An interesting 24 hours

To paraphrase one of the US presidential candidates:  it certainly was an interesting 24 hours in the political sphere on both sides of the Atlantic.

While the "Pussygate" tape has caused a furor in media and political circles, in reality it probably doesn't change the Presidential election very much, for the simple reason that we didn't really learn that much about Donald Trump from it.   If you thought that he was a close-minded, boorish vulgarian last week, the leaked tape is hardly going to change your mind, is it?  On the other hand, if you thought he was an outsider who represents a change from business as usual in Washington, the beef between him and the GOP hierarchy simply reinforces that image.  Polls seem to suggest that Trump's cadre of support remains largely intact after this scandal, which does raise the interesting question of what he could possibly do to alienate them.  (Note that this is being written before the debate on Sunday.)

Where the scandal could potentially make a difference is in the Congressional race, which was already shaping up to be a tight one.   Many in the GOP power structure clearly harbored doubts about Trump but gave their endorsement anyways;  the consternation is evident as a number of these endorsements are belatedly (and, potentially to voters, cynically) withdrawn.

It becomes an issue because a Clinton presidency with the Democrats controlling both houses of Congress is a different proposition to one in which the GOP retains control of the House (and thus, the purse strings.)  It does seems reasonable to suppose that a clean sweep would be viewed as a less market-friendly outcome, given the potential for increased regulation and government interference in the health care and financial industries, for example.  The latest odds continue to favour the GOP retaining the House, at least, but it would not be a surprise to see Democratic support rise in some local races.

In the UK, meanwhile, it was good to see the Government row back on the list-of-foreign-workers idea (at least a public list.)  With sterling clearly a talking point in UK markets (and on the street), Gilts duly broke the support identified on Friday, triggered stops....and then bounced back to close basically on the neckline.  Thanks for playing!  Regardless of what you think of the politics, further weakness seems a reasonable bet moving forwards given the impact of sterling on inflation and the government's criticisms of QE.


As for Friday's payroll data, it was kind of a blah report but certainly contained nothing to dissuade the FOMC from moving rates in December if such was their predilection.  While the headline payroll number was nothing special and the unemployment rate ticked up, the increase in both labor force participation and wages would have been a welcome indicator for the Fed.

 
Indeed, Stan Fischer's comments over the weekend sounded like they were from a man with his finger poised (gently) on the policy-tightening trigger.  In that vein, the weakness in the dollar, particularly versus the yen, looked somewhat overdone on Friday.   The decline almost certainly represents trimming from a market long a bit over its skis than a change in the perceived fundamentals, so if you liked it Thursday night you should also like it Monday morning.

The same, it appears, could be said for the presidential candidates as well....
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Anonymous
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October 10, 2016 at 7:38 AM ×

Interesting US presidential debate, it's absolutely clear that Trump DEMOLISHED clinton.

Also very clear to note the huge media bias against Trump, the obvious moderator bias against Trump etc. I think it's very likely that this backfires against the establishment (as it did when the establishment politicians and media lied to the British people about Brexit).

People need to seriously factor in Trump for president, and then having the entrenched establishment face legal proceedings and jail in many cases.

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Anonymous
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October 10, 2016 at 8:35 AM × This comment has been removed by a blog administrator.
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Anonymous
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October 10, 2016 at 8:54 AM ×

Buy gold, buy guns, vote Trump and be free to work at Wallmart like a true american Yee aah!!!

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Anonymous
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October 10, 2016 at 9:02 AM × This comment has been removed by a blog administrator.
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Anonymous
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October 10, 2016 at 10:12 AM ×

Regardless of each one's opinion, it doesn't take a liberal to view those type of comments as useless on a blog about markets but apparently no place on the internet can be spared by this mental diarrhea

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Anonymous
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October 10, 2016 at 11:38 AM ×

Maybe I am a young'un but the media bias is pretty bad to me and I am not even right wing in any way. Recent headlines promoted by the main media outlets (i.e the tax "revelation"...) are, at best, irrelevant.

Makes me wonder if polls are similarly impacted in a systemic manner. I have always treated claims of "silent majority" not picked up by polls as wishful thinking by right wing echo chambers but in the current climate I could honestly see people keeping their mouths shut rather then invite grief and only express their honest opinions in the privacy of a voting booth. Will be interesting to see in a few weeks.

Re suppressed volatility, if Trump gets i wonder if that will return in a big way.


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EuropeanBull
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October 10, 2016 at 12:56 PM ×

@Macroman:
Is it possible to block anonymous posting in the comment section?
If yes, I would recommend it. As someone who likes to read the post and the comments, I find that 90% of postings by 'anonymous' is entirely useless.
Anyone who spends the time necessary to formulate a decent opinion on any topic and wants to add to a debate should be able to make up some random nickname. Even 12yoHFM managed to do that...

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Anonymous
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October 10, 2016 at 1:22 PM ×

+1 on blocking anonymous comments

oops

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JMT
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October 10, 2016 at 1:34 PM ×

Well said EuropeanBull. It is moronic that the people behind those 'anonymous' comments think they have a gullible audience to influence on this site....especially when a high percentage of readers are not US citizens!

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12yo HFM
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October 10, 2016 at 1:47 PM ×

Being too young to vote I've ignored the recent political commentary, and today have been extremely busy getting long EU equities. Following the turbulence & lack of liquidity shown by recent G10 FX moves, we've decided to flee to the safety of DBK/DB stock and the DAX index. (You may recall a recent similar strategy of fleeing volatile US govt bonds, for the safety of Nasdaq stocks also worked well). Naturally we remain long of US equities (because even 12yo's know US stocks always go up). Peace.

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wcw
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October 10, 2016 at 1:54 PM ×

> a Clinton presidency with the Democrats controlling both houses

..is not the way you want to bet at even money. For the House to swing, in round numbers there needs to be a +8 D vote in the national two-party vote. Current demographics in the US sit around +2 D, with a high around +4 if you squint and there is unusual turnout.

I believe there literally is nothing DJT can do to alienate his base of support.

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Eddie
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October 10, 2016 at 2:00 PM ×

@EuropeanBull: experience from other places (forums) shows that forcing people to give a name does not improve the content quality. Only banning helps. Unfortunately.

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comdtywcpn
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October 10, 2016 at 2:15 PM ×

This discussion shows a much more pernicious problem: Bias is so pervasive in news, polls, "Think tank pieces", etc. that markets cannot really incorporate even the most basic information into asset prices anymore. That there's not much of risk premium for this uncertainty built into equities (at least) is amazing.
Why didn't the economics Nobel go to Alfred E Neumann?

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Flowthrough
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October 10, 2016 at 2:36 PM ×

Agree with wcw, very unlikely for house to flip. Real Clear Politics gives GOP 231 safe, likely or leans GOP with only 15 toss up and 189 safe,likely or leans dem. Senate odds are 50-50. I give Trump 1 in 5 odds. So pretty bullish outcome is likely.
To 12 yo HFM, while I appreciate your trying to update my language, may I suggest on phrase from long ago that I think works for you. Namely, from the Honeymooners, "to the moon Alice".

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Macro Man
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October 10, 2016 at 2:46 PM ×

I see the Senate as more of a 60/40 thing, Democrats over. While I agree that the GOP remains favoured in the House, the Dems' chances have gone from virtually nil to maybe 20% recently . That's enough to be interesting as a risk case.

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wcw
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October 10, 2016 at 3:00 PM ×

@Flowthrough, MM: if you haven't, consider scanning Gelman et al's analysis of vote intentions in 2012. Tldr: vote swings are mostly sample artifacts and real swings are quite small.

If correct, and imo it is, our estimates should be set by now and not change. There was always an outside chance of a D House, just like there was and remains an outside chance of a DJT administration. But those chances didn't change over last weekend.

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12yo HFM
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October 10, 2016 at 3:11 PM ×

@Flowthrough: "Bang-Zoom" ;)

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PK
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October 10, 2016 at 4:56 PM ×

Long time lurker, first time poster:

To the Americans on here: We (non-Americans) generally think Trump getting in would be an unmitigated disaster, although a lot of Americans seem less concerned?
Only thing I can think of to explain this is because Trump's hands would be pretty tied domestically, but he would have much more sway in terms of foreign policy?

Secondly, (as with Brexit) are we in markets looking at the wrong things (polls, odds etc) Democrats vote Democrat, Republicans vote republican, so Trump apparently doesn't care much for trying to sway voters in either group and instead concentrates on the forgotten blue collar middle aged white Americans in areas like the rust belt who if they turn up could actually cause an upset? Certainly those are the guys Trump appears to be speaking to in the debates?

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12yo HFM
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October 10, 2016 at 5:27 PM ×

@PK - Worth reading this viewpoint by an ex-trader regarding Trump's audience, and the political/economic division in society:

https://medium.com/@Chris_arnade/divided-by-meaning-1ab510759ee7#.s6rxgl4gx

(Oh and apologies for the non-parody, serious post).

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Anonymous
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October 10, 2016 at 5:32 PM ×

Let's not forget the Electoral College: "If the election were held today, Clinton would win the Electoral College in a landslide, 347 to 191. It requires 270 electoral votes to win the presidency."

http://www.upi.com/Top_News/US/2016/10/10/UPICVoter-state-polls-Hillary-Clinton-has-Electoral-College-edge-over-Donald-Trump/5501476107212/

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washedup
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October 10, 2016 at 5:42 PM ×

@MM - is this a new bizarro Macro Man where political comments are tolerated, and dare I say even welcomed by the moderator?

Be warned thats a slippery slope, and it may be best to douse the flames with a cold water discussion of the components of ur equity model and prognostications regarding eurodollar futures. Just a suggestion - its ur blog after all.

FWIW, I think as far as markets are concerned, who gets in the white house is far far less relevant than what (if anything) happens to european banks and property in Hangzhou - how much control do u think Mrs Robot and the oldest frat boy i the world exercise on that?

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Macro Man
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October 10, 2016 at 7:38 PM ×

@ washed A respectful discussion about politics in the context of how outcomes may influence markets is perfectly fine. Personal attacks on the basis of political views is not.

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Whammer
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October 10, 2016 at 7:40 PM ×

Some good points in that Arnade article, @12YO. It does remind me of the whole "What's the Matter with Kansas" thing again, too.

I believe I saw a poll today that put generic D support at +7 in Congressional elections, so that is getting a bit interesting in the House department. The danger for the R's in general is that Trump supporters will conclude that he is right, everything is rigged, and they will just stay home.

Even though I am a D, there are lots of good conservative arguments to be made about smaller govt. in general. The R's of the last many years seem to have forgotten a lot of that.

- Whammer

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johno
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October 10, 2016 at 7:58 PM ×

Thanks to 12yoHFM for that link. Arnade's other posts are interesting too.

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Skr
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October 10, 2016 at 8:13 PM ×

It's Not a good sign, when even zero hedge has turned to JBTFD.

http://www.zerohedge.com/news/2016-10-10/btfd-one-chart-shows-why-only-strategy-matters

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Anonymous
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October 10, 2016 at 8:32 PM ×

buyers of bonds here anyone?

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12yo HFM
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October 10, 2016 at 11:27 PM ×

I would strongly recommend you all watch this Trump/Clinton TV debate clip:

https://twitter.com/colinjones/status/785598293808181248


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Macro Man
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October 11, 2016 at 12:05 AM ×

@ 12YO, funny I just literally showed that video to my son.....

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Macro Man
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October 11, 2016 at 12:05 AM ×

@ 12YO, funny I just literally showed that video to my son.....

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Anonymous
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October 11, 2016 at 3:46 AM ×

MM ... is there any chance that 12yo HFM is actually your son?! :)

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checkmate
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October 11, 2016 at 6:34 AM ×

Outstanding clip. Thank you very much for the belly laughs.

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