Russia and Iran vote early in US election

US claims Iran and Russia interference in election

Markets in Asia have been dominated by the announcement by US intelligence officials that Russia and Iran have been attempting to interfere with the US election process. That information should be a surprise to precisely nobody but was enough to see US index futures spike lower in after-hours trading. That fall is quickly reversing though as the fast money gnomes book profits, coming after a schizophrenic whipsaw session on Wall Street that probably left a body count resembling an Expendables movie. The whole situation is calling for a cameo appearance from Chuck Norris to “calm” everything down. Unfortunately, Mr Norris is unlikely to pass the non-partisan smell test.

Far more interesting to me was Russia and Iran’s voting preferences. Russia appears to be encouraging voters to support President Trump. In contrast, Iran seems to be firmly supporting his challenger Joe Biden. With record numbers of Americans casting their votes early, it is no surprise that Russia and Iran are also following suit. The lesson here is that if America’s adversaries are split on who to support, it will be no surprise if the US election is once again closer than the polls are predicting. The US Senate race, in my opinion, is the real election, and too close to call.

The progress of the US stimulus talks between Pelosi and Mnuchin continue to dominate financial markets. Asset classes flip-flopping on every headline emerging from them. Belatedly, they appear to be waking up to the threat of the Republican-controlled Senate, making the whole process moot before election day. Although the White House and Democrats appear to be edging closer by the day to a deal, nothing from the Senate Republicans suggests they are interested in passing a mega-package before or after the election.

The uncertain situation has led to some divergences from the typical uncertainty playbook amongst asset classes overnight. The US yield curve continues to steepen in anticipation of the tsunami of debt that will have to be issued anyway by the US in 2021, package or not. The US government deficit was running at USD1 trillion under Trump pre-Covid-19, so it’s easy to do the maths. Equity markets are wobbling after FOMO-frenzying in a pre-election stimulus deal that probably won’t happen now. Gold is threatening to break out to the topside as investors look at the risk landscape globally for the next month and break into a cold sweat. Oil has retreated as the reality of the stimulus impasse/Covid-19 one-two punch combination on consumption lands on target. Bitcoin has gathered a new crop of tinfoil-hatted anti-5G conspiracy theorists as well, surging higher through 12,000 to 12,800.00 (Paypal allowing BTC balances may have helped this along).

Notably, though, the US dollar has weakened markedly overnight, which is not in the haven playbook. USD/JPY fell 1.0% overnight as investors piled into the haven Japanese yen, but pro-cyclical Australian and New Zealand dollars surged higher, with offshore yuan also gaining. Even the Turkish lira rallied overnight, climbing 0.65% versus the US dollar. Interest rates maybe 10% in Turkey, but even if they were 50%, there is still not much of a case to be excited about Turkey or its currency (the food is excellent though).

Much of the fall in the dollar index overnight is likely due to the jump in Japanese yen and British pound, which leapt 1.50% on Brexit hopes. The Euro and the Canadian dollar hardly moved, and while the case for a stronger yuan is entirely justified; the risk in “risk” currencies is a warning of a sucker’s rally. Although I fully believe that the US dollar has entered a secular multi-year downtrend, it is still the haven of all havens. The US dollar may have years of slow decay ahead, but the risk landscape over the next three weeks and possibly more means we shouldn’t get ahead of the game. Covid-19, a Presidential debate tomorrow, US stimulus, or not, a fraught US election in less than two weeks with an uncertain result, a steeper US yield curve; the list goes on. Don’t write the US dollar off yet.

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