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Investors Should Ignore the Election Polls

Investors Should Ignore the Election Polls

By    |   Monday, 31 October 2016 08:07 AM

That opinion polls on the U.S. elections are volatile is nothing new.

For investors it could be wise to take some distance from opinion polls when making investment decisions, and not to forget that the Brexit referendum polls earlier this year didn’t come out as had been suggested.

The latest ABC News/Washington Post poll puts Hilary Clinton just one point ahead of Donald Trump in the race to the White House: 46 percent support Clinton according to the poll compared for 45 percent for Trump.

The problem with this sort of situation is that the polls can reinforce existing beliefs in financial markets while doing little to clarify the precise situation. 

The Mexican peso has weakened somewhat, but I wouldn’t read too much in that for getting any particular inside into the forces driving the election debate.

Never forget, foreign exchange traders tend to share common characteristics as to their background, and that means there is a significant risk that they will have something like a mono-culture viewpoint. 

Alongside this, today in the U.S. we’ll get the personal consumption expenditure (PCE) deflater, which the Fed monitors in preference to the consumer price index (PCI) as a measure of inflation. 

The headline PCE measure is likely to tick up and with the market looking for a 1.7 percent year-over-year core PCE deflator, which is important if that is the case, because that number would be precisely in line with its 20-year average. 

In other words, most prices in the United States are rising in line with their long-term average once you get away from the oil price effects. 

Over in the UK, about the uncertainty surrounding whether the Bank of England Governor Mark Carney would remain in his function, the Financial Times (FT) calmed financial markets somewhat when it said on Sunday that Mr. Carney was ready to serve a full eight-year term and had told “friends” that he was likely to make a statement on his future this week to “put an end to damaging speculation.” 

The FT also noted that the governor was expected to confer with the prime minister and chancellor before making a final “personal” decision.

Over the weekend, the EU and Canada have signed their Comprehensive Economic and Trade Agreement (CETA), but Sunday's signing will not be the last act before this endeavor is complete. For being fully implemented, which will have to include a contentious investment protection system, it will need approval of all 38 national and regional parliaments involved.

Interestingly, the EU-Canada free agreement doesn’t include free movement of people in return for increased market access, which could be referred to when the Brexit is finally discussed at some time in the future.

In Iceland meanwhile, the anti-establishment Pirate Party and their allies failed to win more seats than the current government, so neither side has a majority. Populist views were not enough to form a majority, but they are enough to create a degree of instability.

The Spanish have managed for ending a period of instability and got finally a government with Rajoy continuing as Prime Minister. This does not mean that Spain is out of the woods yet because Spain remains at serious risk that its trend GDP growth could fall back to below 1 percent over the near future while its still ballooning public debt could place a major burden on its economy. 

To put it simple, Spain’s political, economic, and fiscal landscape could more and more start to resemble to Italy's.

Finally, the Euro area third quarter GDP rose by 0.3 percent q/q in Q3 and by 1.6 percent y/y.

Euro area annual inflation flash estimate came in at 0.5 percent in October, up from 0.4% in September.

Investors could do well keeping the continuous growing divergence between the U.S. and the Euro area GDP and inflation numbers in mind. Under these circumstances the euro has very little room to strengthen against the dollar over the short term.  

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. 

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For investors it could be wise to take some distance from opinion polls when making investment decisions, and not to forget that the Brexit referendum polls earlier this year didn’t come out as had been suggested.
investors, election, polls, investment
Monday, 31 October 2016 08:07 AM
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