Asia FX Talk - US election odds tighten meaningfully in prediction markets

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G3: US Durable Goods orders, Eurozone final Manufacturing PMI

Asia: India Manufacturing PMI

Market Highlights

Prediction markets have tightened the odds of the 2024 US Presidential Elections race over the past week, with some meaningful shifts over the weekend. Former President Trump is still favoured to win, but the odds have retraced quite a bit of the moves seen in October across a range of markets such as Polymarket, PredictIt and Kalshi. What’s driving the shifts could partly be a high-profile poll released by famed pollster Ann Selzer showing Kamala Harris taking the lead in Iowa by 3 percentage points– a state that Trump won in 2016 and 2020. The poll in particular showed that women – particular those who are older or are politically independent – driving the late shift towards Harris. Nonetheless, Election prediction models by agencies such as FiveThirtyEight and the Economist continue to point to a coin-toss election with an edge for Trump, even as they noted the possible information this highly rated poll could have on the rest of the states and a potential underreporting of the female vote.

Even as markets are focused squarely on the US Elections, it’s also important to keep the broader macro context in mind. On that note, US Non-Farm Payrolls and ISM Manufacturing numbers released on Friday were weak, although distorted by some one-off events such as Hurricanes and recent Boeing strike so it’s difficult to gauge the underlying trend just from this print. Nonetheless, even accounting for the 44k drop by the Boeing strike and Hurricane impact, the 12k rise in NFP is likely still indicative of continued softening trend in the US labour market. As such, we continue to think that the Fed is likely to cut rates by 25bps in its upcoming meeting this week, but the result of the US election could matter materially for how the Fed thinks about the longer-term path beyond 2024.

Regional FX

Asian FX markets saw some reprieve on the back of a weaker Dollar even as US 10-yeare yields rose further to 4.38%. USD/CNH fell to 7.11, while KRW (+0.3%), SGD (+0.31%) and MYR (+0.13%) strengthened slightly. A range of PMIs released across Asia showed some moderation in manufacturing activity momentum, outside of Vietnam and China. On that note, South Korea’s exports for October also slowed to 4.6%yoy from 7.5%yoy in September. Meanwhile, Indonesia released inflation print which showed a softening trend at 1.7%yoy from 1.8%yoy the previous month. We think that Bank Indonesia will likely have space to gradually lower policy rates over the medium term, but a lot will depend on what happens in the US Elections. To help maintain Rupiah stability the Indonesia government may be looking to extend the mandatory period for natural resource exporters to hold FX proceeds in Indonesia, according to Indonesia’s Coordinating Economic minister Airlangga Hartarto.