Asian markets positioning for blue wave
Stock futures up, bond yields up, Asian FX vs US up, oil up
Polls barely closed but Asia is already taking a punt on the outcome
With most polls not even closed yet, Asian markets have kicked off this Wednesday by what looks like an expectation for a Biden Presidential victory, along with re-control of the Senate for the Democrats. EURUSD is up sharply and the USD has also weakened against the offshore renminbi, Indonesian rupiah and Australian and Singapore dollars to name just some of the region's key currencies.
Equities in the US were positive yesterday, after several days of on-off risk trading, and equity futures suggest this positive momentum, based on expectations of substantial fiscal support in early 2021 in the event of a Biden win, will carry over into today's trading.
The offset of this anticipated extra spending will be additional Treasury issuance to pay for it, and US Treasury yields are pushing higher today, with the 10Y UST up 9 basis points from yesterday to 0.858 as of writing. This will likely be echoed in local currency bond yields today, with the Australian 10Y, an early trader, already matching UST yield moves higher, despite yesterday's rate cut and expanded QE program.
For the record, we suspect the result might be considerably closer than markets are implying today, and it is our profound hope that we have greater clarity when we look again tomorrow, though we are fully aware that this might not be the case.
Oil - following USD for now
The asset class which is not quite following the script is oil. The oil market has focussed on the Iran sanctions element of a Biden win to suggest that extra supply could weigh on crude, but the generic front month West Texas Intermediate future is pushing higher, probably dominated by the USD's weakness. Chatting to our US Chief Economist about this recently, he views the immediate concern for Biden (if he wins) as being domestic policy, so the Iran story may be a late player in 2021 rather than part of any immediate market knee-jerk over today and the rest of the week.
RBA's easing has short-lived impact
OK - we were the wrong side of the RBA on rates yesterday, though we did get the QE decision about right. There is a very good speech by Governor Lowe yesterday outlining the justification of the moves, though I'll be honest, none of it, especially the bit about the RBA still having monetary firepower, were terribly convincing. With the cash rate at 0.1%, together with the 3Y yield target, and the interest rate on Exchange Settlement balances at zero, there really is no further rates can go.
Usefully, Lowe noted that the RBA's view on negative rates has not changed. "...the Board continues to view a negative policy rate in Australia as extraordinarily unlikely".
More QE is probable from the RBA in due course than the AUD100bn over the next 6 months (5-10Y tenors) that has been promised. QE is not a very powerful policy tool and requires bucket-loads of asset buying to have much impact. This could quickly become a problem given the shallowness of the Australian Government bond market.
The Reserve Bank of New Zealand (RBNZ) has fewer qualms about negative rates. And this morning's news of a rise in the unemployment rate in 3Q20 from 4.0% to 5.3% provides a perfect excuse for the RBNZ's Governor Orr to match or exceed the RBA's easing yesterday. And given what has happened to both Australian and New Zealand bond yields overnight, and to their respective currencies (both stronger) Orr may see the arguments for a more aggressive move, including a foray into negative rates. In short, take care tracking the NZD higher ahead of the next meeting on November 11.
Its payrolls week still if anyone cares...?
I don't think there will be much interest, but in case anyone is still watching the macro releases, the ADP survey is out in the US later today, ahead of the Friday jobs report and all-important payrolls number. And US trade data is also out. When President Trump came to power in early 2017, the trade deficit averaged somewhere between $40 and $45bn per month. it now averages about $60-65bn. Of course, we don't know what the counterfactual would have been, so its not a clear cut verdict on US trade policies, but in case you were interested...
Philippine Trade data and China's remaining Caixin PMI surveys will probably not bother markets substantially in a day that will be dominated by election headlines. Have a very good day.
Download
Download opinion
3 November 2020
Good MornING Asia - 4 November 2020 This bundle contains 2 Articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).