Week In Review - Election Jitters Grip The Market

The markets have got pre-election jitters and stocks have had quite a bad week. A resurgence from Donald Trump in the polls has given Wall Street a bigger scare than any they received on Halloween. Two weeks ago it seemed like Clinton was a sure thing and the Democrats agreed, diverting money to tight races for Senate and Congress. However, the news of renewed FBI investigations into Clinton and her e-mails, has hurt her chances and it could be very tight in 4 days time.

The S&P 500 hasn’t had an up day since Monday 24th of October, should it close lower today it will be the longest run of down days since 1980. The NFP release today did little to impact stocks. The slightly below expectations reading of 161K will do little to shift Fed policy and the more important figure over the next month is likely to be inflation rather than jobs. The market is pricing in a near 80% chance of a rate hike come December, with a further two expected next year.

The big news from Britain this week was the High Court ruling on Brexit. Article 50 cannot be triggered, without the support of Parliament. This decision will be appealed by the Government, and this will be heard in December. The decision might make a ‘soft Brexit’ more likely and could delay the triggering of article 50. Despite this, Prime Minister May has told the European Commission President Juncker, and Germany’s Merkel, that she is committed to triggering article 50 by March next year. The market viewed this as a positive and Sterling rallied significantly. Currently Cable is trading around $1.25 and the Euro is down to £0.8878 (as of 13:15), it was above £0.9 prior to the ruling. Cable has been up every day for a week and is moving back above levels last seen prior to the flash crash.

The ruling could have wider reaching consequences for Government. A Conservative member of Parliament has resigned today over Brexit, the second MP to do so in as many weeks. The small majority the Conservatives had is not under threat yet, but they can hardly afford more dissention in the ranks. There have been calls for an early election, before the next one is due in 2020, these calls have been louder since the defeat by the Government by the High Court.

Oil was also on the slide this week, amid growing doubts over OPEC being able to reach an agreement over production limits when they meet in Vienna at the end of the month. Brent is down $5 in the last week, after tumbling through $50 a barrel. Further doubts over a possible deal were dealt on Friday lunchtime, when sources reported that Saudi Arabia had threatened to increase Oil output, if other nations didn’t agree to cuts and freezes. This sent Oil even lower and WTI nearly traded below $44, its lowest level since September 20th. Should Oil close lower today as it looks likely to, it will be a 6th straight day of losses.

There is just one thing that will drive the markets next week and people are beginning to position themselves ahead of Tuesday’s election. Should Trump win, stocks will take a hit. It is easy to imagine the S&P opening below 2000 on Wednesday morning should we be looking at President Elect Trump. Similarly there would be dollar weakness against major currencies, although the Mexican Peso would fall more. The FOMC are expected to hike in December and follow it up with two more hikes in 2017. Should Trump win, a December hike will be brought more into doubt and the path going forward might be slower.

A Clinton win on the other hand would likely see stocks recover from their falls this week. However, it would likely take strong Democratic gains in Congress and Senate to boost the markets further, as markets will benefit from the political stability that that would bring.

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Reuters: Business News