Markets seem to indicate either increased confidence in the short-term for U.S. growth in the economy or that the rest of the globe is not providing much of an alternative for parking money. The U.S. dollar continued to strengthen as evidenced by decreases in the EUR/USD and increases in USD/JPY.
According to data from x-rates.com, the EUR/USD fell to today’s price of 1.0850 from yesterday’s print of 1.0862. The USD/JPY increased to today’s price of 150.0568 from yesterday’s price of 149.5669.
Yields are telling me something else. Bond yield data from MarketWatch apparently shows some increase in risk. The yield on the two-year climbed from 3.951% yesterday morning to 3.986% as of 7:58 am today. The yield on the ten-year went from 4.033% yesterday around 8:15 am to 4.116% as of 7:58 am today.
Yesterday’s big central bank event saw the European Central Bank cutting its bank deposit rate by 25 basis points to 3.25%. ECB president Christine Legarde, looking resplendent in her lavender print tunic, emphasized that the Euro area is not headed toward recession and that the ECB would remain data dependent. She made sure to point out that data dependency did not mean looking at one single point of data but being mindful of trends in data.
Regarding inflation, Ms. Lagarde expressed concern about inflation’s impact on growth in the Euro zone and stressed that the ECB had not yet “broken the neck” of inflation. (Whew! Such violence …)
As talk of a Trump Trade start to percolate again (and yes, it’s time for coffee), the prediction markets are still showing a higher probability for a Trump victory. PredictIt has the probability of a Trump victory at .56 and the probability of a Harris win at .46. On the Kalshi exchange, the probabilities are .57 for a Trump win and .43 for a Harris win. Polymarket has a Trump win at .606 and a Harris win at .394. And Real Clear Politics, which has seen the light when it comes to the value of betting markets, has a betting average of .581 for Trump and .404 for Harris.
For merchants entering forward contracts for their international trade, they should keep in mind that markets, overall, are not too concerned about who wins the U.S. presidency, especially given the good odds that the Congress will be split and that whoever is chosen as Treasury secretary will likely maintain the U.S. policy of a strong dollar.
Alton Drew
18 October 2024
Lawyers Write the Bets. Bankers Sell the Bets. 