Politics To Overshadow Market Fundamentals In Quiet Data Week

Global financial markets were rattled last week after polls showed the U.S. presidential election race between Democrat candidate Hillary Clinton and Republican nominee Donald Trump was tightening. At the close in NYSE, the S&P 500 index declined 0.17% while the NASDAQ Composite index lost 0.24%. The Dow Jones Industrial Average lost 0.24% to hit a new 3-months low.

Overall, opinion polls still give Clinton the edge in national terms, but a tightening race has sapped market confidence and weighed on the dollar. A solid U.S. employment report for October failed to prevent to greenback from sliding against a basket of the other major currencies on Friday as investors remained cautious ahead of the upcoming U.S. presidential elections.

The Labor Department on Friday said that the U.S. economy added 161,000 jobs in October from the prior month. Economists had expected 175,000 new jobs. The unemployment rate dropped back to 4.9% last month from 5% in September, in line with expectation. The data supported the case that the U.S. central bank will hike interest rates at its next policy meeting in December.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slid 0.26% to 96.94. For the week, the index posted a fall of 1.27%.

Sterling ended the week with gains of 2.74% against the dollar after the U.K. high court ruled Thursday that Prime Minister Theresa May must have parliament’s approval to trigger the Brexit process. For the week ahead, U.K. industrial production and trade balance are scheduled for release, but these reports will matter little to a market focused on the U.S. election.

The same is true for the other currencies but the New Zealand dollar. The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish a policy statement on Thursday. The central bank’s decision may be affected by developments of the market after the U.S Election Day on Tuesday. However, the country’s inflation and trade have been falling even though employment growth, dairy prices and business confidence is improving. Therefore, a rate cut by the RBNZ is expected, especially when its housing market is cooling down.

If RBNZ slash its rate next Thursday, it will stand in sharp contrast to the outlook of the Reserve Bank of Australia, which left rates unchanged this past week. The RBA also issued a statement with a relatively optimistic tone, which helped send the Australian dollar sharply higher versus its major peers. Furthermore, Chinese PMI reports were also better than expected, which helped to boost AUD.

Next week will be a quiet week for the Aussie as no important data of Australian economy will be released. Along with the volatility from the USD, the AUD will be driven by economic reports from China. The Chinese closely-watched monthly export and import readings are due on Tuesday. Exports are forecast to fall at an annual rate of 6.0% in October, while Imports are also estimated to continue falling at the rate of -1.0% in the same month. However, October’s readings are expected to show an easing in the rate of decline compared to the prior month.

Meanwhile, inflation numbers out on Wednesday are expected to show further firming of prices in China with both consumer and producer price inflation edging higher. Annual CPI is forecast to rise by 2.1% in October, up from 1.9% the previous month. Besides, PPI is forecast at 0.8% in October after turning positive for the first time in four years in September.

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