Central Banks and the U.S. Election in the Spotlight

October 31, 2016

Central Banks and the U.S. Election in the Spotlight Photo

I was traveling in California last week and was expecting the selloff in bonds around the globe to be a big story over the weekend.  However, when I looked at my phone as I boarded my flight home from San Francisco on Friday and saw the story about the FBI launching a new investigation into Hillary Clinton’s emails, I knew that bonds were no longer a big story.  As I have discussed before, the more uncertainty surrounding the election outcome, the more pressure is put on asset prices in the short term. I think it will be important to assess the longer-term impact of the election after all the votes are counted.

October is going to end up being the worst performance for U.S. Treasury bonds since June 2013 following the Federal Reserve (Fed)-induced taper tantrum. This month, yields rose due to waning belief that central banks will continue bond purchases and rising inflationary pressures.

The U.S. elections will most likely steal the headlines for the next eight days, but several key economic reports and commentary from the Fed, Bank of Japan (BOJ) and Bank of England (BOE) will have an impact on market direction.  We get a rate decision from the BOJ and Australian central banks on Tuesday, the Fed rate decision on Wednesday and from the BOE on Thursday. I am not expecting any surprises from the central bank; however, any new information will be informative.  On the economic data side, the biggest report will be the October Employment report which will be the most analyzed. Expectations are for 170,000 new jobs and a slight reduction in the unemployment rate. My expectation is for the employment report to exceed market expectation.

The next week ahead should be an interesting one.

Tags: Monday Morning O'Malley | Federal Reserve | Interest Rates | Central banks | U.S. election

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