Election Time

Markets

Monday’s garden variety price action was par for the course as traders were most unwilling to extend risk with the US midterms and the upcoming FOMC meeting in focus. As for the midterms, consensus suggests that only a surprise sweep from either party will elicit much reaction in FX land. The midterms have indeed fostered a lot of interest, but let’s see if the polls will get it right this time around. However, flying under the radar is that these midterm elections carry a sizable legal risk for the GOP which could dent investor confidence as we will likely hear much more from Robert Mueller sooner rather than later.

As for the Fed, they will be hard-pressed given the strong labor markets to walk back any of the markets perceived hawkishness.

As for Presidents Xi’d speech, I don’t think we need to look much further than his comments directed at Trump policy as ” the law of the jungle” to suggest the setup for the meetings later this month remains tenuous and on shaky ground. But again, the US President’s latest rally message indicates the US will make a deal with China. But the markets can’t help but think this messaging is little more than campaign fuel and the proof will be in the G-20 pudding.

Asia Markets

The Malaysian Ringgit

Post-budget, its expected Malaysia, will receive a negative outlook if not a complete rating downgrade. While credit rating downgrades are not the death knell for a currency, but it will have significant short-term impacts, and that threat alone will keep the MYR trading defensively in the weeks ahead.

But with the deficit target at the higher end of market expectations, the MYR could weaken at a faster pace than expected and we could see 4.20 + by year-end.

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