Original title: (SignalPlus Macro Analysis Special Edition: Final Election Preview)
Source: SignalPlus
After a fierce and turbulent campaign, the long-awaited general election has finally arrived. All macro assets are paying close attention (perhaps excessively) to the final poll fluctuations, in which Polymarkets' Trump victory rate dropped sharply from 67% to 55%. , consistent with other mainstream polls, currently showing a 50–50 stalemate.
The focus on the election slightly distracted the market from the non-farm payrolls data last Friday, which was significantly lower than market expectations, with only 12,000 new jobs, far below the expected 100,000. Although the recent strikes and hurricanes have partially affected this result, economists believe that the job market will continue to slow down, the number of unemployed people will rise to a recent high, and the number of people who have been unemployed for more than 15 weeks will also increase significantly. In addition, private sector employment decreased by 28,000, with manufacturing (-46,000) and professional and business services (-47,000) falling sharply. In addition, the new employment data for the previous two months were also significantly lowered, and the final data for August was only +37,000.
Although the data fell sharply short of expectations, markets were unaffected ahead of the U.S. election. Although U.S. bond yields had a knee-jerk reaction after the release of non-farm payrolls data, they eventually reversed and rebounded. The yield curve closed up 4-10 basis points, with the 10-year yield close to 4.40%. Bond traders are still betting on Trump’s victory. Hedging possibilities. In equities, stocks edged higher despite a weak day for momentum, small-cap and high-beta stocks, while USD strengthened significantly against GBP (UK budget concerns) and JPY (carry trade).
As for interest rate expectations, despite the weak employment data, the market still expects only a 25 basis point rate cut this week, followed by a 25 basis point rate cut pace thereafter, but the specific direction may depend on the final election results.
Back to the election, with Kamala's late surge, the polls are almost back to a close call, although actual market positioning may still be tilted toward a Trump victory. Compared with most recent election results, the market reaction this time is likely to be two extremes, with a Trump victory likely to push yields higher, a stronger dollar, and cryptocurrencies higher, while a Kamala victory would lead to the opposite result. Regardless of who wins, however, we also believe that the market may be overestimating the short-term impact of a victory, and once the dust settles, the market will undergo a substantial recalibration and shift to more fundamental themes.
The US Electoral College (EC) system concentrates the decision-making power of the entire US election in seven swing states, especially Pennsylvania (19), which has the most electoral votes. According to the latest situation from RealClearPolitics, Trump is currently leading in five swing states, including a slight lead in Pennsylvania.
Exit polls will begin to appear at 5 p.m. on Election Day (Wednesday morning Asia time), and voting will end by 10 p.m. EST. In the 2016 election, states made official announcements within 1 to 8 hours after the end, but the 2023 election was delayed for days (or even weeks) due to controversy, leading to the subsequent Capitol Hill incident. If the results are delayed, the market may react with risk aversion, especially considering the current allegations of election fraud and the extremely polarized electorate.
Regardless, with possible delays in New York and California, we expect the Presidential election results to be released earlier than the House results, which would significantly boost risk markets if the Republicans sweep, but we may have to wait until the end of the week for clarity result.
The coming week will undoubtedly be busy with trading activity, with previous elections seeing trading volumes increase by 50–100%+ on Election Day and the week following, and given that this election is more closely watched and more dramatic than previous ones, we expect to see a surge in trading activity in the short term, similar to the surprise Trump win in 2016.
Finally, in terms of cryptocurrency, BTC was originally just one step away from its all-time high. However, as Trump’s victory rate fell back, the price of BTC also fell below $70,000. BTC failed to break past all-time highs, with more than $500 million in long futures positions being liquidated, according to Coinglass data. The high point is close at hand, yet out of reach.
Open interest in BTC futures and options has been climbing steadily over the past month, especially on the Chicago Mercantile Exchange (CME). While mainstream interest in cryptocurrencies has also helped, some of the reason may be hedge funds' basis trades on Microstrategy, where hedge funds may have made basis trades between long BTC futures and short MSTR stock, which is up more than 250% this year, while BTC is up 65% and Coinbase is up only 5%. As for why TradFi investors chose this target instead of spot ETFs or other mining companies, we don't have a clear answer at this time.
To make matters worse, Michael Saylor recently announced a $21 billion new share offering to fund the purchase of more BTC, with plans to continue purchasing up to $42 billion in BTC over the next 3 years. Despite the significant dilution of equity, Microstrategy's share price remained stable, while other cryptocurrency targets performed relatively weakly, with Coinbase falling 10% after the earnings report. Perhaps it is easier to speculate on macro and political outcomes than on a single stock!
Get some rest and good luck this week!
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