By Michael Every of Rabobank

Waves and Walls

Six days to go now. Or rather seven days if you expect that we could see a US election result the day after voting, as per usual. That had looked a long shot a month ago, when the meme was of a flood of vote-by-mail (VBM) ballots arriving days and days after Election Day and taking weeks to contentiously count. The larger narrative was also of a Republican in-person vote on 3 November making it look like a Trump win, and then a Blue Wave subsequently washing it away.

That 4 November result may not be possible given Illinois is still allowing up to 14 days after election day for VBM ballots to arrive; Iowa six days; Kansas three days; Mississippi five days; Nevada seven days; New Jersey two days; New York seven days; North Carolina three days; Ohio ten days; Texas one day; Virginia three days; and West Virginia five days, with all ballots needing to be posted on Election Day. The case regarding the key swing state of Pennsylvania is soon to be heard by the US Supreme Court. However, with the exception of Pennsylvania, and possibly Nevada and North Carolina, few of those other states are likely to be close, or a tipping point in the race to the electoral college – although of course one can always find an opinion poll that tells you what you want one way or the other.

Moreover, the election narrative above is already changing in that much of the VBM wave appears to have already arrived, unless there is going to be a sudden flood of fresh ballots sent out. Indeed, we have also just heard pleas from former Democratic AG Holder and at least one governor not to vote by mail due to the overloaded system and to vote in person instead, a reversal of the previous tactical advice.

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Target Smart shows that at least 59m people have already voted in 2020 which is 43% of all those who bothered to do so in 2016. (The press suggests 70m this morning, which would suggest over half the election is already over by the usual standards.) By registered party, the split is 26.7% of Democrats vs. 16.1% of Republicans and 55.8% of independents. That implies a lead for Democrats that Republicans will have to better on the ground on 3 November with in-person ballots, as Democrats now also try to add to their total in person ahead of and on Election Day – so the Blue Wave may have swept in first, and the Red Wall will have to see if it can rise above that rising water level or not on Tuesday, which changes the potential election result timing.

One can also dive into the voting and demographic data available at both the local and meta-level to see how high that Blue wave really is so far. With perhaps half the vote in, why not do so rather than just looking at the Real Clear Politics average to try to guess the other half?

However, it remains true that there are still many ways to interpret these data, and there are six days left to vote. Anything could happen with the VBM trend, and on the Big Day itself. Has VBM cannibalised in-person voting, or supplemented it? Perhaps turnout in 2020 will be off the charts. Or perhaps not. Perhaps people will have voted opposite to their actual registration. Or perhaps not. Perhaps independents have split sharply for one candidate or the other. Or perhaps not.

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Yet perhaps there is a lower risk of the Florida-2000 tsuris many fear, and we can get back to talking about something else within a week – which will be a blessed relief to most of us.

Then it will just be the subsequent US domestic reaction to a race where only one man can win; and the international dominoes that will start to fall one way or the other once we know who has.

On which, and speaking of dominoes, France is set to announce another four-week (“more flexible” lock down) as Covid-19 cases and deaths surge. The country is also wrapped up in a spat with Turkey on several fronts, a boycott of its products by some Muslim states, and the Brexit negotiations. And it has more than one eye on the US election, of course. (See here for more.)

Prior to that, we saw the PBOC remove the Counter-Cyclical Factor (CCF) applied to the daily fixing of CNY. Again. The CCF is usually put in place at times when the Chinese currency is weakening and needs support, and it does what it says. The “market” close should be X….but the PBOC applies the CCF and says it is Y, which is always stronger. (When the actual market would be Z, but we never get there because of capital controls.) Removing the CCF is a clear signal, on the back of others, that the PBOC does not want the currency appreciating too far too fast; and the pattern suggests it might now start to move back the other way again.

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As noted several times recently, let’s also see what emerges from the US election in terms of the EM FX response, and CNY as the biggest domino in particular. How will it price in confrontation vs. possible co-operation from a week today?

On which, as a US court stalls the White House move to ban China’s WeChat, someone on social media is complaining that his attempts to share news of the Hunter Biden laptop were blocked by both WeChat AND Twitter. So East-West co-operation is possible!

Which is a message Australia always longs to hear. Q3 CPI there was a tick stronger than expected at 1.6% q/q and yet just 0.7% y/y (yes, those are the right way round). As usual, there are a host of other measures. As is now usual, the underlying message is lowflation not inflation. And indeed the only question is just how much QE the RBA will ultimately do and for how long. Again, the market seems to think this is a signal to buy AUD. One wonders why, when in every other case abroad it has taken the opposite stance on QE and FX. Let’s see if that particular Aussie narrative-clinging lasts a lot longer than six days.

Via Zerohedge