The Brexit vote back in June taught markets never to take anything for granted and the same holds true for the upcoming US Presidential election. A poll lead for Trump in Florida yesterday, combined with some further revelations in the daily mud-slinging, have enhanced the perception that the race remains uncomfortably close for markets to become too complacent over. The Mexican peso has become the market’s favoured barometer of Trump sentiment, weakening yesterday by the most in 1 month on the back of the latest shift in sentiment. There has certainly been an increase in the simple rolling 1 month correlation between the peso and Trump polling over the past 3 months. Beyond the peso, the election effect has been relatively muted, unless you count the decline in volatility seen across most asset classes as a sign that investors are just sitting on the side-lines.
For today, sterling will be taking a very close look at the Q3 GDP numbers when they are released at 08:30 GMT. If the anticipated slowdown to 0.3% QoQ materialises, then this would be the slowest pace of growth seen since Q3 last year. No doubt there will be a huge analysis of what the numbers mean for Brexit, but the simple point is that it has not happened yet, so much of this will be hyperbole. The fall in the currency means that the inflation impact has overtaken the growth impact for the Bank of England, but sterling will still be sensitive to a deviation from this expectation given the many inferences and debate that will dominate.