FX Daily: Markets Unenthralled By Chaotic Debate

Last night's presidential debate did nothing to dispel market concern about a disputed election result.

Former Vice President Biden and President Trump

USD: No clear debate winner, and transition concerns linger

It is hard to identify a winner in what was a very chaotic first presidential debate, as the two candidates often interrupted each other and direct accusations largely outweighed policy discussions. The market reaction this morning appears mostly adverse, though. Asian equities appear set for a negative close despite encouraging Chinese PMIs, European stocks opened lower and US futures are pointing to a negative open. There is a possibility that the market's concern about a peaceful transition of power has been fueled further by the debate, as President Trump did not commit to asking his supporters to wait for the results if there are delays. In terms of the campaign implications, the debate might be seen as a missed opportunity for Trump to turn around the direction of the polls, but post-debate surveys will provide more clarity on this. The dollar’s reaction has not been significant: the currency slightly rebounded on safe-haven demand as equities turned lower, with quarter-end flows also possibly playing a role. Today, focus will shift back to data as ADP payrolls will shape expectations ahead of Friday’s jobs numbers. We expect a 750k ADP read vs the consensus of 650k. In US politics, Democrats look set to schedule a House vote on their $2.2 trillion stimulus proposal even though bipartisan negotiations are ongoing. Nancy Pelosi and Steve Mnuchin should meet again today, and any sign of progress towards an agreement may help market sentiment recover after the debate. (UUP, UDN)

EUR: All eyes on Lagarde

USD weakness helped EUR/USD yesterday absorb the news of a possible delay in the EU Recovery Fund as some countries look determined to use the veto if the rule-of-law conditions are not dropped. Today, the pair appears more vulnerable, also due to some potential Brexit spill-over. President Christine Lagarde’s comments will be closely watched amid rising speculation over a rate cut. (FXE)

GBP: Internal Market Bill to be blocked by House of lords

Yesterday, the House of Commons passed the Internal Market Bill (despite some opposition within the Tory party), which allows ministers to re-write parts of the Withdrawal Agreement. The bill should however be voted down by the House of Lords (where the Tories don’t have a majority), but it is surely not an encouraging sign for GBP as UK-EU trade talks are also at a stalemate. (FXB)

CAD: Tracking the 3Q economic rebound

July GDP data today will provide a first indication about the pace at which the Canadian economy recovered in the third quarter. We don't think Canada’s recovery has lagged its peers, which is one of the reasons why we remain quite positive on CAD’s ability to outperform the Aussie and New Zealand dollars in the remainder of the year, especially if risk appetite proves choppy once again. (FXC)