Tuesday 03:40 BST. Currency markets bore the brunt of sentiment surrounding the US presidential debate, with the Mexican peso, Canadian dollar and Japanese yen among the high-profile movers with the US dollar relatively subdued.
The Mexican currency bounced off a record low in Asian trade to be 1.4 per cent stronger at M$19.595 per dollar, while the Canadian dollar gained 0.3 per cent to buy $0.7588 of its US counterpart. The two currencies have been seen as proxies of sentiment given the ramifications to their respective economies should Donald Trump emerge victorious as US president in November.
Analysts at DBS said emerging market currencies were likely to fall should Mr Trump narrow his gap in the polls against Hillary Clinton.
“Emerging markets… fear that free trade globally would suffer under Mr Trump. Here, the Mexican peso is regarded as a barometer of risk for emerging markets,” they said.
“Some noted that the Mexican peso depreciated to a new record low this month after Mrs Clinton caught pneumonia. To be fair, the Mexican peso has also been depreciating on a widening current account deficit over the past few quarters,” they added.
Similarly, Jordan Rochester at Nomura noted that with 100m people expected to have tuned in to the Clinton/Trump debate, it was “quite right that the market has priced in an event risk premium” for trading of the Mexican peso.
“This is not a normal US election and rarely does a scheduled political event receive such a high cost of hedging in foreign exchange. Mr Trump’s chances as implied by polling are higher than that of Brexit at this stage of the campaign, so it’s quite right that the dollar-peso event volatility premium of late has reached further highs.”
The greenback itself was relatively subdued. Measured against a basket of major global currencies, the US dollar index was up 0.1 per cent at 95.358.
Gold, which often moves inversely to the dollar, gave up early gains on Tuesday to be 0.2 per cent weaker at $1,335.20 an ounce. It was on track to end a six-day winning streak that had been supported by expectations the Federal Reserve would deliver fewer interest rate increases in 2017 than previously forecast.
Futures on the S&P 500 were on the rise in Asian trading, and tipped the US equities benchmark to open 0.5 per cent higher.
The Japanese yen was volatile. As the Japanese stock market opened, the currency firmed and threatened to break through the ¥100 per dollar mark. However, it steadied and then sold off as the presidential debate began, and eventually was 0.4 per cent weaker at ¥100.74.
Equities markets across the region were mixed, with those more directly exposed to China faring better. Japan’s broad Topix was down 0.5 per cent while the Nikkei 225 fell 0.3 per cent in what could be the first time in eight sessions that the index has outperformed the broader benchmark.
Australia’s S&P/ASX 200 was down 0.7 per cent, but Hong Kong’s Hang Seng was up 0.7 per cent. On the mainland, China’s Shanghai Composite and the tech-focused Shenzhen Composite were both marginally higher.
Moves in fixed income markets were more mixed. There was a sell-off in US Treasuries, with the yield (which moves inversely to price) on the benchmark 10-year US note up 1.55 basis points at 1.5994 in Asian trade. The yields on equivalent Australian and Japanese government bonds were lower.
Oil markets continued to swing on speculation surrounding an agreement for a production freeze at this week’s informal Opec meeting in Algeria.
Prices jumped more than 3 per cent on Monday amid renewed hopes that producers could lay the groundwork for the first co-ordinated Opec production cut since the financial crisis. Brent crude, the international benchmark, was down 0.3 per cent at $47.22 in Asia while West Texas Intermediate was off 0.1 per cent at $45.89.
Overnight, the S&P 500 closed 0.9 per cent lower, while European stocks lost 1.9 per cent with bank stocks the focus as Angela Merkel, Germany’s chancellor, ruled out providing state aid for Deutsche Bank as it faced multibillion-dollar claims from the US Department of Justice. Shares in the bank, which has denied seeking assistance from Berlin, dropped 7.5 per cent.
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