Daily analysis 08.11.2016:
The behavior of currencies should be determined by the result of the American presidential elections. The British industrial production is not impressive. The zloty remains stable against the main currencies.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- Starting at 1.00 AM: exit polls from the American elections.
When will market react to elections?
Due to the fact that the American presidential elections will be conducted in different time-zones, investors will try to predict its result before voting on the West Coast ends. Taking into consideration that the majority of hesitating states are located in the EST (Eastern Standard Time), we will be able to estimate the result relatively quickly.
If the votes from at least two out of three hesitating states (Ohio – eighteen electoral votes, North Carolina – fifteen electoral votes, Florida – twenty-nine electoral votes) go to the Democrats candidate, there is a large chance that the majority of the market will consider elections as finished. This should also cause an appropriate reaction on the currencies. The dollar would strengthen against the yen, as well as against the franc. The above scenario would also cause the EUR/USD to go approximately 1-1.5% down.
Therefore, we will be able to estimate whether Clinton’s advantage is sufficient enough to eventually win the elections at 19.30 EST (1.30 AM CET). At that time we will receive exit polls from Florida, Ohio and North Carolina.
The situation would become more complicated, if Trump was victorious in the three above mentioned states. This would mean that we would have to wait a few hours longer for the final result and the final result may be determined by relatively low-populated Nevada (six electoral votes, 22.00 EST). However, we may expect that these hours would be very nervous for the market, regardless of who would eventually win.
It’s also possible that a slight disturbance may be caused by an initiative of one of the companies from Silicon Valley, which was described in the Washington Post article entitled, „Will Slate’s Election Day vote projections ruin democracy? We had this debate before.” In short, this initiative is based on estimating results from particular states shortly after a voter, who is registered in an app, votes. The plan is to publish the results live. A statistical model will estimate who is in the lead for the given moment and with what advantage. However, it’s worth keeping in mind that this is quite a pioneer idea. Therefore, we think that traditional exit polls should definitely attract more attention.
British industrial production
The British industrial production data remains weak. In September, it went down 0.3% in month on month interpretation (vs expected 0.0% m/m). Moreover, year on year interpretation showed a 0.3% growth against the expected 0.8%. Industrial processing was slightly better than expected (positive 0.2% y/y vs negative 0.1% y/y). However, this value is still low and does not indicate a revival of export, which should be caused by a clear wear-off of the currency.
Tomorrow, we will receive important data from the foreign trade. Bloomberg estimations regarding trade exchange balance for September are at the level of 11.3 billion pounds. This is an approximately 800 million pounds decline in comparison to August. However, investors will observe, will the pound’s wear-off finally limit import and make export more attractive abroad. If it won’t, this means that further depreciation of the pound is required, in order to accelerate external economic balance.
No large changes on zloty
The zloty is anticipating the result of the American presidential elections. We continue to think that Clinton’s victory would increase the USD/PLN by approximately 0.05 PLN. The franc would begin its return towards 3.95 PLN and the EUR/PLN should go towards the 4.30 level.
On the other hand, if Trump wins, we may expect a sudden reaction from the dollar, as well a from the franc. The American currency may go down to the range of 3.80-3.85 PLN, while the franc may reach the range of 4.10-4.15 PLN. A strong reaction of the Swiss currency would be a result of an assumption that the SNB would initially not intervene. This would result in a clear depreciation of the EUR/CHF. However, the situation should become more stable within the following days and the EUR/PLN could return below the 4.35 level as well.
It’s also worth keeping in mind that the results will appear gradually. The crucial data will appear between 1.00 AM and 1.30 AM CET. If the likelihood of Clinton’s victory is very high at that time, the market should evaluate it properly. On the other hand, if it appears that Trump won in three crucial states, the market uncertainty may increase and investors may begin to clearly evaluate a possible victory of the Republican candidate.
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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.
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