Today, the Democratic presidential race moves on to New Hampshire for the nation’s first primary (Iowa had the first caucus). Unlike in past years, the unexpected delay and protracted release of the Iowa caucus results have made market read through less certain. While the difficulties in Iowa have garnered a lot of headlines, the reality remains that winning Iowa, and New Hampshire for that matter, might not have provided much momentum anyways even without the vote counting glitch.
Broadly speaking, the Democratic Party allocates its delegates on a proportional basis versus the GBP that generally allocates its delegates on a winner take all basis. A good example of this dynamic would be the 2016 South Carolina primary where Donald Trump got 100% of the delegates but 32% of the vote. Conversely, Hillary Clinton got ~75% of the delegates by winning that percentage of votes. In a crowded democratic field, such as this cycle, vote splitting keeps more candidates in the field for longer.
Moreover, many candidates have been focused on later, delegate rich states with demographics that better align with the national Democratic electorate. Case in point, Joe Biden, whose poor showing in Iowa represented one of the key takeaways, holds a commanding lead in South Carolina (February 29). This state is important not only because of its delegate count but also because of its demographic that is ~25% African American. Without the support of the African American community, it is very difficult, if not impossible, to win the Democratic nomination. So while Iowa and New Hampshire come first, South Carolina could have a greater impact on the nomination process.
Of course, the importance of Super Tuesday remains and, if anything, it has become more important. California has moved its election date to join Super Tuesday, putting delegate rich California and Texas up for grabs on the same day. Keep an eye on Super Tuesday results not only to determine which candidate might be pulling ahead but also to determine the balance between moderate and progressive voting blocs, which is the most important factor in gauging the US election’s impact on the USD. | |
| HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: | |
- Japanese outflow data continues to show large outflows, likely driven by pension funds. It is expected that strong capital outflows should continue to provide support for USDJPY as these flows are structural in nature. Given this, coronavirus concerns continue to impact the currency from a sentiment and tourism inflow perspective.
- Coronavirus concerns continue to weigh on the markets but reports that the mortality rate is around 1% have brought a fragile optimism to the markets.
- Fed Chair Powell is set to deliver his semi-annual Humphrey-Hawkins testimony in the House and Senate today and tomorrow. Powell will likely be asked to comment on the economic impact of the coronavirus outbreak but given the last Fed meeting was ~2 weeks ago, expect his overall assessment of the fundamentals to be unchanged.
- UK Q4 GDP met expectations and came in unchanged QoQ. Private consumption and investment were big drags with government spending rising due to fiscal easing announced before election. However, UK industrial production missed estimates, coming in at 0.1% MoM against expectations for a 0.3% rise.
- The Australian dollar is up for the second day in a row on better-than-expected home loan data. Additionally, the NAB monthly survey showed business conditions remaining steady at 3 and business confidence improving to -1 from -2 last month.
- Mexico’s industrial production came in weaker than expected, falling -1.0% against expectations for a -0.5% decline.
- The Reserve Bank of New Zealand will make its rate decision after the US session closes today. This will be the bank’s first meeting since November so it clearly has a lot to discuss. The temporary ban on visitors from China will undoubtedly have an impact, but business confidence measures have moved up in recent months. Market consensus remains for the bank to keep rates unchanged at 1.0%.
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