Wednesday November 2 Daily Market Primer

Stocks let go yesterday afternoon and dropped about .6%, as the VIX rose 8.8% to 18.5%, as tightening election polls increased uncertainty in the markets.  The Mexican peso, considered a market inverse barometer for Trumps chance’s, took a pounding.  The Fed meets today but virtually no one expects them to raise rates, but they may try to further prep the market for the highly anticipated December rate hike.  Oil prices have continued to slide in the wake of the supplier deal falling apart over the weekend in Vienna.  German PMI is showing stronger economic activity than expected. Overseas markets (except for China) all broke out with election anxiety and dropped Wednesday.  US futures are pointing to a down opening.

	LAST	CHANGE	% CHG
DJIA	18,037.10	-105.32	-0.58%
Nasdaq	5,153.58	-35.56	-0.69%
S&P 500	2,111.72	-14.43	-0.68%
Russell 2000	1,177.94	-13.45	-1.13%
Global Dow	2,424.76	-6.65	-0.27%
Japan: Nikkei 225	17,134.68	-1.21	-1.76%
Stoxx Europe 600	334.12	-1.21	-0.36%
UK: FTSE 100	6,877.57	-39.57	-0.57%
CBOE Volatility	18.86	0.30	1.62%
Australia: S&P/ASX 200	5,229.00	-61.50	-1.16%
China: Shanghai Composite	3,083.88	42.71	1.40%
India: S&P BSE Sensex	27,527.22	-349.39	-1.25%
France: CAC 40	4,441.62	-28.66	-0.64%
Germany: DAX	10,444.94	-81.22	-0.77%
Italy: FTSE MIB	16,649.27	-249.01	-1.47%
Spain: IBEX 35	8,940.80	-99.90	-1.11%
U.S. 3 Month	0.361	-0/32
U.S. 2 Year	0.833	0/32
U.S. 5 Year	1.274	3/32
U.S. 10 Year	1.804	7/32
U.S. 30 Year	2.559	14/32
Germany 2 Year	-0.641	2/32
Germany 10 Year	0.139	13/32
Crude Oil	45.98	-0.69	-1.48%
Brent Crude	47.57	-0.58	-1.20%
Natural Gas	2.975	-0.103	-3.35%
S&P GSCI	357.55	-3.05	-0.85%
E-mini S&P 500	2099.5	-4.25	-0.20%

The East Coast is suffering from a sever gasoline shortage due to a fire at a Colonial Pipeline facility in Alabama on Monday.  Gasoline futures shot up 15% yesterday on the New York Mercantile Exchange.  The Colonial pipe supplies 40% of the gasoline for the eastern seaboard.  Chinese E-Commerce leader Alibaba and Facebook both report earnings today.  Everyone’s favorite digital currency, Bitcoin, has been surging lately, its up to $722 from $390 in February.  I’m not sure why, but its interesting.

Yesterday I showed the poll summary from FiveThirtyEight.com, and today lets take a look at the summary from RealClearPolitics.  The service tracks a compilation of many polls and currently shows a 1.7 point lead for Clinton in a two way race, and 2.2 points in a four way race. This reflects the popular vote and not electoral college votes.  Today’s feature from Bloomberg news discusses the FiveThirtyEight polls plus model which estimates the Trumps chance of winning at 30%, and graphs the RealClearPolitics poll for each candidate back to September 15 (first story).

 Here’s the news:

Things are certainly getting interesting! According to FiveThirtyEight, Donald Trump's chances of winning are now above 30 percent in their "polls plus" model, which incorporates polls, economic data, and other historical trends. Trump had been below 15 percent in mid-October, meaning his odds have doubled in about two weeks. In the market, the most obvious manifestation of his comeback has been in the Mexican peso, which has now closed the "Access Hollywood Gap," and erased all of its gains since the lewd tapes came out in early October. In addition to the peso impact, it appears that the equity markets don't like Trump's improved prospects. We saw S&P 500 futures selloff yesterday following good Trump polling data. Whether that's due to a dislike of Trump's policies or merely the uncertainty factor is unclear. As noted here on Monday, the picture is even less certain when it comes to interest rates. Yields on U.S. 10-year Treasuries actually rose for much of the day yesterday before finally succumbing to the risk-off mood late in the day. In an interview on What'd You Miss, Blackrock's Ross Koesterich acknowledged that the impact of a Trump presidency on interest rates is far from known, but that in theory his fiscal policies - such as lower taxes and more spending - could result in a pronounced monetary-to-fiscal handoff and lead to faster Fed rate hikes. So keep an eye on this area, because it's a crucial part of the whole debate, and there's not been an obvious consensus yet formed about what to expect.

Fed day

At 2 p.m. ET the Federal Reserve will announce its latest monetary policy decision and while chances of an interest hike today are very low, they are not zero. Still, even as policy makers insist every meeting is 'live' markets are only putting a 15 percent chance on an increase in rates today. A number of factors, from good-but-not-excellent jobs data to growing political risk, seem to have weighed on market participants' minds and led them to discount an increase this month. There is no press conference scheduled after today's decision.

Election anxiety

With polls tightening less than a week ahead of the U.S. presidential election, uncertainty over the outcome is upsetting markets. In currencies, the Mexican peso is selling off as Trump closes in on Clinton's lead, while the Swiss franc is surging as investors scramble for safe havens. Gold is also rising, up for the fifth straight day and heading towards $1,300 an ounce. In U.S. Treasuries, two of the biggest debt investors say they're expecting yields on the benchmark 10-year to reach about 2 percent before falling back as the bond rout nears an end.

Oil slide continues

A barrel of West Texas Intermediate dropped below $46 a barrel this morning, and was trading at $45.96 as of 6:09 a.m. ET. The drop in crude prices and the structure of Brent futures means that oil traders can once again take advantage of contango — where oil for delivery today is cheaper than oil in future month — by storing oil in tankers at sea. In other news, gasoline futures pared yesterday's rally after Colonial Pipeline Co. said that the biggest U.S. fuel pipeline would be repaired by noon on Saturday.

Stocks slide

Overnight, the MSCI Asia Pacific Index fell 1.1 percent and Japan's Topix index dropped 1.8 percent as the yen climbed against the U.S. dollar for a second day. In Europe, the Stoxx 600 Index was 0.6 percent lower at 6:17 a.m. ET, off the lows of the day as positive euro-area manufacturing data eased pressure on equities. S&P 500 futures were down 0.3 percent.

Tech earnings

Alibaba Group Holding Ltd. and Facebook Inc. are due to report earnings today. With Alibaba's e-commerce division plateauing, investors will be looking to the company's cloud computing division for signs of growth. Facebook will report after the bell, and investors will be looking at user growth and revenue growth from mobile. Change in the Heartland Small towns in the Midwest have diversified more quickly than almost any part of the U.S. since the start of an immigration wave at the beginning of this century. The resulting cultural changes appear to be moving the political needle. U.S. census data shows that counties in a distinct cluster of Midwestern states—Iowa, Indiana, Wisconsin, Illinois and Minnesota—saw among the fastest influxes of nonwhite residents of anywhere in the U.S. between 2000 and 2015. That shift helps explain the emergence of Donald Trump as a political force and signals that tensions over immigration will likely outlive his candidacy. We report that among GOP voters in this year’s presidential primaries, those in counties that diversified rapidly were more likely to vote for the New York businessman. Meanwhile, with polls showing the presidential race tightening, Hillary Clinton and Mr. Trump are moving advertising dollars and fine-tuning their closing arguments during the final week of one of the most unpredictable elections in modern history. Not Neutrality AT&T’s practice of exempting its streaming video services from data-usage caps is rankling competitors and shaping up as a major issue for regulators set to weigh the telecom giant’s proposed $85.4 billion acquisition of Time Warner. When AT&T rolls out its $35-a-month DirecTV Now online TV service this month, its wireless subscribers will be able to stream as much as they want without it counting toward their monthly data caps. But if the same customers binge on outside services like Netflix or Hulu, those bits will add up—potentially leading to surcharges. Streaming services, as well as media companies like 21st Century Fox, are likely to press regulators to scrutinize the practice—known as “zero rating”—in their review of the AT&T-Time Warner deal. TV networks that have streaming apps, like CBS and ESPN, also may have a stake in the matter. Pipeline Bottleneck An explosion and fire at a pipeline that delivers about one-third of the gasoline used on the East Coast is expected to raise prices at the pump and shows the fragility of a delivery system that is relied upon by tens of millions of people. Gasoline futures shot up as much as 15% on Tuesday in intraday trading on the New York Mercantile Exchange after the accident on Monday. Colonial Pipeline shut down its main gasoline and diesel pipelines after the incident in Shelby County, Ala., about 35 miles south of Birmingham. It was the second major disruption on the 52-year-old pipeline in two months. Contract workers performing maintenance on the system using an excavating machine struck one of the lines, causing an explosion and fire that killed one person and injured several others. The Mexican peso is getting clobbered. The peso, which has lately been used as a barometer for Donald Trump's chances of winning the election, is down another 1% at 19.3770 per dollar on Wednesday and at its weakest level in a month. A weaker peso has been viewed as a sign Trump is gaining momentum because of his tough talk on Mexico. German manufacturing leads Europe. Markit manufacturing PMI for the eurozone rose from 52.6 in September to 53.5 in October, beating the flash estimate of 53.3. Germany recorded a print of 55.0, making for the fastest growth in three years. The euro is up 0.2% at 1.1080 against the dollar. HSBC thinks gold will go up no matter who wins the election. In a note to clients, James Steel, the chief precious-metals analyst at HSBC, wrote that a Clinton win means gold will go as high as $1,440 by the end of 2017 while a Trump win could propel the metal to $1,575 by the end of next year. Valeant is in talks to sell a family jewel. The embattled drugmaker is in talks with Takeda to sell its Salix unit for $10 billion, The Wall Street Journal reports. The crown jewel of Salix is Xifaxan, a drug that cures irritable bowel syndrome. Herbalife named a new CEO. The nutritional-supplement maker says current COO Richard Goudis will become CEO when Michael Johnson makes the move to executive chairman in June. Sturm Ruger had a monster quarter. The gunmaker earned $1.03 a share as net sales exploded 34% year-over-year to $161 million. The company cited "stronger than normal demand" in the months ahead of the election for the blowout quarter. Stock markets are the world are lower. Japan's Nikkei (-1.8%) trailed in Asia, and Germany's DAX (-0.9%) is under pressure in Europe. The S&P 500 is looking at a lower open of about 0.3% near 2,106. Earnings reporting remains heavy. Alibaba, Clorox, Office Depot, and Time Warner are among the companies reporting ahead of the opening bell, while Facebook, Fitbit, Twenty-First Century Fox, Whole Foods Market, Wynn Resorts, and Yelp highlight the names releasing their quarterly results after markets close. US economic data is light. ADP Employment Change is due out at 8:15 a.m. ET, and the Department of Energy's oil inventories will be released at 10:30 a.m. ET. The US 10-year yield is down 4 basis points at 1.79%. BoJ abandons inflation target Kuroda (Toru Yamanaka/AFP/Getty Images) The Bank of Japan has given up a plan to boost inflation to 2% within about a year. Monetary policy isn't enough to overcome deflationary expectations and must by backed by fiscal policy and structural reform, Governor Haruhiko Kuroda says.  The Wall Street Journal (tiered subscription model) (01 Nov.)  Central banks get serious about digital currency The central banks of the UK, Russia, China, Canada and Australia are exploring cryptocurrency's potential. A need for cross-border cooperation is a challenge in regulating digital currency. Financial Times (tiered subscription model) (02 Nov.)

Carney may have bigger inflation worries than the pound.

Equity traders are preparing for an tsunami amid tranquil seas.

HSBC say it's time to buy gold, no matter the election result.

A U.S. election guide to markets: What to watch as results come in.

The aussie's surge may signal good times for the global economy.

Bionic plants that can detect landmines. Obama Makes a Long-Shot Bid for TPP Trade Deal A Visit From the SEC? Doesn’t Happen for Thousands of Money Managers After U.S. Election, Expect Hardening on China

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, FT