Buckle up, it’s debate time and the pure essence of gold comes to the fore as uncertainty is a commodity that the market is not short of these days.
Markets had mixed news to contend with ahead of the US presidential debate set to take place shortly: rising infection rates in New York pose a threat to the US recovery views.
More US Fed hand-wringing about the lack of progress on stimulus talks. And there was also news that Democrat House Speaker Pelosi was “hopeful” an agreement could be reached this week after negotiations between Democrats and White House advisers helped keep the markets’ stimulus hopes alive.
That US presidential debate is set to absorb the bulk of attention during the Asian trading day. This is the first of three scheduled and also the first direct debate between the two candidates. Set to last for 90 minutes, and divided into six segments:
• the Trump and Biden records
• the Supreme Court
• the economy
• race and violence in American cities
• the integrity of the election
While it is not clear just how much will be announced in new policies, there will inevitably be a “winner” reported. With that, perceived chances of election victory will undoubtedly shift and will likely play out symmetrically to the current market view.
There seems to be a bit of momentum behind Joe Biden in some vital state polls going into tonight’s presidential debate. According to a Quinnipiac University poll of likely voters released today, the race in Georgia is too close to call with 50% likely voters supporting Biden and 47% supporting Trump.
Trump won Georgia by five points in 2016, and the state has not voted for a Democratic president in 30 years. In Pennsylvania, overwhelming support in Philadelphia and its suburbs lift Biden to a clear lead, with 54% support to Trump’s 45%, according to an ABC News/Washington Post poll.
Meanwhile, Biden’s decision to release his tax returns just hours before the debate may also remove a possible line of attack for Trump, with the focus squarely on his own tax returns story.
Possibly big fish to fry today as the first US Presidential debate will full-heartedly absorb FX traders around the planet
US Dollar on the defensive
The USD is on the defensive this morning despite a soft “risk-off” mood in stocks as the EUR is buoyed by sentiment data and GBP by Brexit optimism. And probably a good showing in the pre-debate polls by Biden.
Euro trades higher
EUR-USD is higher on helpful sentiment readings, but inflation data highlights the challenge still faced by the ECB. Eurozone economic confidence rose to 91.1 in September from 87.5 (consensus 89.0), with a better than expected outcome for services and a somewhat worse than expected industrial confidence reading.
Pound holds onto gains
GBPUSD is holding onto the bulk of yesterday’s gains as the market retains its optimism around Brexit talks.
The British Pound galloped higher after reports that the UK government has sent five legal texts to the EU to consider covering fisheries, state aid, law enforcement, energy, mobility, and social security.
Cable rallied on comments from UK officials that they hope the texts will help make progress in talks this week and unblock the discussions.
However, just because the UK has sent the EU its ideas on the blockages is a long way from saying the EU accepts the proposals. The EU has not wavered in its view so far, and in all likelihood, will respond to the UK with a “thanks but no thanks.”
However, on standing on more concrete grounds for the British Pound on negative rates, Bank of England’s Bailey tries to walk a middle line. He says they are in the toolbox and that it would be a “cardinal sin” to understand the impact and consequences, but groundwork still has to be done with the banks.
Ringgit unfazed by presidential debate
The ringgit seemed pretty unfazed by the upcoming US Presential debate. The MYR saw an uptick in long positions overnight as trader quickly put the WGBI watch list and political concerns on the back burner as MYR interest followed the US dollar which traded weaker overnight.
Despite lower oil prices, MGS in real returns continue to look attractive, and with the currency still playing in catch up mode to regional peers, it attracted some favourable attention.
However, the fall in oil prices could cloud today’s view as could the post-debate polling results as a strong showing for the incumbent (Trump) could trigger a more robust US dollar response.
Gold up as US dollar falls
Gold is up as the USD falls, and traders may look to challenge USD1,900/oz level; this may depend on political uncertainty and the US presidential debate.
Despite a broad “risk-off” tone in the equity markets, the US dollar is back on the defensive. This helped assure higher prices for gold and silver. Gold is especially sensitive to EUR-USD levels, which were higher on helpful sentiment readings.
The odds still appear to be in gold and silver’s favour for further gains, at least as attention is focused on the election. Indeed, gold rallied in the run-up to the last presidential election even when the polls favoured the Democratic contender Hillary Clinton.
The pure essence of gold investment as a quality asset generally will come to the fore during the period of uncertainty. To which there is plenty of that around when you tally the US election risk, geopolitical concerns and the ongoing US-China friction – it suggests uncertainty is a commodity that the market is not short of.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp