Full Election Roundup

Courtesy of Bloomberg:

Democratic presidential candidate Hillary Clinton has been cleared again by the FBI after a review of new e-mails, but strategists wonder how much of an edge this will give her over Republican rival Donald Trump with the election just one day away.

• FBI Director James Comey, in letter to lawmakers, said yesterday that FBI hasn’t changed conclusions reached in July with respect to Clinton e-mail review

• POSSIBLE SCENARIOS
  • Market continues to price in Clinton presidential victory; split government remains likely and would largely be seen as a continuation of the status quo
  • MXN widely seen as most sensitive currency to election results; Bloomberg strategist George Lei offers guidance on what levels to watch heading into Election Day
  • Analysts say banks, financial companies might gain with either candidate as president amid rising spending, potentially higher interest rates, as either tries to boost growth
    • Read more in U.S. VOTE PREVIEW: Financial Cos. May Win With Clinton or Trump
    • Read more in RESEARCH ROUNDUP: Election Outcome Seen Repricing UST Curve

• POLLS & PREDICTIONS
  • Clinton leads Trump by an average of 2.6pts, according to polls tracked by RealClearPolitics website
  • FiveThirtyEight’s polls-plus prediction model shows Clinton has a 68.7% chance of winning the election, and Trump 31.2%, as of today

• KEY DATES
  • NOV. 8: U.S. presidential election
  • JAN. 20: U.S. presidential inauguration

• WHAT INVESTORS ARE SAYING
• TD (Mark McCormick, Nov. 7 interview)
  • Market is taking FBI news clearing Clinton as a good indication, possibly swaying a few undecided
  • USD most focused on reserve currencies like EUR, JPY; USD to weaken against them on Trump win, firm on Clinton win
  • Trump win would trigger CAD, MXN selloff, “aggressive weakness” in Asian EMs given greater sensitivity to protectionist economic policy
  • Clinton win to drive a “broad-based uptick in risk appetite as seen by recent moves in NZD, AUD; higher equities and bond yields
  • ‘‘If Clinton wins North Carolina or Florida in the first round of polling, the election’s pretty much over’’ as markets ‘‘won’t have to stay up all night and watch intently,’’ however markets will get ‘‘very jittery’’ if she loses those states as well as Ohio

• Societe Generale (led by Brigette Richard-Hidden)
  • If Clinton wins U.S. presidential elections, Mexican assets, esp. MXN should rebound sharply
  • Clinton’s history suggests she might have more interventionist approach on foreign policy than Obama; could support oil prices, defense and oil and gas stocks and oil-related currencies
  • On Clinton win, prefer equities to bonds; EM assets to outperform; buy USD vs EUR, JPY and CHF
  • On Trump win, recommend shifting to bonds from equities, hedging USD exposure; buying EUR, JPY, CHF, gold and China onshore; sell EM across asset classes (sell MXN/RUB is preferred short)

• BofAML (Ian Gordon, Nov. 7 interview)
  • ‘‘Hard to say’’ how much of a positive impact latest FBI news clearing Clinton will be for her ‘‘this late in the game’’ ** USD to underperform vs safe haven currencies like JPY ‘‘first and foremost,’’ followed by CHF and EUR on Trump win
  • Continues to recommend buying USD/CAD vol as CAD not pricing in enough risk premium, USD/CAD could test 1.40 on Trump win
  • BofAML equity analysts project SPX falling 3-5% on Trump win, providing downside to AUD as it would be negative for risk sentiment

• Citi (Steve Kang, Nov. 7 note)
  • Clinton win and split Congress may mean the Fed would remain on track for a Dec. rate hike, causing a marginal selloff in fed funds/OIS and short-end rates by +1.5 in 3-mo. tenor and +2.5 in 6-mo.”
  • Clinton win and Democratic sweep would be negative for U.S. equities, though wouldn’t be “significant enough to dent December probability”
  • Trump win and Republican Congress could cause 3-mo. fed feds/OIS to move lower and equity markets to sell off 3-5% amid uncertainty around trade and foreign relations

• Morgan Stanley (led by Andrew Sheets, Nov. 7 note)
  • FX repricing has been “heavily focused,” possibly over-exaggerating risk to MXN, while risks to other trade-dependent currencies like KRW have been underestimated
  • Short USD/MXN, which is seen as an overpriced hedge, long EUR/KRW, which is a low-cost hedge, due to less open trade policies
  • Stay long U.S. rates volatility given little election risk premium

• Credit Agricole (Michael Carey, David Keeble and Vassili Serebriakov, Nov. 7 note)
  • UST 2Y and 10Y yields could lose 10bp+ on Trump win, not as big a move as seen from Brexit but “could easily quash” December Fed rate hike expectations
  • USD rally to continue on Clinton win; Trump would trigger a “bifurcated USD” meaning stronger vs EM, G-10 commodity currencies, weaker vs “funders” like EUR, JPY, CHF
  • Notes USD “party bias” in favor of Democrats over past 40 years, avg gain of 1.3% in Democratic presidential administrations vs avg loss of 1.4% during Republican ones

• Mizuho (Ken Cheung, Nov. 7 note)
  • CNH and CNY’s correlations with DXY are highest among Asian currencies in past 6 months
  • Such high correlation will hold under Clinton’s victory and will drive CNH down as risk sentiment stabilizes while Fed is likely to stick to its December rate hike plan; may send yuan past 6.8 vs USD in “short term”
  • If Trump wins, CNH may find some relief from USD sell- off but elevated risk aversion and capital outflow from Asia and Trump’s unfriendly policy toward China may spur mkt to rebuild short CNH position

• Evercore ISI (Krishna Guha, Nov. 7 note)
  • Near-full employment and low rates make U.S. election outcome and fiscal policy more influential for economy, USD and rates than the Fed, as low neutral rates make it “very hard” for Fed to hike considerably
  • Clinton with divided govt to drive 2% equity rally, higher USD and UST 10Y yields, greater December Fed hike odds (85%-90%)
  • Trump win to drive 5%-6% drop in U.S. equities, lower USD and UST 10Y yields, diminished Fed prospects

• ANZ (Irene Cheung)
  • Market is re-factoring the possibility a Clinton win after clarity from FBI, thus lifting USD/JPY, USD/CNY and USD/SGD higher
  • Actual outcome of U.S. election is all that matters; harder to read market moves now as election day is so close

• Oanda (Stephen Innes)
  • Knee-jerk election reaction by Asian currencies to be 3% at most; export-driven KRW, TWD and yuan vulnerable to election
  • Flows will return to IDR, INR soon after thanks to relatively attractive yield

• Wolfe (including Chris Senyek)
  • Election outcome won’t change bearish view on equities as “shaky fundamentals” have caused higher volatility and stock market weakness over past two months, though Trump’s rising odds have contributed to heightened volatility more recently as well