Market Paralysis Does Not Spill Over into Equities

The US dollar is little changed, unable to recover much from this week’s
. Only the Canadian dollar among the majors has failed to gain on the
greenback this week. Core bond markets are quiet, though peripheral European
bonds, especially in Italy and Portugal are under a bit of pressure. Equity markets stand out. They are
broadly lower as the slide continues. 

Despite the fact that four major central banks met and there has been the
usual start-of-the-month high frequency economic data, the main driver has been
the continuing narrowing of US presidential contest.
  In the past
week, Trump’s chances have double according to
the acclaimed to 33.8% today.  Clinton’s
chances have fallen from 82.2% to 66.2% today.  

Barring a significant surprise, investors will most likely look through
today’s US employment report. 
The FOMC just met, and the bar to a December hike is low.   The FOMC will
have another, more current read on the US labor market before its next
meeting.   With very fluid polls, traders may be reluctant to extend
their risk.  

Most look for US jobs growth to return toward this year’s average pace
(~178k) from overshooting it the past three months (average 192k).
However, what this means is that the market is looking for a little improvement
over September’s 156k.  Internals are important.  There is some
chance, largely due to rounding, some are looking for the unemployment rate to
slip back to 4.9% from 5.0%.  Average hourly earnings are expected to rise
by 0.3%.  If so, that would keep the year-over-year pace at 2.6%, slight
ahead of the CPI.   The average work week is stable at 34.4

Canada also will publish its October jobs report.  Here the
market expected a loss of 15k jobs after
the outsized 67.2k jump in September.  Two-thirds of those jobs (44.1k)
were part-time positions.  The unemployment rate is forecast to remain steady at 7.0% on a flat participation
rate of 65.7%.  

The euro has been confined to about
10 pips on either side of $1.1100.
The PMI reports take some of the shine off the preliminary surge but show
that as a whole the region is off to a
good start in Q4.  The composite reading was
to 53.3 from the flash 53.7, but it still the highest since
January.  However, the divergence grows.  The French data was revised
down, and in fact shows some worrying signs.  Its service PMI was revised to 51.4 from 52.1 in a flash, which was down from 53.3 in
September.  The composite fell to 51.6 from 52.7 in September. 

 In contrast, after a soft August and September, Germany snapped
back strongly. 
The service PMI jumped from 50.9 to 54.2 (54.1 flash), and the composite rose to 55.4 from
52.8 in September.   Spain also reported a better composite.  It
increased to 54.4 from 54.1 in September.  Italy was a little
disappointing, but its composite was unchanged at 51.1.   

The sell-off in equities continues.  The MSCI Asia-Pacific Index
is off almost 0.9% today, the third consecutive loss.  It is off 1.4% on
the week and is at its lowest level since mid-September.  It has fared
relatively better than other regions.  Europe’s Dow Jones Stoxx 600 is off
1% after a flat performance yesterday.  It has not posted a gain (to the hundredth of a percentage point)
since October 20.   It fell
3.6% this week after a 1% decline last week.  It is at its lowest level
since mid-July and has now retraced more than 50% of its summer rally. 
The next retracement is another 1% lower.  

The S&P 500 has fallen for the past eight sessions coming into today. 
It has been up a single session since October 19.  It is also at nearly
four-month lows.  It closed below the 50% retracement of its summer rally
(~2093) yesterday.  The next retracement target is a little below

Lastly, we note that oil prices are steadying to conclude a dreadful
The December light sweet crude contract is off 8.2% this week,
which is the worst weekly performance since early this year.  It followed a 4.2% decline last week.  It has
approached the lower end of its two and a half month range near $44.  As
recently as October 20, it was near $52.  Doubts about what OPEC is
willing to deliver and a surge in US inventories, coupled with technical
selling are the drivers. 


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