Sentiment subdued despite better-behaved debate

US Presidential Debate

Last night’s US Presidential debate was significantly more restrained in comparison to the first (almost certainly due to the fact that Trump and Biden both had their mics muted when they were not speaking). Both candidates were seen as more Presidential this time around, though some might view Trump’s comparatively larger improvement as a win for the incumbent. Others argue, however, that Trump failed to land the necessary blows that will be needed for him to further close Biden’s lead in the polls; “whether the debate will affect public opinion remains to be seen” states SEB. “Although Trump has begun to narrow down Biden’s lead in recent polls, the question is whether the time will be enough” continues the bank, noting that “with just 12 days left, Biden’s lead is still significantly larger than Clinton’s was four years ago… (and) 47.5 million Americans have voted early (this corresponds to more than a third of all votes cast in the 2016 election).” For reference, FiveThirtyEight (who came closest to the truth in 2016) puts Biden’s chances of winning at 87%, the Economist Magazine’s election model gives Biden a 93% chance of winning, while betting markets imply the probability of a Biden victory at about 65% vs 35% for Trump.

Markets

Markets this morning are mildly risk off, with US index futures and government bond yields a little lower, while in FX markets USD and JPY are the outperformers (DXY back above 93.00). In truth, US equities continue to trade with ranges since Tuesday (S&P 500 futures trade close to the midpoint of the 3400-3460 range that has been in play since Tuesday). European indices look somewhat heavier, though (futures) still trade above yesterday evening lows (for now); the Covid-19 news is still mostly negative, with Italy potentially set to face a national curfew within a week if cases continue to rise at the current pace, and cases in France spiking (more than 40k cases reported yesterday alone), and this could continue to weigh on sentiment this side of the Atlantic, though to be fair, the Covid-19 news in the US isn’t much better; US cases went back above 60k for the first time since early August, although the appetite for further lockdown seems lower than in Europe. Meanwhile, crude oil markets are conforming to the downbeat tone, with front month WTI and Brent contracts trading in the red.

Looking more closely at action within the G10; modest underperformance is being observed in SEK, NOK, GBP and CAD; sterling has seemingly shrugged off strong August retail sales numbers (core retail sales was up 1.6% on the month vs exp. 0.5% and headline was up 1.5% M/M vs exp. 0.4%), and eyes preliminary PMI October numbers at 0930BST/0430EDT, followed by a speech by BoE Deputy Governor Ramsden at 1500BST/1000EDT. EUR is also a touch lower, also eyeing the release of PMI data imminently. Elsewhere on the data front; soft Q3 CPI out of New Zealand (came in at 0.7% vs exp. 0.9% Q/Q, 1.4% vs exp. 1.7% Y/Y) appears not to have had a lasting impact on the kiwi; NZD is flat vs USD on the day, as is AUD and CHF. As noted, JPY is an outperformer.

The Day Ahead

0815BST/0315EDT, French Preliminary PMIs (Oct)… Just came out and was a little softer than expected; manufacturing fell to 51.0 as expected, services fell to 46.5 (exp. 46.8) and composite fell to 47.3 (exp. 48.0). EUR showed very little reaction, and EURUSD has largely held above 1.1800.

0830BST/0330EDT, German Preliminary PMIs (Oct)… Manufacturing PMI is seen remaining reasonably firm at 55.1, although still down from last month’s 56.4 reading. Services PMI is seen dropping below 50 to 49.2 and Composite PMI is seen dropping to 53.2 from 54.7.

0900BST/0400EDT, Eurozone Preliminary PMIs (Oct)… Aggregate Eurozone Manufacturing PMI is seen dropping to 53.1 from 53.7, Services is seen dropping to 47.0 from 48.0 and Composite is seen falling below 50 for the first time since July. Oxford Economics “ascribe the fall mainly to the worsening health situation, with infections on the rise across the Eurozone.”

0930BST/0430EDT, UK Preliminary PMIs (Oct)… Consensus expectations are for UK Services PMI to drop to 55.0 from 56.1, Manufacturing to slip to 54.3 from 54.1 and Composite PMI to drop to 55.6 from 55.7. Nomura expect that “further falls are likely – to below 50 – in the coming months on account of tighter restriction measures.”

1445BST/0945EDT, US Preliminary Markit PMIs (Oct)… Manufacturing PMI is seen posting a slight increase to 53.4 from 53.2, while Services is seen holding steady at 54.6.

1500BST/1000EDT, Bank of England Deputy Governor Ramsden chairs a conference on COVID-19 and financial stability.

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