US equity futures are higher with Mag7 names mixed but NVDA higher on its Dow inclusion with semis also ticking higher; the dollar and yields are lower as the Trump reflation trade took a hit after several polls over the weekend showed a rebound for Kamala Harris. As of 8:00am ET, S&P futures are up 0.1%, while Nasdaq futures are flat; small caps are underperforming as the yield curve bull flattens with the USD weaker on a reversal in the Trumpflation trade. Commodities are catching a bid, led by Energy as OPEC+ decided to delay its production increase again. Today’s macro data is likely to be ignored but given the weaker than expected NFP, investors may want to know the state of the economy as we get past the Election and the Thursday’s Fed mtg. ISM-Services tomorrow is the most important print this week with Sentiment updates on Friday.
In premarket trading, Nvidia and Sherwin-Williams advanced after S&P Dow Jones Indices said on Friday that the pair would be added to the Dow Jones Industrial Average. Nvidia (NVDA US) +2.3%, Sherwin-Williams (SHW US) +4.5%. Intel, which is to be taken out of the Dow Jone, dropped 2.3%, while Apple fell 0.4% after Buffett’s Berkshire Hathaway continued its sale of shares in the iPhone maker. Talen Energy shares slide 13% as the company said it was evaluating its options after the Federal Energy Regulatory Commission (FERC) rejected a nuclear power pact on Friday. In sympathy, we saw sharp drops across the nuclear sector: Constellation Energy (CEG US) -7.4% Vistra (VST US) -3.8%, PSEG (PEG US)-3.8%. Here are some other notable premarket movers:
As noted above, the dollar fell and Treasuries rallied as investors eased back bets on Donald Trump winning the presidential election after weekend polls indicated Kamala Harris was gaining ground. The Bloomberg dollar index dropped the most in more than a month, while the Mexican peso — widely viewed as the closest proxy for Trump's victory odds after it tumbled in the aftermath of Trump’s 2016 victory — was the top performer among 16 major currencies. The argument goes that Trump's support for looser fiscal policy and steep tariffs will deepen the federal deficit and fuel inflation, pushing up interest rates to the detriment of Treasuries but the benefit of the dollar.
Sentiment shifted after Harris received encouraging signals from an ABC News and Ipsos poll giving her a 49%-46% edge nationally against Trump in the race for the White House, while the New York Times/Siena survey released Sunday showed the Democratic nominee ahead in five of seven swing states. A psy-oped survey by the Des Moines Register that pointed to a lead for Harris in Iowa — a state that Trump has won in both of his previous contests — was a certain outlier, but served to sow doubt in the Trump victory narrative and underscore the ever-shifting dynamics of the race. Still, Harris’ advantage across all of the surveys was within the margin of error, and a NBC News poll released Sunday showed the race deadlocked 49%-49%.
“Somehow markets persuaded themselves that Trump was well ahead and had been priced as if it was quite a clear victory for him, which seems crazy,” Erik Nielsen, group chief economics advisor at UniCredit SpA, told Bloomberg TV. “What you’re seeing now is a realization that we got ahead of ourselves.”
Elsewhere, the Fed is expected to cut rates by 25 basis points Thursday, after the latest jobs data showed US hiring advanced at the slowest pace since 2020 while the unemployment rate remained low. Even so, the numbers were distorted by severe hurricanes and a major strike. Economists also expect the Bank of England to lower its benchmark rate by a quarter point to 4.75%.
European stocks also gained in thin Monday trading, with investor eyes keenly focused on Tuesday’s US presidential election. The Stoxx 600 gained 0.3% to 512.19 with 398 members up, 187 down, and 15 unchanged. Bachem and Burberry lead gains on the Stoxx 600, with Swedish landlord SBB among the day’s biggest fallers after a local business paper recommended its readers sell shares in the firm. Here are the biggest movers Monday:
Earlier in the session, Asian stocks also climbed, fueled by the weaker dollar, a rise in South Korean shares and hopes for more economic stimulus from the Chinese government. The MSCI Asia Pacific Excluding Japan Index rose as much as 0.9%, putting it on course for its best day in more than two weeks. Taiwan Semiconductor Manufacturing Co., SK Hynix Inc. and Commonwealth Bank of Australia contributed the most to the gauge’s gains. South Korean shares rallied after the nation’s main opposition party said it supported the government’s decision to drop a plan that would have imposed a capital gains tax on retail investors. A jump in Samsung Electronics Co. and LG Energy Solution Ltd. helped fuel a widespread advance in equities. In China, the top legislative body reviewed a proposal to move some local governments’ off-balance-sheet debt onto their official accounts, a highly-anticipated move to ease their financial burden that has been foreshadowed by officials.
In FX, the dollar is on track for its largest fall since late August while Treasury yields also retreated as traders pare so called ‘Trump trades’ in response to the latest US election polls. The Bloomberg Dollar Spot Index fell 0.7%. The moves came after a poll by the Des Moines Register showed Kamala Harris with a 47%-44% lead in Iowa — a state Trump has won in each of his prior elections. Subsequent rebalancing of Trump trades weighed on the dollar. Still, Harris’ advantage across all of the surveys was within the margin of error, and a NBC News poll released Sunday showed the race deadlocked. “Trump is still favored to win, but the odds have retraced quite a bit of the moves seen in October across a range of markets,” Michael Wan, senior currency analyst at MUFG Bank Ltd., writes in a note. “The Fed is likely to cut rates by 25bps in its upcoming meeting this week, but the result of the US election could matter materially for how the Fed thinks about the longer-term path beyond 2024.”
In rates, US 10-year yields drop 10 bps to 4.29% as Treasury futures reach session highs in early US trading after an opening gap higher, leaving yields 5bp-11bp lower across a flatter curve while the long-end-led gains flatten 2s10s by ~5bp, 5s30s by ~1.5bp. In 10-year sector bunds and gilts lag Treasuries by 10bp and 12bp on the day. The rally in Treasuries has not filtered through to European government bonds which have likely been hampered by a jump in oil prices. UK and German 10-year borrowing costs rise 2-3 bps each.
In commodities, West Texas Intermediate rose 2.5% Monday while Brent crude futures climbed 2.2% to around $74.70 a barrel, as OPEC+ agreed to push back its December production increase by one month while Iran resumed its escalation of rhetoric against Israel. Spot gold rises $5 to around $2,742/oz.
Today's US economic data calendar includes September factory orders at 10am; ahead this week are ISM services index and University of Michigan sentiment. Fed officials are in self-imposed quiet period ahead of Nov. 7 policy announcement
Market Snapshot
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A more detailed look at global markets
APAC stocks began the week mostly positive but with the gains capped amid the holiday closure in Japan and as global markets braced for this week's major risk events including the US Presidential Election. ASX 200 was led by strength in tech, telecoms and utilities, while financials also benefitted after Westpac's earnings. Hang Seng and Shanghai Comp were mixed as the former traded indecisively with strength in automakers offsetting the losses in the property sector, while the mainland was underpinned amid tailwinds from an unwinding of the Trump trade and with the NPC Standing Committee convening this week with participants eyeing the approval of over CNY 10tln of additional debt issuance for the next few years.
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European bourses, Stoxx 600 (+0.1%) are generally modestly firmer, having initially traded tentatively throughout most of the European morning. European sectors are mixed; Autos takes the top spot alongside Energy, with the latter buoyed by strength in underlying oil prices. Tech is found at the foot of the pile, hampered by losses in STMicroelectronics, after it received a couple of broker downgrades. US Equity Futures (ES +0.1%, NQ U/C, RTY U/C) are mixed, with the ES and NQ trading tentatively on either side of the unchanged mark in the run-up of the US Election.
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Fixed Income
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Geopolitics: Middle East
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Unless you've been hiding out on Mars, and if so who could blame you, then tomorrow will shape the direction of the world economy and geopolitics for the next four years. It almost makes the FOMC meeting that concludes on Thursday seem parochial by comparison.
We arrive at this monumental election week with bond markets having been on shaky ground of late with October seeing the worst month for the Bloomberg Global Agg since September 2022 when inflation was only just off its peak, the Fed was still raising by 75bps clips, and the Truss budget and UK LDI pension crisis had exaggerated the sell-off. Last week 10yr US yields rose +14.4bps with +10bps of it on Friday and a little surprisingly after a soft, albeit weather impacted, payrolls report. The most impressive part of last week's price action though was that it occurred alongside prediction markets pulling back from the Red sweep expectation that peaked the previous week. As an example, last weekend Trump has a probability of 61% on PredictIt versus 52% on Friday and 48% on Saturday while slightly rebounding this morning to currently stand again at 51%. On Polymarket.com Mr Trump was as high as 67% on Wednesday but this dropped to around 59% on Friday and over the weekend fell to as low at 53% (currently 56%), with a Republican sweep now at 39% having been as high as 49% last Tuesday. The dip over the weekend came after a highly anticipated Selzer De Moines Register Iowa poll was released on Saturday. The poll saw Harris with a 3-point lead in a state where polling averages have Trump 9 points ahead. Many political commentators had been waiting for this poll as it has one of the best track records amongst pollsters with FiveThirtyEight describing Selzer as "the best pollster in politics".
Anyone who has read "Fooled by Randomness" will be aware of Nassim Taleb's view that its often difficult to assess the difference between luck and skill when it comes to someone with a good track record. Someone always has to have the best track record. That could be skill or it could be say choosing heads five times in a row and getting it right. For now Treasuries are closed due to a Japanese holiday but long bond futures are up over a point which recoups more than half of Friday's losses. The dollar index, which has been correlated to some degree with a Trump victory, is down just over half a percent and flirting with the largest drop in two months.
Ahead of the vote, our US economists have published "Everything you need to know for election week" which provides a comprehensive overview of the "swing states" that will decide the election, a list of bellwether counties to pay attention to within those states, as well as a precise recap of the time line for vote reporting and media projections of the winner in 2020. They also cover the rules for challenging the voting results in the swing states as well as rule changes at the federal level adopted in the wake of the last election. They note that while a winner is likely to be declared in MI, AZ, WI and NV within the first 24 hours of the polls closing on Tuesday, PA and GA are likely to take longer to assess – potentially 3-4 days or longer if there are recounts. If states are disputed, we may not know until December 11, which is the federal deadline for states to certify their electors. So there remains a large degree of uncertainty around both the result, including the very tight House race, and when we will know it. Our economists' chart book also details the potential economic and market implications of the election outcome. This includes an assessment of the possible paths for fiscal policy, trade, immigration and regulation as well as their implications for economic growth, the fiscal deficit and financial markets. So it's well worth having on your bedside table as you monitor the latest through blearly eyes tomorrow night.
On Thursday, when we may or may not know who the next President is going to be, we should almost certainly see a 25bps cut from the Fed and a reiteration from Powell that the Fed's subsequent meetings will be data dependent. This potential cut is likely to be unanimous but subsequent meetings could easily be less so. The data dependency will mean it might be tough to garner too much from the meeting, especially if the election outcome and with it future fiscal and trade policies are unknown. Even if the election outcome is known the full extent of policy change could take months to become apparent, especially on trade if Trump wins.
With all due respect to the rest of the week's events they'll pale into insignificance versus the above. However, the brief day-by-day main highlights outside of this include US factory orders and a 3yr UST auction today; China's Caixin services ISM, the RBA meeting, US ISM services and a 10yr UST auction tomorrow; German factory orders, Eurozone PPI and a 30yr UST auction on Wednesday; German industrial production, Eurozone retail sales, US productivity, claims and unit labour costs, alongside BoE, Riksbank and Norges rate decisions on Thursday; with the UoM consumer survey on Friday.
In China, the focus will be on the Standing Committee of the National People’s Congress meeting expected to be held today through Friday as investors seek more details on stimulus measures. Our economists note that a fiscal stimulus package could be announced after the meeting on Friday.
For the BoE, our UK economist expects the central bank to make a quarter point cut for the second time this cycle, taking Bank Rate to 4.75%. He also highlights that the BoE's projections that are also due next week will incorporate this week's Autumn Budget (our economist breaks it down here). See his full preview of the meeting here.
Asian equity markets are mostly on the rise this morning, with the KOSPI (+1.50%) leading the gains, followed by the S&P/ASX 200 (+0.73%), the CSI (+0.72%), the Shanghai Composite (+0.53%), and the Hang Seng (+0.11%). Elsewhere, Japanese markets are closed for a holiday with S&P 500 (+0.24%) and NASDAQ 100 futures (+0.38%) both higher. Oil prices are climbing, with Brent futures up by +1.57% to $74.25 per barrel after OPEC+ agreed to delay its December production increase by one month.
Looking back on last week now and markets struggled across the board, as investors grappled with a weak US jobs report, disappointing earnings from big tech, along with growing uncertainty around the US election. Overall, that meant the S&P 500 lost ground for a second consecutive week, thanks to a -1.37% decline (+0.41% Friday), whilst the STOXX 600 in Europe fell -1.52% (+1.09% Friday). That was echoed on the rates side, with the 10yr Treasury yield ending the week up +14.4bps higher at 4.38%, its highest since early July. That included a +10.0bps sell-off on Friday despite the weak payrolls print. Likewise in Europe, yields on 10yr bunds were also up +11.4bps (+1.6bps Friday) to 2.40%, their highest since July as well.
Those losses came against the backdrop of an underwhelming jobs report on Friday, where nonfarm payrolls grew by just +12k in October (vs. +100k expected), marking the weakest growth since December 2020. In fact, the number was only positive thanks to an increase in government payrolls, as private payrolls actually fell by -28k. To be fair, the report was impacted by weather-related disruption from Hurricane Milton, along with the recent strikes. But even so, the previous two months were also revised down, and the 3-month average of payrolls now stands at just +104k, which is the weakest of this cycle so far. Elsewhere, the unemployment rate was at 4.1% as expected, but if you look at the next decimals, it was actually up almost a tenth from 4.051% to 4.145%.
One factor dragging down markets were those losses among big tech firms, and the Magnificent 7 fell -1.84% (+1.07% Friday). Indeed for the NASDAQ, it meant the index ended a run of 7 consecutive weekly gains, posting a -1.50% decline (+0.80% Friday). Otherwise, there were notable losses among UK gilts following the government’s Budget, with yields on 10yr gilts rising every day of the week. By Friday, that meant they were up +21.2bps over the week (-0.1bps Friday) to 4.45%, reaching their highest level in a year. The spread of 10yr gilt yields over bunds also widened by +9.8bps over the week (-1.7bps Friday) to 204bps.
Finally, oil prices fell back last week, with Brent crude down -3.88% (-0.08%% Friday). However, there were significant moves across the week, with a sharp downturn on Monday (-6.09%) after Israel’s strikes on Iran over the previous weekend were focused on military targets rather than any oil facilities. But later in the week, there was then a recovery in prices, particularly after Axios reported that Israeli intelligence suggested Iran was planning a retaliatory strike against Israel using its proxies in Iraq.
It's fair to say reviewing the week in 7 days' time from now will be fascinating!