Vice-presidential debate brings Asia to a halt

Markets in Asia have come to a halt this morning as the US vice-presidential debate took over centre stage. With President Trump’s brush with Covid-19 and whoever wins the election, the oldest ever US President, the debate has assumed much higher importance than in elections past as American’s look at their possible future US president.

If Asia is glued to its TV screens, VP Pence’s boss President Trump has been the one moving financial markets overnight, thanks to his ever-trusty social media account. Wall Street stocks rebounded overnight as President Trump suggested a piecemeal approach to the fiscal stimulus conundrum, negotiations which he called off on Wednesday, sending markets tumbling. Markets rallied overnight as the President suggested extending airline aid and paycheck protection in isolation. That tactic will struggle to gain traction though, as it will be vulnerable to accusations of vote grabbing. Nevertheless, markets have taken the posts at face value, and markets staged an impressive comeback overnight.

If the last 24 hours has taught us anything, it is that the US presidential election and its evolution is becoming the most critical driver of volatility in financial markets. That will only increase as the actual election date approaches and is likely to drown out economic data releases in the noise. We can expect much more two-way volatility as we advance, and much less omnidirectional price action as the street increasingly becomes more schizophrenic and tail chasing.

Back in the real world, Japan’s Current Account surplus for August increased to yen 2.1 trillion. The headline number, though, was flattered by a 12.5% fall in imports highlighting the uneven nature of Asia’s pandemic recovery. On cue, Bank of Japan Governor Kuroda stated that the domestic economy remains severe and will add stimulus if needed. That was reminiscent of the overnight FOMC minutes released overnight and had echoes of a similar theme expressed by the Reserve Bank of New Zealand this morning.

The RBNZ Assistant Governor said that the bank continues to work actively on negative interest rates and funding for lending programmes. He expected both inflation and unemployment would be below potential for the next two to three years. The bank’s chief economist reiterated that message in saying that they would rather do too much stimulus than too little.

If global stock markets are a source of endless V and K-shaped optimism, the world’s central banks continue to express caution. The net result in the years to come is likely to be a continuing rally in asset prices, boosted by oceans of ultra-cheap central bank money, and sadly, an increase in economic inequality and mobility.

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