Market Briefing: US election odds swing again
Market vol. US jobs data & election polls whipsawed markets. USD lost ground this morning (AUD higher) after election polls/odds narrowed.
US election. Voting progressively closes over Wednesday morning AEDT. Market reaction to the result could be binary. Volatility anticipated.
Event radar. RBA meets (Tues) with the US Fed expected to cut rates (Fri AEDT). But this should be secondary to the US election.
The sticker shock of a weaker than predicted US non-farm payrolls print and US election polls released over the weekend whipsawed markets on Friday night and this morning. On net, US equities increased (S&P500 +0.4%) with the tech-sector leading the way (NASDAQ +0.8%). Bond yields rose with the benchmark US 10yr rate (+10bps to 4.38%) at levels last traded in early-July. By contrast, in FX the USD slipped back this morning. EUR has ticked up to ~$1.0880, as has GBP (now ~$1.2970), while USD/JPY dipped slightly (now ~152.05). NZD (now ~$0.5995) and AUD (now ~$0.6605) are also a bit firmer compared to where they closed on Friday.
In terms of the US data, non-farm payrolls rose by just 12,000 in October, the smallest gain since employment declined in December 2020. However, as participants digested the underlying detail and factored in the negative impacts from Hurricanes Helene and Milton, as well industrial action at a few large US firms, knee-jerk reactions unwound. The broader set of figures showed that there were a large pool of people in the US not at work because of bad weather or strikes, while the unemployment rate and wages held steady at 4.1% and 4%pa respectively. In our opinion, the underlying pulse of the US labour market is loosening, but things aren’t falling off a cliff like the topline payrolls numbers suggest. The softening in conditions reinforce our thinking that the US Fed should lower rates by 25bps at this week’s meeting (Friday morning AEDT) and continue to flag that a further data-dependent recalibration in policy towards ‘neutral’ is in the pipeline. Markets are factoring in ~4 rate cuts by the US Fed by mid-2025.
That said, the US Fed looks set to play second fiddle to the US Presidential Election. And the latest opinion polls and shift in betting odds indicate it may be a closer race than anticipated a week ago. Several national and swing state polls show the gap between VP Harris and former President Trump is narrow (and within the margin of error), with probabilities of a win and sweep by the Republicans of Congress also declining (now ~33% from ~50% in late-October). Indeed, a Harris win (and a split Congress) is now marginally in favour. One-week implied volatility for the major currencies is currently above average, a sign traders are expecting gyrations over the period ahead. The first exit polls are scheduled to be published at ~9am Wednesday Sydney time, with voting progressively closing across the US in the hours after that (see chart below). Based on the use of mail-in voting, the closeness of the polls, and prospect for recounts/court challenges, a definitive result may not be known for days/weeks. We think the stage looks set for a binary reaction with a Trump win likely to see the USD strengthen given his policy platform, with a Harris victory expected to weigh on the USD. For more see Market Musings: US election - FX inflection point.
Global event radar: RBA Meeting (Tues), US Election (Tues/Weds), BoE Meeting (Thurs), US Fed Meeting (Fri), US CPI (14th Nov), China Data (15th Nov), US Retail Sales (16th Nov), RBNZ Meeting (27th Nov)
AUD corner
The AUD endured some volatility on Friday, in reaction to US labour data, and this morning following the release of the latest US election polls suggesting it is still a close-run race (see above). At $0.6605 the AUD is above where it closed on Friday, and it is hovering just under its ~1-year average. The AUD has also ticked up on most of the major crosses. The AUD is ~0.2-0.4% higher versus the EUR, JPY, CAD, and CNH relative to where it was trading at this time on Friday.
Locally, the RBA meets on Tuesday (2:30pm AEDT) with Governor Bullock also holding her usual press conference (3:30pm AEDT). This is a more in-depth quarterly meeting with the RBA refreshing its forecasts. On balance, we believe the RBA may mechanically tweak its growth and inflation profiles a touch lower due to technical factors such as a lower oil price assumption and higher market interest rate path compared to the August update. In our opinion, this means there is a risk the RBA softens its forward guidance modestly with rate hikes unlikely to be up for discussion. But we don’t think the RBA is likely to undertake a ‘dovish’ pivot and flag rate cuts are looming given the resilience in the labour market and stickiness in parts of the CPI inflation basket. We remain of the opinion that the RBA is on a different path to its peers with the start of a modest rate cutting cycle a story for H1 2025. Over the medium-term we believe the diverging trends between the RBA and others should be a relative AUD support, especially versus the EUR, CAD, GBP, and NZD.
That said, over the period ahead, global forces and USD trends will be more in the AUD driver’s seat. As mentioned above we expect the US Fed to lower interest rates again this week (Friday morning AEDT), however the US election should be the more influential market mover. US voting booths are scheduled to progressively close from 11am Wednesday AEDT, a couple of hours after the first media exit polls are published (~9am Weds AEDT). Yet, based on the tightness in the polls, use of mail-in votes, and potential recounts/court challenges definitive results may not be known for days (or weeks). This points to a period of market (and AUD) volatility as the election data generates false signals and/or until clear results trends emerge.
Given how close the gap is between VP Harris and former President Trump now looks to be the market reaction could be binary, in our view. As discussed previously, based on his platform of protectionist trade tariffs, greater fiscal spending, and moves to curb US immigration, a Trump win would likely see markets reprice the growth/inflation outlook, which in turn might see the USD rise (AUD fall). By contrast, a victory by VP Harris may see the USD weaken (AUD rise). For more see Market Musings: US election - FX inflection point.
AUD event radar: RBA Meeting (Tues), US Election (Tues/Weds), NZ Jobs (Weds), BoE Meeting (Thurs), US Fed Meeting (Fri), AU Wages (13th Nov), US CPI (14th Nov), AU Jobs (14th Nov), China Data (15th Nov), US Retail Sales (16th Nov), RBA Gov. Bullock Speaks (21st, 28th Nov), RBNZ Meeting (27th Nov)
AUD levels to watch (support / resistance): 0.6530, 0.6570 / 0.6660, 0.6700
SGD Corner
USD/SGD has extended its upswing over the past week, with the firmer USD on the back of shifting US election odds and relative strength in the US economy factors at play. That said, the USD has lost a little ground this morning as the latest polls showed the gap between VP Harris and former Pres. Trump had closed. At ~1.3220 USD/SGD is hovering near the top end of the range it has occupied since mid-August.
This week, as discussed above, the US Fed is expected to cut rates again (Friday morning), however the US election will be more of a guiding force. Election results will be coming out on Wednesday, but the closeness of the polls suggests the outcome may not be known for some time. FX market reaction could be binary, in our opinion, with a win by Trump likely to see the USD (and USD/SGD) rise, and a victory by Harris likely to weigh on the USD (and USD/SGD).
SGD event radar: US Election (Tues/Weds), US Fed Meeting (Fri), US CPI (14th Nov), China Data (15th Nov), US Retail Sales (16th Nov)
SGD levels to watch (support / resistance): 1.3130, 1.3190 / 1.3290, 1.3350
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (4th November)
CNY National People's Congress (no set time)
AUD Job Ads (Oct) (11:30am)
TUESDAY (5th November)
NZD RBNZ Financial Stability Report (7am)
CNY National People's Congress (no set time)
AUD RBA Decision (2:30pm)
AUD RBA Gov. Bullock Speaks (3:30pm)
USD Presidential Election
WEDNESDAY (6th November)
USD ISM Services (Oct) (2am)
CAD BoC Meeting Minutes (5:30am)
CNY National People's Congress (no set time)
NZD Jobs Report (Q3) (8:45am)
USD Presidential Election First Exit Polls Scheduled (9am)
USD Election Polls Start to Close (10am)
USD Florida/Georgia/Virginia Polls Close (11am)
USD Nth Carolina/Ohio Polls Close (11:30am)
USD New Hampshire/Michigan/Pennsylvania/Texas Polls Close (12pm)
USD Arizona/Colorado/Iowa/Minnesota/Wisconsin Polls Close (1pm)
USD Nevada Polls Close (2pm)
USD California Polls Close (3pm)
EUR Germany Factory Orders (Sep) (6pm)
THURSDAY (7th November)
CNY Exports/Imports (no set time)
CNY National People's Congress (no set time)
JPY Labor Cash Earnings (Sep) (10:30am)
AUD Exports/Imports (Sep) (11:30am)
EUR Germany Industrial Production (Sep) (6pm)
EUR ECB’s Stournaras Speaks (6:35pm)
EUR ECB’s Schnabel Speaks (7:10pm)
GBP BoE Decision (11pm)
GBP BoE Press Conference (11:30pm)
FRIDAY (8th November)
USD Initial Jobless Claims (12:30am)
EUR ECB’s Lane Speaks (12:30am)
EUR ECB’s Lane & Stournaras Speak (1:30am)
EUR ECB’s Stournaras Speaks (2:45am)
USD FOMC Decision (6am)
USD Fed Chair Powell Speaks (6:30am)
CNY National People's Congress (no set time)
AUD RBA’s Jones Speaks (1:45pm)
GBP BoE’s Pill Speaks (11:15pm)
SATURDAY (9th November)
CAD Jobs Report (Oct) (12:30am)
USD Uni. of Michigan Sentiment (Nov P) (2am)
CNY PPI/CPI Inflation (Oct) (12:30pm)
*Note, all times/dates provided are AEDT
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