The State of the Financial Markets Prior to the First Presidential Debate…

On Friday, 23 September 2016, Wall Street indices tumbled. The Dow Jones Industrial Average ended 0.71% lower at 18,261.45, down 131.01 points. The S&P 500 index was down 0.57% at 2,164.69, or 12.49 points lower. The NASDAQ composite index was 0.63% lower at 5,305.75, down 33.78 points. The New York Stock Exchange composite index was down 0.70% at 10,717.99, – 75.67 points. For the past 1 month, only the NASDAQ composite index is up, at + 1.66%. Across Europe, the Euro Stoxx 50 PR, the Ibex 35 index, the FTSE 100 index, the CAC 40 index and the DAX index ended sharply in the red. Of course, the big news for the week is the first US presidential debate between Democratic nominee Hillary Clinton and Republican nominee Donald Trump. The debate will be televised on Monday, 26 September 2016 and an estimated 100 million people will be tuned in.

Both candidates offer sharply contrasting policies on economics, foreign affairs, security and immigration. Currency traders across the world, notably in Asia, are going to be heavily invested in the outcome of the presidential debate vis-a-vis the USD/JPY currency pair, USD/CNY, GBP/USD, EUR/USD and GBP/EUR among others. Donald Trump has been pointedly against various trade deals that have been brokered under the Obama administration, and is likely to come out swinging against Hillary Clinton in the debate. Of equal importance is Donald Trump’s antagonism towards the Mexican government vis-a-vis the wall. The Mexican peso is coming under tremendous pressure as the Republican nominee’s popularity continues to rise. Another currency pair which is taking heat is the USD/CAD. It typically trades at the same exchange rate as the EUR/USD (1.30/1.31).

The Bank of Japan (BoJ) recently made a decision on September 21 to maintain the interest-rate at -0.10%, while the forecast was -0.15%. That the USD/JPY currency pair did not move as much as forex traders expected has to do with the possibility of a Trump victory over Clinton in the upcoming debate. The general consensus is that a Donald Trump debate victory will weaken the USD/JPY pair, owing to the short positions of Japanese investors on a Trump presidency. One such corporation is Nomura Yunosuke Ikeda (a Japanese insurance giant) with over $600 billion in dollar-denominated assets. If this insurance corporation hedges against the USD, the JPY will strengthen dramatically. It is against this backdrop that traders are hedging their bets this upcoming week. Let’s take a look at the top 4 trading assets and how to make money off this week’s volatility.

Trading Opportunity #1 – Oil Price Could Rise on the Back of Production Cut

WTI crude oil is currently trading 3.97% lower for delivery in November 2016 at $44.48 per barrel. Brent crude oil is trading at $45.89 per barrel, or 3.69% lower. For the past month, Brent crude oil has traded in a tight range between $45 – $50 per barrel. Oil producers have a significant impact on the price of oil in terms of how much they are willing to cut back on production. As it stands, Saudi Arabia is firmly behind a joint objective to reduce production by up to 1 million barrels per day provided that the Iranians cap their production at August levels. However, the Iranians are against production cuts given that they’ve been subject to punitive sanctions for several years. They are looking to increase the production of crude oil upwards of 4 million barrels per day. By the close of trading on Friday, 23 September 2016, crude oil had dropped approximately 4% and was last trading at $46 per barrel. There are significant doubts about the prospect of reduced oil production given the rancour between major OPEC producers. The general consensus among analysts is bearish for crude oil.

Trading Opportunity #2: EUR/USD Pair is Bullish

The EUR/USD currency pair is trading at 1.12224 and is currently bullish. The pair gained 0.17% or $0.0019 on Friday, 23 September 2016. The 52-week trading range for the period 1.05 on the low end and 1.16 on the high end. For the year-to-date, the EUR/USD currency pair is up 3.23% after starting 2016 at 1.0859. Over the past 3 months, the pair has depreciated by 1.01%, as dollar strengthening and EUR weakening have come into play. Over the past 1 month, the EUR/USD pair has depreciated further by 0.80%. Recently, over the past five trading days, the EUR/USD pair has appreciated by 0.64% on the back of a weakening USD and increased stability in the Eurozone. The current trend for the pair is clearly higher, and depending on which way the debate goes on Monday night, we could see sharp movements taking place.

Trading Opportunity #3: Goldcorp Inc., (NYSE: GG) Stock Down Sharply

Goldcorp Inc., (NYSE: GG) is currently trading at $16.66 per share, down 2.52% $0.43. The stock currently has a price/earnings ratio of -3.10 and a dividend of $0.08 and the yield of 0.48%. The 52-week trading range for the stock is $9.46 on the low end and $20.38 on the high end. 1-year target estimate price of the stock is $21.06. Despite its recent weakness, the stock is currently up 44.12% for the year-to-date which is substantial given the pullback in the price of gold over the past couple of months. Over the past 1 month, Goldcorp Inc. stock has appreciated by 3.80%, and over the past 5 trading days the stock has appreciated by 5.52%.

The slide on Friday, 23 September 2016 of 2.75% took the stock from $17.15 per share down to $16.50, before it rebounded to close at its current level. There are major class-action lawsuits against Goldcorp Inc., given that the company is likely to have violated federal securities laws between March 31, 2014 – August 24, 2016. At the time in question, Goldcorp is said to have withheld material information about increasing selenium levels in the groundwater in Mexico in 2014 October. This is driving the stock price lower, as more and more complainants emerge from the woodwork. A Trump victory in the first debate will spur instability in equities markets which will likely give rise to increased demand for gold and gold mining stocks.

Trading Opportunity #4: Dow Jones Remains on Edge

The Dow Jones Industrial Average is currently 0.71% lower or 131.01 points down at 18,261.45 as at Friday, 23 September 2016. It was a day of big losses for the Dow Jones Industrial Average, and it marked the end of 3 days of successive gains for the index. That the Fed decided not to raise interest rates in September was good news for stock markets, but the rally came to an end on Friday. Over the course of the week, the S&P 500 index, the Nasdaq composite index and the Dow Jones still gained. Investors remain deeply concerned about the prospect of rising interest rates in November or December. According to Janet Yellen and Fed policymakers, a rate hike by 14 December 2016 remains a strong possibility. The DJIA was trading at four 18,392.50 on Thursday, 22 September 2016 before plunging to 18,261.40 the next day. Between 16 September and 20 September, the index held steady at 18,120 – 18,130.

These are the current trends for the top 4 trading opportunities this week.