Investors Stay Cautious Ahead Of US Election, Dollar Firm

Asian markets are broadly lower as traders turned cautious ahead of US election. Latest polls showed a very close tie between President Obama and Republican Romney with less than 48 hours to go before Tuesday's vote. In view of the uncertainties, it's natural for investors to stay sidelined in the early part of the week. Meanwhile, China's 18th Communist Congress will start on Thursday and leadership transition is expected.

Economic data played a little role is today's trading so far. The Chinese services PMI rose to 55.3 in October, up fro 53.7, showing improvements in non-manufacturing industries. Australian retail sales rose 0.5% mom in September versus expectation of 0.4% mom. Trade deficit also came in narrower than expected at AUG -1456m in September. Overall, dollar would likely remain firm for today and tomorrow on risk aversion.

Financial leaders at the G-20 meeting showed concerns about the fiscal cliff that would happen as soon as January 2013. Ministers from both Japan and Canada stated the issue is the most critical one in the near-term. BOJ Governor Masaaki Shirakawa warned that "if the United States fails to resolve the fiscal cliff it would hit the US economy hard as well as the world and the Japanese economy, so each G20 country will urge the United States to firmly deal with it" while Canadian Finance Minister Jim Flaherty said the fiscal cliff has carried more risks in the short-term than the sovereign debt crisis in the eurozone.

While a final communiqué will be released after today’s meeting, a draft statement said that the global economy is facing a number of risks ahead: "Global growth remains modest and risks remain elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States and Japan, weaker growth in some emerging markets and additional supply shocks in some commodity markets."

In Greece, prime minister Samaras will face two critical votes this week in the effort to secure the next tranche of bailout fund. The vote include a bill on EUR 18 of cuts and reforms and 2013 budgets. Samaras warned that "we must save the country from catastrophe ... if we fail to stay in the euro nothing will make sense." He also lawmakers to "put an end once and for all" to the risks that Greece is facing. Socialist Pasok leader Venizelos emphasized that "until our country comes out of the crisis, we are confronted with two choices: one is very difficult and the other is catastrophic," referring to austerity and a euro exit.

Latest CFTC data showed that Euro net shorts were relatively unchanged at 58.2k contracts on October 30, comparing to prior week's 55.2k. Sharp deterioration was seen in yen sentiments as net shorts rose further to 37.0k, which compares to 29.3k net works back on October 2. Sterling net longs rose slightly to 23.4k comparing to prior week's 18.4k. Australia dollar net longs rose back to 52.1k contracts comparing to October's low of 38.4k but well below September's high of 89.6k. Canadian dollar net longs dropped for another week to 78.8k, way off September's high of 111.9k.