The Morning Commentary: Real Separation

Foreign Exchange - Morning Commentary
Real Separation 
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Last night, the Democratic primary field appeared on the same stage for the last time before “Super Tuesday.”  From polling data, it appears as if the race to be the Democratic nominee has turned to a new phase with Sanders pulling away in the polls and establishing himself as the base case nominee. 

While Sanders has become the Democratic frontrunner, the market’s view on the probability that a progressive candidate will become President remains relatively unchanged.  Likely, this is due to the fractured nature of the Democratic field that suggests a low ability to mount a successful campaign once the nominee is confirmed. 

Early voting has allowed Sanders to put some distance between himself and the rest of the field.  For Joe Biden, the South Carolina vote is likely a make or break moment for his campaign.  However, for the greater field, it will be “Super Tuesday” that provides the first opportunity to gain real separation.  Keep in mind that February voting accounts for less than 4% of the total delegates.  This compares to about 34% of delegates to be awarded on “Super Tuesday,” making it a key opportunity for candidates to mark separation based on actual progress and not just perceived momentum.  
  • While US 10-year yields have recovered some today, the benchmark yield hit a new all-time low yesterday when it dropped to as low as ~1.3055%.
  • Europe has evolved into the new focus on the spread of Covid-19 as cases outside of China continue to grow.  New cases have been reported in South Korea, Italy, Germany, France, Austria, Croatia and Switzerland.  The total number of cases outside of China is relatively small compared to the cases in China, but the possibility of the virus becoming a global pandemic with extended economic implications has sapped risk sentiment. 
  • Hong Kong released its budget overnight and showed a record budget deficit as it works to battle the impact of the Covid-19 outbreak.  The 2020-21 budget, which is the second deficit in 15 years, shows a deficit of ~HKD 139.1 billion or 4.8% of GDP.  
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