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Thursday, 20 October 2016

How Does the US Election Affect the US Dollar?


An election year is often a time of uncertainty for societies that practice a democratic or parliamentary form of government. Issues facing the nation’s economy, judicial system, as well as future control over the government’s legislative branch in coming midterm elections make their way to the forefront during the presidential election cycle.
From a trading and investing standpoint, the basic rule of thumb regarding the marketplace of financial securities is simple: Traders and investors do not appreciate looming uncertainty. The US presidential elections provide a voracious debate upon the direction of the country, and more importantly, provide uncertainty unto the marketplace.
Equities, futures and forex markets are all interested in the relative strength of the United States dollar, and ultimately that strength is based upon the economic health of the nation as a whole. The US presidential election has a great bearing on the direction of the domestic economy, and the potential influence on the USD itself can be substantial.


ELECTION DAY TRADING
Election Day in the United States is the Tuesday following the first Monday in November. For the period dating back to 1792, the US Presidential Election Day was held as a national holiday. It was not until 1984 that the stock market was open on election day, with the reason being cited that the market provided a necessary service to the public.1) At the time, skeptics maintained that insider trading could become a major concern as political insiders could use exit polling data in order to take positions in economic sectors likely to be affected by the results of the election. Eventually, the skeptics’ cries were drowned out, and the policy of open trading on Election Day became the norm.
In the current electronic marketplace, all trading is open on Election Day. Forex markets are open during their regular hours2), as is the CME Globex futures market, the NYSE andNASDAQ.
Although voting actively takes place during trading hours, the official electoral results are not available until Tuesday evening. The time lag effectively nullifies any potential impact of the election’s result upon the marketplace during peak trading hours. As information systems technologies have advanced, exit polling data has become readily available to anyone who wants to seek it out; thus, the threat of insider trading based upon privileged exit polling data is not as great as in previous decades.

PRESIDENTIAL ELECTION CYCLE THEORY

The impact of political events upon global markets can range from subtle, to substantial, to potentially catastrophic. One theory that attempts to establish a correlation between the result of US presidential elections and the valuation of equities is the “presidential election cycle theory.” In basic terms, the “presidential election cycle theory” is a belief that stock market trends can be predicted by the four-year presidential cycle.3) The theory dates back to 2004 and was developed by market historian Yale Hirsch.4)
In practice, the presidential cycle theory breaks down the performance of equities according to the four-year presidential term. The first year after a new president is elected often sees weak performance in equities. During year two, the performance of equities shows a gradual increase, with years three and four showing the strongest returns. Many reasons for the appreciation of equities in years three and four have been cited, with popular explanations ranging from successful policy changes attributed to the new administration, to shrinking uncertainty facing the market in general.
Of course, much like everything to do with investing and trading, the rule can be fallible and an oversimplification. An example of the theory being ineffective occurred in the election year of 2008, with the Dow Jones Industrial Average posting an annual decline of 33.84%.5) According to the theory, year four of the presidential term was to be the strongest year of the cycle, but 2008 fell dramatically short of the theory’s expectations.
An important caveat to the presidential cycle theory is that it is based upon four-year cycles and does not make special note of the final year of a two-term incumbent president. Since 1900, the S&P 500 has gained an average of 11.5% and has risen 83% of the time in year four of a presidency. However, over the same time period, the S&P 500 has fallen by 1.2% in year eight of a two-term incumbent president, with the market posting gains only 44% of the time.6)
The presidential cycle theory exists as only one part of the overall picture regarding the future strength of equities, and indirectly, the future strength of the United States dollar. Much like all indicators, the theory has its advocates and detractors, with most investors and traders respecting the theory as a timing device by which to enter or exit the market.

ANTICIPATION OF NEW MONETARY POLICY: PRE ELECTION MARKET MOVES

The “strength of the US dollar” is a popular topic within the campaign trail rhetoric of nearly all candidates running in the presidential election. Promises of job creation, national debt reduction and the creation of a strong national economy are often the vehicles by which a candidate promises to deliver a strong dollar. It is true that both the Republican and Democratic parties agree that a strong dollar is in the best interest of the country. However, the means of achieving this goal are very different.

MONETARY POLICY: REPUBLICAN PARTY

Fiscal conservatism is the calling card of the Republican Party, with proposed monetary policy centered on national debt reduction and job creation within the private sector. The potential election of a Republican candidate is oftentimes construed as being a precursor to business-friendly legislation, lower taxation and a tightening of government spending.
In the midterm elections of 2014, the Republican Party was expected to take control of the United States Senate and introduce legislation that would contest the United States Federal Reserve’s policies of low interest rates and quantitative easing practices. During the days leading up to the election, and in anticipation of the election’s result and potential shift in policy, the USD traded at multi-year highs against the euroSwiss franc and Japanese yen.7)Albeit an isolated example, and far from a concrete correlation, the mid-term elections of 2014 do illustrate the relationship between party politics and monetary policy facing the USD. As polling data became more concrete in the days before the election, traders found reasons to buy US dollars, expecting a tightening of interest rates and a long-term appreciation of the currency.

MONETARY POLICY: DEMOCRATIC PARTY

On the opposite side of the United States’ political aisle is the Democratic Party, with monetary policy objectives centered on public sector job creation and increased governmental spending. Support for legislation concerning issues such as universal health care, education entitlements and extensive public works projects can all be attributed to Democratic governmental policy. Investors and traders are oftentimes bearish on the potential election of Democratic leadership, due to the widespread association of the Democratic Party to principles of socialism, large government and higher corporate taxation rates.
The 2012 presidential election provides an illustration of market conditions during an election in which a Democratic candidate comes out on top. The hotly contested election was often seen as a toss-up by political experts, and the currency markets showed just how uncertain the “experts” were. Tight yearly ranges, with modest variation in exchange rate valuations, were prevalent in EUR/USD, USD/CHF and USD/JPY.8) The somewhat-static market conditions facing these major US dollar pairings are often cited to be the result of an upcoming period of uncertainty, and a trading strategy of “sit and wait” being adopted by traders and investors.
Over the course of 2012, many individual trading sessions involving the USD majors were volatile and chaotic. However, when compared on a yearly basis to non-election year returns, the trading ranges of USD majors for the year 2012 could be characterized as relatively tame.

SUMMATION

The trading of USD major pairings in the run up to the 2014 midterm election and the 2012 presidential election can be useful when examining just how different USD valuations can behave when facing different election-year situations. Essentially, forex traders and investors can behave in nearly unpredictable ways when faced with the uncertainty of an election’s outcome. Sometimes they are content to sit and wait, while other times the trading opportunity appears too good to pass up.
At the end of the day, economic complexities surrounding the dollar’s valuation will be the driving force behind a sustained rally or prolonged downtrend. According to the presidential cycle theory, equities are likely to stagnate in the short term following an election, which could certainly hamper any uptrend in the value of the dollar. Ultimately, the US dollar’s long-term value is dependent upon many different factors, and the election year may just provide a few obstacles in the road rather than a complete change of course.
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LIVE 2016 US Presidential Debate 3/3 - Donald Trump vs Hillary Clinton




LIVE US Presidential Debate
Donald Trump vs Hillary Clinton

The Third Presidential Debate 2016 is at 9:00 PM - 10:30 PM (ET) on
Wednesday, October 19
[9.00am - 10.30am MYT, Thursday, October 20]

Sunday, 16 October 2016

The Week Ahead: 5 Things to Watch on the Economic Calendar


Investing.com - In the week ahead, market players will be focusing on the outcome of Thursday’s European Central Bank meeting for fresh clues on the future path of the region's massive stimulus program.
Elsewhere, China is to release what will be closely watched third-quarter growth data amid ongoing concerns over the health of the world's second biggest economy.
U.S. inflation data will also be in the spotlight, as investors attempt to gauge if the world's largest economy is strong enough to withstand an increase in borrowing costs before the end of the year.
Meanwhile, in the U.K., market participants will be looking ahead to reports on consumer prices, employment and retail sales for further indications on the continued effect that the Brexit decision is having on the economy.
Currency traders will also be awaiting a central bank decision in Canada on Wednesday.
Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.
1. European Central Bank Policy Meeting
The European Central Bank's latest interest rate decision is due at 11:45GMT (7:45AM ET) on Thursday, with most of the focus likely to be on President Mario Draghi's press conference 45 minutes after the announcement.
The ECB is not expected to move on rates, but Draghi could offer fresh clues on the time frame of its €80 billion monthly asset-buying program, due to run out in March.
A recent Reuters poll of economists showed that a stable but lackluster economic outlook will push the ECB to extend its stimulus program by year-end, although such a move will likely be reserved for December’s meeting when the central bank’s updated quarterly projections will be available.
2. China Q3 GDP
China is scheduled to release data on third-quarter gross domestic product at 2:00GMT on Wednesday (10:00PM ET Tuesday). The report is expected to show the world's second largest economy grew 6.7% in the three months to September. The economy grew by a similar amount in the second quarter and if confirmed, it could be a sign that growth in China is finally bottoming out.
The Asian nation will also publish data on September industrial productionfixed asset investment and retail sales along with the GDP report.
3. U.S. Inflation for September
The Commerce Department will publish September inflation figures at 8:30AM ET (12:30GMT) Tuesday. Market analysts expect consumer prices to ease up 0.3%, while core inflation is forecast to increase 0.2%.
On a yearly base, core CPI is projected to climb 2.3%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.
Rising inflation would be a catalyst to push the Fed toward raising interest rates.
4. U.K. CPI, Employment & Retail Sales
The U.K. Office for National Statistics will release data on consumer price inflation for September at 08:30GMT (4:30AM ET) on Tuesday. Analysts expect consumer prices to rise 0.9%, after increasing 0.6% a month earlier.
At 08:30GMT (4:30AM ET) Wednesday, the ONS will publish the monthly jobs report. Theclaimant count change is expected to rise by 3,000 in September, with the jobless rateholding steady at 4.9% in the three months to August. Wage growth including bonuses is forecast to rise 2.3%.
On Thursday, the ONS will produce a report on September retail sales at 08:30GMT (4:30AM ET), with analysts expecting an increase of 0.3%, following a drop of 0.2% in the preceding month.
The Bank of England kept monetary policy on hold last month, but indicated that it could cut interest rates again as soon as November in a bid to buffer the economy from a 'hard Brexit'.
5. Bank of Canada rate decision
The Bank of Canada's latest interest rate decision is due at 10:00AM ET (14:00GMT) on Wednesday, with most experts expecting the central bank to stand pat on rates.
Still, with energy prices persistently low, global trade generally weak, and U.S. demand relatively soft, Canadian rates are likely to stay low for even longer than earlier thought.

Sunday, 9 October 2016

The Week Ahead: 5 Things to Watch on the Economic Calendar

Investing.com - In the week ahead, market players will be turning their attention to Wednesday’s minutes of the Federal Reserve’s September policy meeting for fresh clues on the timing of the next U.S. rate hike.
U.S. retail sales data will also be in the spotlight, as investors attempt to gauge if the world's largest economy is strong enough to withstand an increase in borrowing costs before the end of the year.
In addition, there are a handful of Fed speakers on tap, including Chair Janet Yellen, as traders look for more clues on the likelihood of a December rate hike.
This week also marks the start of the third-quarter earnings season in the U.S.
Elsewhere, China is to release what will be closely watched trade and inflation data amid ongoing concerns over the health of the world's second biggest economy.
Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.
1. Fed FOMC Meeting Minutes
The Federal Reserve will release minutes of its September policy meeting on Wednesday at 2:00PM ET (18:00GMT) as investors search for some clarity on where the U.S. central bank stands on its path toward rate hikes.
The Fed left interest rates unchanged following its meeting on September 21, but hinted that a hike could come in December if the job market continued to improve. At the same time, the U.S. central bank also cut the number of rate hikes it expects next year and in 2018.
The Fed has policy meetings scheduled in early November and mid-December. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the U.S. presidential election.
Markets are currently pricing in a less than 10% chance of a rate hike at November's meeting, according to Investing.com's Fed Rate Monitor Tool. For December, odds stood at around 65%.
2. U.S. September Retail Sales Report
The Commerce Department will publish data on September retail sales at 8:30AM ET (12:30GMT) Friday. The consensus forecast is that the report will show retail sales rose 0.6% last month, after falling 0.3% in August. Core sales are forecast to inch up 0.4%, after declining 0.1% a month earlier.
Rising retail sales over time correlate with stronger economic growth, while weaker sales signal a declining economy. Consumer spending accounts for as much as 70% of U.S. economic growth.
3. Fed Speakers
A handful of Fed policymakers are due to make public appearances that may offer insight into how divided they are about raising rates in the coming months.
On Monday, Chicago Fed President Charles Evans will speak on monetary policy and the economy at 10:00PM ET (2:00GMT on Tuesday).
Minneapolis Fed President Neel Kashkari is to deliver comments at 11:00AM ET (15:00GMT) Tuesday.
On Wednesday, New York Fed President Bill Dudley speaks with the Business Council of New York State at 8:00AM ET (12:00GMT), while Kansas City Fed President Esther George speaks at the Federal Reserve Bank of Chicago Annual Payments Symposium at 9:40AM ET (13:40GMT).
Thursday sees Philadelphia Fed President Patrick Harker and Minneapolis Fed PresidentNeel Kashkari make public appearances.
Finally, Fed Chair Janet Yellen is scheduled to speak on "macroeconomic research after the crisis" at the Federal Reserve Bank of Boston’s Annual Research Conference at 1:30PM ET (17:30GMT).
4. U.S. Q3 Earnings Season Kicks Off
Analysts expect third-quarter earnings will show a 0.7% decline from a year ago, while revenue for the past quarter is expected to have increased 2.5%, which would be the first year-over-year sales increase for S&P 500 companies since the end of 2014.
Earnings season unofficially kicks off Tuesday with Alcoa (NYSE:AA)'s quarterly results. The climax comes Friday with earnings from major banks Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM) and recently battered Wells Fargo (NYSE:WFC).
5. China September Trade Data
China is to release September trade figures at around 02:00GMT on Thursday (10:00PM ET Wednesday). The report is expected to show that the country’s trade surplus widened to $53.0 billion last month from $52.0 billion in August.
Exports are forecast to have dropped 3.0% in September from a year earlier, following a decline of 2.8% a month ago, while imports are expected to rise 1.0%, after increasing 1.5% in August.
Additionally, on Friday, the Asian nation will publish data on September consumer and producer price inflation. The reports are expected to show that consumer prices rose 1.6% last month, while producer prices are forecast to fall by 0.3%.

LIVE 2016 US Presidential Debate 2/3 - Donald Trump vs Hillary Clinton




LIVE US Presidential Debate
Donald Trump vs Hillary Clinton

The Second Presidential Debate 2016 is at 9:00 PM - 10:30 PM (ET) on
Sunday, October 9
[9.00am - 10.30am MYT, Monday, October 10]

Sunday, 2 October 2016

The Week Ahead: 5 Things to Watch on the Economic Calendar

Investing.com - Global financial markets will continue to focus on U.S. economic reports in the week ahead to gauge if the world's largest economy is strong enough to withstand a hike in interest rates before the end of the year, with Friday’s nonfarm payrolls data in the spotlight. There is also U.S. ISM data on both manufacturing and service sector activity.
In addition, there are a handful of Fed speakers on tap as market players look for more clues on the likelihood of a December rate hike.
Elsewhere, in the U.K., traders will be awaiting reports on activity in the manufacturing, construction and services sectors for further indications on the continued effect that the Brexit decision is having on the economy.

Outside the G7, market participants will be awaiting a monetary policy announcement from the Reserve Bank of Australia on Tuesday.
Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.
1. U.S. jobs report for September
The U.S. Labor Department will release its September nonfarm payrolls report at 8:30AM ET (12:30GMT) on Friday.
The consensus forecast is that the data will show jobs growth of 170,000, following an increase of 151,000 in August, the unemployment rate is forecast to hold steady at 4.9%, while average hourly earnings are expected to rise 0.3% after gaining 0.1% a month earlier.
An upbeat employment report will point to an improving economy and support the case for higher interest rates in the coming months, while a weak report would add to uncertainty over the economic outlook and push prospects of tighter monetary policy further off the table.
2. U.S. ISM PMI surveys
The U.S. Institute of Supply Management is to release data on September manufacturing activity at 10:00AM ET (14:00GMT) on Monday. The gauge is expected to rise to 50.3, after falling to a seven-month low of 49.4 a month earlier.
On Wednesday, the ISM will report on September service sector activity, amid expectations for a reading of 53.0. In August, the gauge dropped to 51.4, its weakest level since February 2010.
Anything above 50.0 signals expansion, below indicates contraction.
3. Fed speakers
A handful of Fed policymakers are due to make public appearances that may offer insight into how divided they are about raising rates in the coming months.
On Tuesday, Richmond Fed President Jeffrey Lacker is due to speak on the economic outlook at 8:05AM ET (12:05GMT), while Chicago Fed President Charles Evans will speak on monetary policy and the economy at 7:40PM ET (23:40GMT).
On Wednesday, Minneapolis Fed President Neel Kashkari and Richmond Fed PresidentJeffrey Lacker are on tap.
Finally, Fed Vice Chair Stanley Fischer, Cleveland Fed President Loretta Mester, Fed Governor Lael Brainard and Kansas City Fed President Esther George are all scheduled to speak on Friday.
Markets are currently pricing in around a 10% chance of a rate hike in November, according to Investing.com's Fed Rate Monitor Tool. For December's meeting, odds were at nearly 62%.
4. U.K. September PMI's
The U.K. will release readings on September manufacturing sector activity on Monday, followed by a report on the construction sector on Tuesday and the service sector on Wednesday.
The manufacturing PMI is forecast to inch down to 51.1 from 53.3 a month earlier,construction activity is expected to decline slightly to 49.0 from 49.2, while a survey on Britain's giant services sector is forecast to dip to 52.0 from 52.9 last month.
The Bank of England kept monetary policy on hold last month, but indicated that it could cut interest rates again as soon as November unless the economy picks up.
5. Reserve Bank of Australia Rate Decision
The RBA's latest interest rate decision is due on Tuesday at 3:30GMT (12:30AM ET). Most economists expect no policy change, after the central bank surprised markets in August with a 25 basis point rate cut to a historic low of 1.50% in an effort to boost sluggish inflation and spur economic activity.