The United States

Once again we begin with the US where as of midnight on Wednesday, the presidential election resembles the Brexit shock. Donald Trump has pulled ahead in the betting markets as polling results come in.

Source: electionbettingodds.com

The market reaction was quite violent on higher US policy uncertainty.

1. Treasury yields dropped sharply.

Earlier in the day, the US 2016 rate hike probability rose to 86%, and it seems that the markets are now taking the hike off the table.

Also during the day US market-based inflation expectations rose to the highest level in almost a year - a trend that is now likely to reverse.

2. US equity futures dropped 5%, and VIX spiked in response to the elections news.

 

3. The dollar gave up 3.5% against the yen as the results came in.

During the day traders were bidding up US dollar puts, hedging against a Trump victory (a hedge that worked out quite well). The chart below shows USD/JPY risk reversal - the spread between the 1-week call and put implied volatility.

4. Crude oil gave up 4% on risk-off sentiment.

5. The Mexican peso breached 20 pesos to the dollar - an all-time low.

Is this massive risk-off sentiment an overreaction? We've seen what happened after the Brexit vote. More on this later.

Next, let's take a look at several other US economic developments (after all, the sun will still rise this morning).

1. The voluntary "quits" number - an indicator of workers switching jobs (presumably for better pay) - continues to rise. The Fed looks closely at this indicator as a measure of tightness in the labor markets. 

2. The hires-to-openings ratio remains suppressed suggesting ongoing skills divide. There are not enough qualified applicants for the available jobs.

Another way to look at the issue is via the Beveridge Curve which shows job openings vs. the unemployment rate. 

3. It's worth pointing out that when excluding all the new entrants into the workforce, there is still some room to go before all the jobs lost in the recession are fully replaced. Of course, many of those lost jobs were based on the housing/credit bubble and they are simply not coming back.

Source: @hamiltonproj, @Tmp_Research; Read full article

4. Speaking of housing, one contributing factor to low inventories is all the housing that is kept off the market.

Source: @joshdigga

Here are the reasons these homes are neither for rent nor for sale.

Source: Capital Economics, @NickatFP, @joshdigga

5. The NFIB small business sentiment index perked up a bit, rising more than expected. However, sales continue to trend lower. Many believe that a Trump victory would significantly improve small business confidence. 

 

Source: NFIB; Further reading

6. This last US chart shows the divergence in shares outstanding between an ETF focusing on inflation-linked Treasuries (TIP) and an ETF that buys regular long-dated Treasuries (TLT). Investors are preparing for inflation to move higher. 
 

h/t @MattGarrett3

Emerging Markets

1. Mexican bonds, stocks, and the peso continued to recover on Tuesday in anticipation of a Clinton presidential victory. Here is a large Mexican stock ETF ...

When the markets open this morning, the situation will quickly turn ugly for Mexican and other emerging markets.

2. Brazil's inflation continues to move lower (somewhat faster than expected). The central bank needs to resume rate cuts to avoid tight monetary conditions which would result from elevated real rates. 

3. Venezuela's stock market has gone vertical. Some suggest investors are pricing in Maduro's near-term exit. Perhaps. 

4. Nigeria's stock market is under pressure despite the settlement with Western oil firms (see story). Stay tuned. 

5. The Turkish lira keeps hitting new lows as the nation's industrial production misses estimates. 

Source: @fastFT; Read full article

6. After the big cash injection from its record bond sale (see story), the funding crunch in Saudi Arabia has been improving. The interbank rate has been steadily declining for days.

Saudi banks are recovering rapidly as the nation injects additional cash into the system.

 

Source: Bloomberg.com; Read full article

7. Hard-currency denominated sovereign debt issuance in emerging markets has been hitting new highs, with volumes expected to remain elevated.

Source: Barclays, @NickatFP, @joshdigga

8. Separately, here is the sensitivity of the largest economies in Asia (ex Japan) to US dollar movements. 

Source: Goldman Sachs, @joshdigga

9. We had a letter to the editor regarding the spectacular market rally in Bulgaria despite rising political risks.

On the topic SOFIX: I believe a lot of the current uptrend in the Bulgaria's stock index is attributable to the introduction of the first SOFIX ETF. This led to higher liquidity and expectations that such an instrument will attract foreign capital. 

Kind regards 
Nikolay

China

1. This chart of the PPI (which beat expectations) is forecasting goods inflation not just in China but globally. US import prices, for example, are already on the rise and will be pushed higher by this report.

2. China export growth missed consensus. 

3. The renminbi continues to decline. This trend may be contributing to the rapid rise in industrial metals prices (more on this below).

The Eurozone

1. German industrial production missed consensus. Construction activity has been particularly soft.

 

2. German trade surplus continues to trend higher as it exceeds consensus. As discussed yesterday, this trend of rising imbalances is going to create issues in the long run.

3. Small-and-medium-size enterprises (SMEs) in the periphery are getting access to cheaper loans. The ECB would view this as a victory for its TLTRO program, with monetary policy transmission finally taking hold.

Source: Credit Suisse, @NickatFP, @joshdigga

4. Just like France (discussed yesterday), Belgium continues to issue short-term debt at progressively lower (more negative) rates.

The United Kingdom

1. UK industrial production missed economists' consensus. The decline came from reduced utilities' output (due to warmer weather) and weaker North Sea production. Manufacturing output, on the other hand, showed improvement.

Source: @FT; Read full article

2. This chart looks at UK's recent wage declines relative to historical data since 1850.

Source: Credit Suisse, @NickatFP, @joshdigga

3. The Toblerone story (below) is not just about chocolate lovers getting less for their pound, but it's also a sign of what's to come. The UK will soon see rising inflation.

Source: NY Times; Read full article

Credit

Strong covenants are disappearing in the high-yield bond world.

Source: Moody’s Investors Service.

Equities

The next chart shows the number of S&P500 companies citing "election" during earnings calls.

Source: FactSet, @joshdigga

Here are the election-related topics discussed.

Source: FactSet, @joshdigga

Commodities

1. China's copper prices have gone vertical.

The "official" explanation is described below by the FT.

The Financial Times: - Demand in China has picked up for consumer goods such as air conditioners in recent months, while power grid spending has also been stronger than expected this year. China plans to increase power investment by 83 per cent in its 13th five-year plan period ending in 2020, according to Helen Lau, an analyst at Argonaut Securities in Hong Kong.

China consumes 40 per cent of the world's copper, and the power sector accounts for half of the country's copper consumption, she said Tuesday.

There is another explanation, however. As the renminbi drifts lower (above) and Beijing continues to close the traditional channels of moving money out of the country (including bitcoin), metals become a way top protect against further currency depreciation. 

2. China's zinc and rubber futures continue to move higher as the speculative frenzy broadens.

 

3. We also have coal and China's iron ore prices hitting new recent highs. Mining shares jumped in response. Are we about to see a massive correction in these markets as a result of the US elections?

 

 

4. Coffee finally peaked, dropping 5% on the day.

5. US Natural gas selloff continued on Tuesday, with the commodity dropping by over 7% on mild weather expectations.

 

5. Shifting to a slightly different topic, avocado prices have risen sharply this year, which resulted in rising avocado exports from Mexico. 

 

Source: @DeanDijour 

Food for Thought

1. Let's begin with US presidential campaign spending since 1960. 

Source: @galka_max, @Tmp_Research; Read full article

2. How the vote counting process has changed over time. 

Source: @FactTank, @Tmp_Research; Read full article

3. The number of people voting in presidential elections as a percentage of the US population since the nation's formation.

Source: @MaxCRoser, @Tmp_Research; Read full article

4. Education and religion. 

Source: @economics, @DeanDijour; Read full article

5. Change in the world's largest cities over the past decade. 

Source: @ftdata; Read full article