A Look at the Day Ahead in European and Global Markets

Overview

The early action on Monday has been in currencies as the dollar took a knock from a new poll in Iowa showing Democratic presidential contender Kamala Harris leading Republican Donald Trump. This has resulted in the dollar being down 0.9% against the yen and 0.6% against the euro, while the trade-sensitive Aussie bounced back by 0.8%.

Implications of Polls

Analysts assume that Trump's policies on immigration, tariffs, and tax cuts would exert more upward pressure on the U.S. dollar and yields compared to a potential Harris victory.
A notable shift was marked by the Des Moines Register/Mediacom Iowa Poll, which surprisingly showed Harris ahead of Trump by 3 points, a significant change compared to a few weeks prior. This poll is highly regarded as a bellwether for votes across swing states.

According to JPMorgan, "Since last week, Harris is seeing a boost in the polls, highlighted by the Selzer Poll of Iowa, which some are using as a proxy for performance among the Blue Wall battleground states (Michigan, Pennsylvania, and Wisconsin)."

Betting site PredictIT now shows Harris at 53 cents to Trump at 51 cents, starkly different from 42 cents to 61 cents just a week ago.

Market Reactions and Expectations

The average of opinion polls remains too close to call, and it’s likely the vote result may not be known immediately. The 2020 election saw Pennsylvania’s results delayed until the Saturday after the election, with potential court challenges possibly extending the timeline.

Markets are largely betting that the Federal Reserve will cut rates on Thursday regardless of the election outcome, with futures indicating a 98% chance for a 25 basis point cut. There’s also an 80% probability of another quarter point cut in December, dependent on the presidential outcome.
Likewise, the Bank of England is expected to cut rates by a quarter point, while the Riksbank might ease by 50 basis points. Norges Bank and the Reserve Bank of Australia (RBA) are anticipated to stay put this week.

Oil Market Dynamics

On Monday, oil also reacted with a bounce of about 1.4% following OPEC+’s announcement that it would delay a planned December output hike by one month. This is the second time OPEC+ has extended a 2.2 million bpd cut, reflecting concerns over global demand, particularly with crude imports in Asia down by 200,000 bpd compared to the same period in 2023, according to LSEG data.

Key Developments to Watch

• Participation by ECB President Christine Lagarde and ECB Board Member Piero Cipollone in the Eurogroup meeting.
• ECB members appearing include Elizabeth McCaul, Frank Elderson, Christodoulos Patsalides, and Claudia Buch.
• Final EZ manufacturing PMIs for October.
• U.S. durable goods and factory orders for September.

By Wayne Cole; Editing by Jacqueline Wong