by Bill O’Grady and Kaisa Stucke

[Posted: 9:30 AM EDT] The weekend was full of political news and some policy news as well.  On the political front, the Trump campaign is pressing its point that the elections could be “rigged” but has widened the definition beyond mere poll manipulation, suggesting the mainstream media is aligned against him.[1]  Polls are leaning toward Sen. Clinton but we are somewhat skeptical of the data.  Overall, we think there is likely a higher degree of preference falsification in this election cycle and it probably means the polls are underestimating the degree of support for Trump.  There was even some violence as a GOP office was firebombed in North Carolina.  Both sides have blamed the other; Mr. Trump has already accused the Democrats of the attack, while some Democratic Party supporters have suggested it was a “false flag” operation.  We don’t know who did it but it does suggest the potential for civil disorder is rising in the post-election environment.

The NYT had some long reads about Sen. Clinton over the weekend.  There were reports on further Wikileaks of Clinton’s speeches to financial firms, which make it clear why she refused to release the transcripts during the primaries.  Her comments were supportive of financial services, not favorable to Dodd-Frank and suggested she was on the bankers’ side.  This is a concern of the Left-Wing Populists (Senators Sanders and Warren).  We expect that if Clinton is elected president she will face a constant barrage of advice from the Left-Wing Populists about who should serve in regulatory positions in the administration.  Although much commentary has been made about the breakup of the GOP, the Democratic Party is facing its own disunion similar to what the Republicans are facing.  Our take is that we are in the early stages of a resetting of political coalitions.  The last one we saw was in the 1960s, when the Roosevelt Coalition of the Center-Left Establishment and the Right-Wing Populists began to crumble.  We don’t know how this one will evolve but it is something we are watching closely.

On the policy front, Chair Yellen indicated that she will be willing to allow the economy to “run hot” and overshoot the 2% inflation target.  This isn’t really a shocking insight but it does suggest that the FOMC will lean dovish.  What this means in terms of actual policy is that we will likely see a hike in December to placate the hawks but we would not expect another hike until H2 2017, and would only expect one move next year.  Meanwhile, at this week’s ECB meeting, expectations call for the central bank to signal that it will extend QE at its meeting in December.  These twin expectations should be dollar supportive in the short run but will likely lead to a weaker dollar next year as the market begins to anticipate ECB tapering and also discount very little tightening from the FOMC.

On the geopolitical front, Iraqi forces and allies are beginning the liberation of Mosul from IS.  We expect this operation to take weeks.  NBC is reporting that the CIA is preparing a package of cyber attacks on Russia in retaliation for hacks affecting the political process in the U.S.  Simply preparing attacks isn’t the same thing as executing them.  We would be surprised to see anything too aggressive result from these threats.

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[1] This was the point of Matt Taibbi of Rolling Stone in a piece from August.  See:  http://www.rollingstone.com/politics/matt-taibbi-on-the-summer-of-the-media-shill-w434484.