republican Trump.
FLORIDA (Oct. 27 - Nov. 1)
Voting for Biden: 50%
Voting for Trump: 46%
· Reaction to attacks in the Austrian capital, Vienna
Gunmen attacked six locations in Vienna on Monday starting outside the main synagogue, killing two people and wounding at least 14 in what Austria called a “repulsive terror attack”..
U.S. PRESIDENT DONALD TRUMP:
“These evil attacks against innocent people must stop. The U.S. stands with Austria, France, and all of Europe in the fight against terrorists, including radical Islamic terrorists.”
U.S. DEMOCRATIC PRESIDENTIAL CANDIDATE JOE BIDEN:
“We must all stand united against hate and violence.”
· Austrian minister says 'Islamist terrorist' carried out Vienna attack
Austrian Interior Minister Karl Nehammer described the assailant killed by police in an attack in central Vienna on Monday as an “Islamist terrorist”.
“We experienced an attack yesterday evening from at least one Islamist terrorist,” he told a news conference, calling the man an Islamic State sympathiser.
· China reports 49 new coronavirus cases, conducting mass testing in Xinjiang
China reported 49 new COVID-19 cases for Nov. 2, up from 24 a day earlier, the national health authority reported on Tuesday.
The National Health Commission said in a statement 44 of the new cases were imported infections originating from overseas and the other five were locally transmitted cases in the northwestern Xinjiang region.
· Australia central bank cuts rates to near zero, ramps up bond buying
Australia’s central bank trimmed interest rates to near zero on Tuesday and ramped up its bond-buying plans in a much-needed salve to aid economic recovery from the country’s worst downturn in a generation.
The Reserve Bank of Australia (RBA) said it would buy A$100 billion ($70.4 billion) of government bonds with maturities of around five to 10 years over the next six months, a more aggressive pace than some had expected.
The RBA also cut its target for three-year bond yields to 0.1%, from 0.25%, to align with the cash rate, which, it pledged will remain unchanged for at least three years.
· Pandemic likely tipped Indonesia into first recession since 1998: Reuters poll
Indonesia’s assumed entry into its first economic recession since the 1998 Asian financial crisis will probably be confirmed by third quarter gross domestic product data (GDP) being released later this week, a Reuters poll showed on Tuesday.
The median forecast of 23 economists polled was for a 3.00% on-year shrinkage in GDP during the July-September quarter, after a 5.32% decline in the previous three months, fulfilling criteria for a recession of two consecutive quarters of negative annual growth.
· Oil prices hold steady ahead of U.S. elections
Oil prices held steady on Tuesday ahead of the U.S. presidential election, retaining their steep overnight gains but capped by demand concerns and worries about rising supplies.
Hopes that major producers would hold back from ramping up output helped lift prices in the previous session, but the market faces surging coronavirus cases, rapidly rising Libyan supplies and uncertainty about the U.S. election outcome.
Brent crude LCOc1 futures inched up 1 cent to $38.98 a barrel at 0440 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 futures were up 8 cents, or 0.2%, to $36.89 a barrel. Both benchmarks gained nearly 3% on Monday.
Reference: Reuters, CNBC
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