Daily Comment (October 10, 2016)

by Bill O’Grady and Kaisa Stucke

[Posted: 9:30 AM EDT] Global equity markets are mixed this morning.  The EuroStoxx 50 is trading higher by 0.7% from the last close.  In Asia, the MSCI Asia Apex 50 closed lower by 0.05% from the prior close. Chinese markets were higher, with the Shanghai Composite moving up by 1.5% and the Shenzhen index moving up by 1.9%.  U.S. equity futures are signaling a higher opening.

Trading is a bit thin this morning.  In Asia, markets in Japan, Hong Kong and Taiwan were closed last week and U.S. fixed income markets are not open for the Columbus Day holiday.  Most of the weekend news was political although there was some other news as well.

The political backdrop:  Four weeks from tomorrow most Americans will go to the polls to elect electors for president and to vote on Congressional candidates.  There were three big items over the weekend.  First, a 2005 “hot mic” on Donald Trump revealed a series of comments that put the candidate in a very bad light.  As the weekend passed, a large number of GOP candidates pulled their endorsements and the GOP leadership appears to be withdrawing its support for Trump and instead is trying to salvage the down ballot candidates.  There was talk that Trump would be forced out as the party’s candidate, and rumors continue to circulate that Sen. Pence may leave the campaign as well.

We view this from the prism of establishment v. populist.  Trump has been the candidate of the latter; the center-right was never comfortable with his candidacy.  We find it a bit odd that the tapes were taken as a surprise—how many times has Trump said something that would have ended the candidacy of an establishment candidate, but seemingly had little impact on the Trump campaign.  We doubt these revelations will change the minds of committed Trump voters who are attracted to him for his positions on trade and immigration.  However, that group isn’t large enough to win the election and without the support of the center-right, the hurdle to win is quite high.

Second, a series of Wikileaks were released, detailing comments following Sen. Clinton’s speeches to financial services firms (for which she was well compensated).  They suggested that her positions on financial services regulation, trade and the like were solidly establishment.  It came up in the debate where she was asked about her comments about having public and private positions.  She responded with a rather unconvincing story about how the comments were part of a critique of a movie about President Lincoln.  Had this come out during the primaries (in other words, if the transcripts of her talks to financial services firms had been released), she might not have been able to defeat Sen. Sanders.

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