"Trying To Choose The Best Seat In Hell"

By Michael Every of Rabobank

Well, that was at least a debate. The second and final US Presidential debate --the last time we will ever see Trump in this format, win or lose-- actually saw some debating. Of course, “debate” nowadays means repeating rehearsed lines (and lies), but at least this dialectic was not epileptic.

For a neutral viewer taking each man’s claims about the other at face value, one can conclude that neither man has a real plan to beat Covid-19; or to solve healthcare problems; both men are deeply corrupt; and both actually work for foreign powers rather than for the US. There was certainly a lot of “Russia, Russia, Russia” (and the “Poor Boys”, and Abraham Lincoln, at least five “Come on”s, and just the token “Malarkey”). However, perhaps the most substantive differences emerged at the end, where the topic shifted to the environment and a specific Biden pledge to transition away from the oil industry.

What is the electoral impact? Many snap polls on Twitter at the end flagged Trump as the comfortable winner; others said Biden, more narrowly. Of course, TV polls were more partisan, reflecting the different realities with different news we now live in: CNN was Biden 53%, Trump 39%; Fox was Trump 62%, Biden 38%. Perhaps we should be grateful nearly 40% of both audiences are still receptive to other voices? One clutches at straws where one can nowadays.

Nonetheless, very few minds will likely have been changed in what is a base election where many have already voted. Pollster Frank Luntz did his usual survey of an LA Times panel of swing voters and reported that the adjectives they picked for Trump were: ”controlled; reserved; poised; con artist; surprisingly presidential”, while Biden was seen as “vague; unspecific; elusive; defensive; grandfatherly”. All involved also felt more disheartened after the debate than inspired. One voter called the 2020 election “a living nightmare”; another called it “trying to choose the best seat in Hell.”

Less American leaders shouting did not mean more Americans smiling, apparently. However, almost all of that downbeat, depressed panel of 14, when pushed, said they would vote Trump; only one was for Biden; and one was perhaps not going to vote.

The plural of panel is not data, of course, but in a race of very fine margins the closing statement from Biden on the oil industry could perhaps have a key impact in a number of swing states. Recall that this is about the Electoral College and not the overall popular vote. As Newsweek’s Josh Hammer tweeted: “Biden is literally handing Pennsylvania to Trump with those answers on energy.” Texas too, if that is really in play.

Today, the market will wake up and read the press and social media reports of the debate it likes best. One view has it that Trump failed to turn the race around; another that he did enough to keep the momentum behind him to spring another surprise. You pays your money, and social media makes your choice. (On which note, public intellectual Bret Weinstein says he has had his Facebook account disabled for no reason, the latest disturbing Big Tech censorship story in the last few days.) The Luntz panel bitterly complained about partisan US media, with one saying that they had to rely on foreign news to find out what is going on in their own country.

“Informed” markets will then trade the US election outcome accordingly. Probably this will be the same as yesterday: that’s certainly what the PredictIt market says anyway (it edged up Biden’s odds a cent to 64c vs. 38c for Trump). Yet let’s wait and see what the polls look like when the key moments of this debate are fully absorbed; and then what November 3 looks like.

Meanwhile, we are still where we were on fiscal stimulus – talking and talking, and not sure what the Senate and House will do even when the talking stops.

This combination of see-what-you-want-to-see is apparently enough to keep pushing US Treasury yields higher, carrying many others with them. 10-years reached almost as high as 0.87% yesterday, up around 20bp in a month, but were slightly lower in early Asian trading. Objectively, the drop in initial jobless claims data yesterday was encouraging, but there is an awful lot of presumed electoral outcomes and presumed spending being priced in. It is also true that US inflation expectations are picking up again; but in Europe and Japan they remain nailed to the floor (and virus cases head for the sky by the way).

So what is going on? Decoupling? US reflation? Shouldn’t this be positive for USD at some point? Oh, that’s right: the Fed won’t do anything even if we get a recovery that overcomes both Covid and the pre-Covid legacy of 40-years of structural issues that mean no generalised wage inflation.

Still, are the ECB and BOJ (where CPI was flat y/y in September and -0.3% y/y ex fresh food) really going to just sit there trying to find the best seat in hell too as deflation kicks in and their currencies soar too? How about the RBNZ (where Q3 CPI rose just 0.7% q/q vs. 0.9% expected, and was just 1.4% y/y vs. 1.7% consensus)?

Apparently so, says the FX market, busily looking at their Facebook feed to tell them who won the debate, and not following Bret Weinstein.