S&P 500, Dollar, EURUSD, GBPUSD Talking Points:
- The S&P 500’s 2-day range through Tuesday rivaled the most reserved trading the index has seen post Pandemic
- Rather than reflecting confidence, the market’s indecision reflected enormous anxiety ahead of the first US Presidential debate
- While the debates drew a lot of attention, they were not expected to alter the immediate fundamental course; so what will urge markets through Wednesday?
The Presidential Debates: When a Distracting Event Passes
What scale of market-moving potential did the US Presidential debates hold? The first Q&A between President Donald Trump and former-Vice President Joe Biden held enough influence to waylay global speculative intent for the previous two trading days – and I would argue the distortion stretches back further than that. However, the real interest now is the fallout after the event. It is worth mentioning that a Monmouth University poll found 74 percent of voting Americans would watch the debates but only 13 percent believed their views could be swayed by the outcome. That is the very definition of a fundamental event that can anchor activity in anticipation but held limited potential for actual impact. Consider that relative to the S&P 500’s recent price action. The benchmark US index carved out two very narrow successive daily (active) ranges that reflected more anticipation than conviction. With the 50-day moving average as resistance, there is technical milestone to work against.
| Change in | Longs | Shorts | OI |
| Daily | 1% | -1% | 0% |
| Weekly | 15% | -13% | -1% |
Chart of S&P 500 with 50, 100-Day Moving Average and Daily Gaps (Daily)
Chart Created on Tradingview Platform
As for the market’s interest in Tuesday evening’s – and perhaps this week’s – top event risk, my own poll showed that a thin majority (55 percent) felt the debates were a significant event for the markets. I believe that this is an important event as far as drawing attention, but the ultimate impact it exerts is far more dubious. The previous two trading days’ market scope were so remarkably disparate to the weeks that preceded that price action, that it stands out as highly improbable that there wasn’t serious recognition for the distraction.
Poll of Whether the US Presidential Debate Will be a Critical Market Event
Poll from Twitter.com, @JohnKicklighter
In another poll conducted via DailyFX, we asked whether traders believed the S&P 500 – one of my preferred, imperfect measures of speculative appetite – would resuscitate its rally after the debates passed. Conviction was clearly sharply split, but my vote is also clear in the image below. While I do believe that the passage of this distraction can free up markets to form more tangible trends, I am not particularly convinced by the bull wave over previous days. I am of the mind that the Friday/Monday rally was itself a relief move in the wake of more committed market action. We will soon see though whether this consideration of direction holds water.
Poll of Whether the S&P 500 Will Continue its Rally After the Debates
Poll from Twitter.com, @DailyFX
Other Key Fundamental Themes of Market-Moving Girth
As the sway of the first round of debates fades, we will see the markets shift attention to other fundamental matters of global influence. Once such systemic influence is the health of economic activity. For the world’s largest economy – and indeed the world – the largest aggregate consumer is the US consumer. As it happens, this past session showed a 3.1 percent increase in August imports to urge a record deficit; and more importantly a September consumer confidence survey (from the Conference Board) that posted its biggest jump in 17 years. Despite the jump, however, we are far from fully offsetting the economic losses suffered through the pandemic.
Chart of ‘Risk’ Benchmarks 12-Month Performance (Daily)
Chart Created by John Kicklighter, Data from Bloomberg
The economic picture for the world’s largest economy was nudged by more than just the scheduled event risk through this past session – as significant as that update was. A less encouraging report came from Disney after-the-close announcing it would lay off 28,000 employees due to the lasting effects of the coronavirus slump. This will be a lasting economic risk moving forward. And it isn’t just a US issue. The global economy is struggling to recover from what the IMF has labeled ‘The Great Shutdown.’ For growth readings through Wednesday, we are due the Chinese government PMIs for September, the German retail sales and jobs figures, and Japanese capital expenditures expectations.
Chart of the DXY Dollar Index with Net Speculative Futures Positioning (Weekly)
Chart Created on Tradingview Platform
Top Event Risk for Wednesday
For discreet event risk, it is important to still account for the systemic. If risk trends are in motion, seek out scheduled event risk that could accelerating prevailing moves – or curb it. There is one way or the other, elevated volatility potential dead ahead, which makes CADJPY particularly interesting. This risk-leaning pair (as a Yen cross) has put in for the smallest six-day trading range since before the pandemic. That makes quite the platform for the Canadian July GDP release ahead. It isn’t the most potent release normally, but conditions can amplify it beyond its normal potency.
Chart of CADJPY with 50-Day, 100-Day Mov Avg and 6-Day Historical Range (Daily)
Chart Created on Tradingview Platform
Another pair of serious merit is EURGBP. As seen in EURUSD, the Euro itself has absorbed serious fundamental headwinds recently. The second most liquid currency felt the impact of German Chancellor Angela Merkel’s remarks that EU recovery funds were “increasingly likely” to be delayed going forward. That is a tempering to one of the most effective levers behind the Euro in the past months. Ahead, there is expected rhetoric from ECB President Lagarde alongside German retail sales and employment statistics. For EURGBP specifically, recent BOE rhetoric will factor in; but the ongoing negotiations between UK and EU trade parties can systemically alter our course.
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Chart of EURGBP with 50-Day, 100-Day Moving Averages (Daily)
Chart Created on Tradingview Platform
If you want to download my Manic-Crisis calendar, you can find the updated file here.
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