Overseas stock markets have sold off to start the new trading week, following through from Friday afternoon's drop in North America which started on the news that Hillary Clinton is back under investigation by the FBI. The FTSE and DAX are down about 0.3% while the Hang Seng fell slightly. US index futures have stabilized and are trading up slightly waiting for the next shoe to drop.
There are a few economic figures due today, like Chicago PMI mid-morning, but who are we kidding, for the next ten days at least trading is likely to be driven by US election speculation. The polls have narrowed a lot in recent days ABC News Tracking had Hillary Clinton with a 12 point lead last Tuesday and by Sunday this had shrunk to 1-3 points.
I have been warning traders for some time that markets have been too complacent about a Clinton win opening up the risk of a Brexit-level surprise. Recent polling suggests a much closer race than many think and increasing potential for a Trump win that could spark an abrupt change in market sentiment and a spike in volatility. In the coming days we could see significant swings in the makets so traders should be ready for moves in both directions depending on what happens. As we have seen, a lot can happen in a week both in the markets and in politics.
This week's U.S. economic developments including manufacturing and services PMI, ADP and nonfarm payrolls and the FOMC decision on interest rates are all likely to be viewed through the lens of what they mean for the election. As we saw with US GDP last week, week, any news is likely to be siezed upon by both parties and spun to their advantage as examples of why Obama's economic policies are working (Democrats) or a disaster demanding change (Republicans). Tonight brings manufacturing PMI reports for China, Japan and Korea and an interest rate decision for Australia.
Individual stocks and sectors could also be active on corporate news. General Electric (NYSE:GE) has agreed to take over driller Baker Hughes (NYSE:BHI) to create an oilfield services giant with over $32 Billion in combined annual revenues This deal could give a shot in the arm to the struggling oil patch and energy stocks stoking speculation about the potential for additional mergers.
This deal suggests we've seen the bottom and that potential purchasers seem to be seeing value out there. It arrives at a particularly significant time as oil prices and stocks had been depressed overnight on reports OPEC talks on production levels didn’t get anywhere on the weekend. This comes as no surprise since the next OEPC meeting—when the tough choices will have to be made—is still a month away.
Keep an eye on today’s Dallas Fed survey for an update on the economic health of US oil producing regions. In Canada today, Suncor (TO:SU) has agreed to sell Petro Canada's lubricants business to HollyFrontier (NYSE:HFC) for $1.1B.