By Michael McKenna
Risk appetite has returned to markets as the US presidential debate saw a composed performance from Democratic contender and avatar-of-the-status-quo Hillary Clinton. While the online polls are mixed, and the pundits have largely sided with whichever candidate they favoured 24 hours ago, markets were far more ebullient as the current world order defended its ways, landed a few blows on a prominent detractor, and did not suffer from any mysterious ailments under the hot lights of stage and scrutiny.
Ultimately, however, Saxo Bank head of forex strategy John J Hardy said on today's morning call
that "the whole episode illustrated that the market lacks conviction," adding that with just over 40 days to go until the ballot, "we are back to square one" in the wake of the first bout between Clinton and her bombastic rival.
"We are running out of room to manoeuvre in the major FX pairs; USDJPY could squeeze higher if 101.25-50 breaks, EURUSD could do the same on a break of 1.13, AUDUSD is watching the 0.77-plus range – markets are jumping around", says Hardy.
Despite the still-inconclusive action seen in many pairs, however, Hardy says "I still think the USD has the potential to come back."
The two pairs that were most affected by the debate were USDMXN and USDCAD, both of which plunged as markets concluded that the protectionist Trump's debate performance was not enough to dramatically shift policy odds regarding the US' two closest neighbours.
USDMXN, in fact, plunged by 1.90% as traders were obviously buoyed by Clinton's defence of the current, notably wall-less state of affairs between Mexico and its northern neighbour.
Source: Saxo Bank
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Beyond the debate – which in the absence of Monty Python-esque goosestepping from Trump and the onstage death of Clinton must be classified as a welcome anticlimax – the US session saw Twitter shares rise by a further 3% as speculation concerning a Disney buyout grew more pitched, more specific, and more elaborate with the floating of potential ABC/ESPN integration plans.
In the Asian and the pre-market European sessions, equity futures rose with the pro-Clinton relief rally and continued to do so in the wake of the opening bell at the Dax and FTSE. Concerning world stocks, Saxo bank head of equity strategy Peter Garnry says that his model is "close to a long signal in the Australian S&P/ASX 200 at 5,454" and gives some comment on the disastrous scene at Deutsche Bank.
"DB shares hit an all-time low after German chancellor Angela Merkel ruled out a federal bailout [of the troubled bank] and we are seeing some interesting activity in credit swap defaults where the one-year CDS is rising faster than the five-year... markets see more concern in the shorter-term," says Garnry.
Finally, and blessedly beyond the apparent reach of the Great 2016 ClinTrump Sentiment Machine for now, Saxo Bank head of commodity strategy Ole Hansen says that crude oil's fortunes remain largely dependent on the chances of a deal between Iran and Saudi Arabia.
"Crude is lower after Tehran downplayed the chance of a deal," says Hansen, adding that as crude represents a mere third of Iran's national revenue, the country simple has "less to lose" than Saudi Arabia, which has recently slashed ministerial salaries by 20% in a drastic move.
In gold markets, notes Hansen, the debate played a larger role with the yellow metal retreating somewhat in the wake of the post-matchup risk rally, though XAU still remains stuck in a tight, four-day range even as banking stocks head lower and bond yields slide.
"The gold trade has gone stale again and we need a break," says Hansen, adding that $1,345/oz is where he sees the key resistance for now.
As far as needing a break goes, we suspect that many investors – after parsing the endless swathe of post-debate commentary – will be feeling about as fatigued and cramped as gold is this morning, a circumstance we will not aid by leaving you with two of our favourite alarming quotes from last night's bout.
“There’s no doubt now that Russia has used cyber attacks against all kinds of organisations in our country" — Hillary Clinton
"The US is in a big, fat ugly bubble" — Donald Trump
"Laugh about it, shout about it, when you've got to choose...
any way you look at this, you lose." Photo: Wikimedia Commons