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FXPRIMUS Week in Focus for week beginning Nov.

7th: US Presidential Election,


RBNZ rate decision
Upcoming economic indicators and events
Time Country Indicator Month Expected Previous
(GMT)
Monday 07-Nov
n.a. China Foreign exchange reserves Oct $3132.5bn $3166.4bn
07:00 Germany Factory orders (mom) Sep 0.1% 1.0%
08:15 Swiss CPI (yoy) Oct -0.1% -0.2%
08:30 UK Halifax house prices (3m avg yoy) Oct 4.9% 5.8%
15:00 US Labor market conditions index (LMCI) Oct n.a. -2.2
Tuesday 08-Nov
n.a. US US Presidential Election
n.a. China Trade balance Oct $51.7bn $49.99bn
07:00 Germany Industrial production (mom SA) Sep -0.5% 2.5%
07:00 Germany Trade balance Sep 23.0bn 20.0bn
09:30 UK Industrial production (yoy) Sep 0.8% 0.7%
11:00 US NFIB small business optimism Oct 94.5 94.1
13:15 Canada Housing starts Oct 195k 219k
23:00 US First polls close
23:50 Japan BoP current account balance (NSA) Sep 1976bn 2001bn
Wed 09-Nov
00:00 US Polls close in Virginia (13)
00:30 US Polls close in Ohio (18) & North Carolina (15)
01:00 US Polls close in Florida (29) & Pennsylvania (20)
02:00 US Michigan (16), Colorado (9), Minnesota (10), Wisconsin (10), Arizona (11)
04:00 US Last of the polls close
01:30 China CPI (yoy) Oct 2.1% 1.9%
01:30 China PPI (yoy) Oct 0.9% 0.1%
09:30 UK Trade balance Sep -3.85bn -4.73bn
20:00 NZ RBNZ Official Cash Rate 1.75% 2.0%
23:50 Japan Machinery orders (mom) Sep -1.8% -2.2%
Thursday 10-Nov
00:30 Australia Home loans (mom) Sep -1.6% -3.0%
07:45 France Industrial production (yoy) Sep 0.5% 0.5%
09:00 Italy Industrial production (yoy) Sep 2.2% 4.1%
Friday 11-Nov
04:30 Japan Tertiary industry index Sep -0.2% 0.0%
15:00 US U of M sentiment index Nov 87.5 87.2
Sunday, 13 Nov
23:50 Japan GDP (SA qoq) 3Q (P) 0.2% 0.2%

There are three important items on the schedule this week: the US Presidential
Election, the US Presidential Election and the US Presidential Election. The US Senate
election will also be important, as theres a chance that the Democrats take control. The
House of Representatives though seems likely to remain in the hands of the Republican
Party, so less chance of any change there.
Readers who are not familiar with the unique way in which the US elects its President
should look at the presentation on our web site or watch the webinar. In brief, the
voters do not vote directly for the President; they vote for so-called electors,
who then vote on their behalf for the President. These electors are allocated to the
states according to their representation in Congress, so largely by population. The key
point is: whoever wins a state, wins all that states electors. Therefore, a
candidate who wins a majority in the states with the most electors wins the
election regardless of his or her standing in the popular vote. Thats how
candidates can and do win the election despite losing the popular vote.
Most states are pretty much decided even before the election begins: some always
vote Democrat and others always vote Republican. In the table above, we give the
closing times for the polls in the swing states that are likely to be contested, with each
states number of electoral votes in parenthesis. Ohio, North Carolina and Florida are
probably the key states. If Trump loses any of those three, then he probably loses
the election.
What would be the likely result of each candidates victory? As weve seen over the
last week, when the possibility of a Trump victory increased, the markets went into risk-
off mode: gold, JPY and CHF gained, while stocks and several EM currencies
particularly MXN and BRL came off, as Trump is against free trade. The dollar fell
overall, while the high-beta AUD also did poorly. A Clinton victory then would probably
see the opposite happen then: especially, stocks would probably rally and the VIX
index fall sharply. The view on interest rates is mixed. If Trump wins, his economic
plans involve a huge increase in the government budget deficit, which would push up
bond yields, but if Clinton wins, then normalcy is restored and the Fed probably raises
short-term interest rates essentially the same result but at the short end of the yield
curve.
My biggest fear though is that the election might not settle things politically in the
US either way. If Clinton wins, the FBI may and the Republicans certainly will continue
pursuing the issue of her email server. If Trump winswell, on Dec. 16th there will be a
hearing in New York on a lawsuit filed against him for child molesting. The political
circus thats engulfed the US may well continue indefinitely, eroding confidence
in the US political systems ability to conceive and execute economic policy. That
would mean a weaker dollar. But with Brexit negotiations starting next year and
elections in Italy (December) and France and Germany next year, neither the pound
nor the euro is positioned to take leadership of the currency markets. We could
be in for a very, very confusing time of volatile, trendless markets in FX.
The US Presidential election would normally supersede any economic indicators, and
this week is largely bereft of major indicators in any event, as is usual for the second
week of the month. Hence there is not much point discussing the other indicators.
The exception is the Reserve Bank of New Zealand (RBNZ) meeting, where analysts
unanimously expect a cut in the Official Cash Rate (OCR) to 1.75%. At their last
meeting in September, the RBNZ said Our current projections and assumptions
indicate that further policy easing will be required to ensure that future inflation settles
near the middle of the target range. Since then, the inflation rate has fallen further,
making it inevitable that the RBNZ cut. The question then becomes whether they will
continue to signal further cuts ahead or move to a neutral stance. I expect them to
retain their easing bias and therefore see NZD weakening after the meeting.