Nov 8. Judgment Day
–Yesterday stocks soared in an apparent endorsement of a Clinton presidency. ESZ jumped 50 points back to the level of November 1. However, while treasuries sold off, they came nowhere near the low on November 1. The market seems to be saying that a Clinton term would be more of the same, that is, the Fed will continue to function as primary backstop for the economy. Great… stocks go up on expectations of continued monetary accommodation, leading to share buybacks and M&A, while treasuries find underlying support on thoughts of increased QE. Happy days.
–In terms of price action yesterday, it was a fairly muted session. The curve had a steepening bias, with 2/10 spread squeaking to a new high of 100.6 bps. The ten year yield rose 4.6 bps to 182.4 in front of tomorrow’s auction (3’s today).
–Somewhat interesting that copper has seen a blazing 10% rally in the last 11 trading sessions, with other base and industrial metals also seeing strong gains. For example, zinc, steel rebar (Shanghai), rubber all making new highs. At the same time, China’s fx reserves are being drawn down and yuan is close to new lows. It appears as if China is leaning toward more stimulus in order to put off the debt day of reckoning, but China’s structural problems are likely to loom as a challenge for a new president and the markets. In a more immediate challenge, ZH says NATO has put 300,000 troops on ‘High Alert’ in readiness for a confrontation with Russia concerning the Baltic states.
