Gear Up For a Busy Week of Horse Trading
The race to the White House, the U.K. QE (quantitative easing) button, a potential Spanish bailout request and Aussie interest rate trigger present global investors with an event driven week. And dare I say it, the possibility of higher liquidity to trade, writes CNBC's Karen Tso.
Tuesday's U.S. Presidential Election, a neck and neck race, has left Wall Street pundits relying on political analysis of swing states to bet on Democrat versus Republican sensitive stocks.
But beyond the usual election activity, markets have the additional dilemma of concluding what the washout holds for a deal to avoid the fiscal cliff.
The political action comes as U.S. retail investors turn heel.
Thomson Reuters' Lipper service reports that U.S. bond mutual funds clocked up outflows of $895 million in the week ending October 31, for the first time since mid-June. Typically the opposite has occurred with professional money.
ETF's, usually a marker of institutional investor sentiment, recorded inflows of $301 million. It leaves the big money loaded up for a post-election swing higher or lower.
Another leg north would leave retail investors playing catch up again. U.K. investors have also demonstrated more enthusiasm for a slice of the action.
The FTSE is up 8 percent in the last five months and IMA's latest report shows equities are now favored over fixed income for the first time in twelve months.
Low yielding Gilts are on the radar Thursday.
Brokerage RBC, reading the tea leaves on the Bank of England's (BOE) policy intentions, sees this week's Monetary Policy Committee (MPC) meeting as crucial and has kept its call for a further 50 billion pound increase in the Asset Purchase Target, despite the stronger than expected 1 percent rise in third quarter GDP figures.
But Monument Securities says some MPC members might believe it advantageous to keep the BOE's powder dry in case the economy worsens.
Markets are wisely listening to murmurs on Threadneedle Street about whether QE is hitting the mark and if it is time for more creativity on the edges, such as ramping up programs like the Funding for Lending Scheme.
Bond markets of late have not being willing to test the resolve of central banks.
This week will likely mark another month that passes by with Mario Draghi's bond-buying program known as OMT (Outright Monetary Transactions) ready and waiting but with no takers.
Peripheral yields have nudged a little higher since the bond buying blueprint was unveiled in September, but not enough to force Madrid to Draghi's door.
The Spanish PMI reading Friday confirmed the country faces slower growth.
Expect the ECB boss to face a hungry press mob Thursday seeking answers on the timing of a Spanish bailout.
But punters might try their luck a little further afield this week.
Reserve Bank of Australia Governor Glenn Stevens has irritated traders with an interest rate change every year since 2006, timed just 30 minutes before the running of the Melbourne Cup, known locally as the race that stops a nation.
Based on his track record another 25 basis point rate cut Tuesday seems a sure thing, more so than French stayer Dunaden securing back to back wins in the Cup.
Dunaden is loaded up with weight after outperforming last year; sounds a bit like the Australian economy shouldering lumpy commodity prices.