US Goes to the Polls
Overview: The US dollar is narrowly mixed against the major currencies today, largely consolidating its recent losses. Equities are mixed. In Asia, Japan, Australia, and Hong Kong equities gained around 1%, while most other bourses were softer. In Europe, the Dow Jones Stoxx 600 is little changed in late morning turnover. Ten-year benchmark yields are mostly firmer, with Italy up three basis points, the most in Europe. Although there have been several economic reports today, investors seem mostly sidelined waiting for the US election results and FOMC meeting.Yesterday:
Asia-Pacific
China reported a $16 bln Q3 current account surplus. This follows a $5.3 bln surplus in Q2 and a $34 bln deficit in Q1. This means that through September, China experienced a current account deficit. The current account deficit partly reflects a deterioration in the terms of trade. The price of its imports rose relative to the price of exports. Think about oil and iron ore imports and manufactured goods exports. Also, China's outbound tourists are picked up as service import. Still, China's current account, like the US and Germany's, is driven by the trade account. Other developed countries, like Switzerland and Japan, investment income balance overwhelms the trade balance in the current account calculations.
The yuan is slightly firmer today, and it is off almost 6% this year against the dollar. Although the US Treasury did not find China's actions reach the threshold of "manipulation" and have not since 1994, Treasury Secretary Mnuchin has said he is open to changing the definition. Why is the yuan weaker against the dollar? Occam's Razor favors simple explanations. Here's one that seems under-appreciated: At the start of the year, China's 10-year onshore yields was 170 bp more than the US. Now it is below 35 bp.
Japan reported a dreadful household spending data for September. Due to the natural disasters, it was accepted that consumption eased from the 2.8% pace in August, which was a three-year high. However, rather than moderate to a 1.5% pace as the median forecast would have had it, it contracted by 1.6%. This increases the chance that the world's third-largest economy contracted in Q3, as it did in Q1. Early data for Q4 suggests growth returned.
The dollar continues to bump against resistance in the JPY113.35-50 area. The lower end of the recent range is seen near JPY112.50. There is an expiring JPY113.25 option for $620 mln that is in play. There are another nearly $900 mln in options between JPY112.85 and JPY113.00 that also expire today.
The Reserve Bank of Australia met and, as widely anticipated, kept the cash rate at the record low of 1.5%. Growth was upgraded to 3.5% this year and next, while unemployment is expected to ease to 4.75% form 5% over the next two years. Offsetting this was continued concerns about the property markets (especially in Sydney and Melbourne). The Australian dollar is consolidating that the upper end of last week's range. So far, it is the first session in a month, that the Aussie has not traded below $0.7200.
Europe
The Bundesbank's recent warning that Europe's largest economy and the world's fourth-biggest may have stagnated in Q3 appears to mark the bottom of Germany soft patch. Today, Germany reported a 0.3% increase in factory orders. It was the second increase in a row and only the third of the year, though the increase missed the median forecast for a 0.5% increase. Domestic orders rose 2.8%, and export orders fell 1.4%, which not because of demand from EMU, which saw its orders jump 7.8%....MORE
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