With just 26 days until the U.S. election, U.S. stock markets are starting to consider the possibility of a dramatic Republican loss - not just the Presidential contest, but the party’s hold on Congress.
Currently economists and market watchers roughly fall into two camps: Those who believe that the Federal Reserve must begin raising interest rates now so that it will have enough rate cutting firepower to fight the next recession, and those who believe that raising rates now will simply precipitate an immediate recession and force the Fed into battle without the tools it has traditionally used to stimulate growth. Both camps are delusional, but for different reasons.
Global markets and US equity futures fell on Samsung Galaxy Note 7 contagion concern, while the dollar rose to its strongest level in 11 weeks and U.S. bonds declined as investors boosted wagers that the Federal Reserve will raise interest rates this year.
In the US focus will be on the market's reaction to the second presidential debate, FOMC Minutes but also retail sales, import and producer prices and Michigan sentiment. We also hear from various Fed speakers throughout the week, and Chair Yellen gives a keynote speech on Friday.
While the entire nation was transfixed on last night's latest, and most scandalous yet "debate", in which there was little actual debating and a lot of talking points and character assassination attempts, index futures were little changed throughout Sunday's 90 minutes event, suggesting that no clear winner had emerged on either side.
"The advent of non-bank liquidity providers such as HFTs has reduced bid ask spread and increased market efficiency in FX markets, but at the cost of lower market depth and withdrawal of liquidity provision in periods of stress."
U.S. equity index futures fell, with European, Asian stocks also declining before the September payrolls data, following the stunning 2-minute "flash crash" meltdown in sterling which plunged as much as 6.1%, the most since Brexit and is set for its biggest weekly loss since 2009.
US equity markets remain unimpressed despite the best efforts of a soaring oil complex and collapsing yen. Following further comments from Theresa May confirming 'hard Brexit' looms, cable continues to crash to a 1.26 handle - fresh 31 year lows. Yen is also in freefall once again, smashing the USD Index to 2 month highs. USD strength has accelerated PM losses with gold and silver erasing all gains post Brexit.
For the fourth day in a row, US traders arrive at their desks with US equity futures largely rangebound if with a modestly heavy bias, pressured by some recent weakness in European stocks, where DB continues to post modest gains following yesterday's report that Germany is pursuing "discrete talks" over the fate of the German lender. Oil has regained earlier losses following comments by Algeria's oil minister who said that OPEC could cut 1% more than agreed upon while sterling continues to slide on growing concerns of a "hard Brexit."
The USD Index is at its highest since late July, breaking out above its 200-day moving-average as Fed rate-hike odds soar. The knock-on effect of the surge is tumbling oil prices, plunging energy stocks, and subsequent drops in the major US equity indices... And then VIX was clubbed like a baby seal back to a 12 handle to ensure everything looks ok...