A tough week to trade Canada

Canada starts the week headed off to the polls in Monday's Federal election. The results will start to become available as soon as polls shut at 9:30pmET in Ontario and Quebec and 10pmET in British Columbia. Looking for an election effect to trade? Don't hold your breath for several reasons. 

1. It will be tough to distinguish an election effect from other developments that crowd the date. China's Q3 GDP print may be more influential than local politics when it gets released into the Asian market open on Monday ahead of that evening's Canadian election results. So might be the Bank of Canada's policy statement, MPR and forecasts on Wednesday. Canada also releases CPI later in the week, and an added focus will be upon the ECB meeting on Thursday followed by PMI growth signals the next day. 

2. Polls have incorrectly called many global, Canadian and provincial elections, so the outcome remains uncertain. Vote splitting, turn-out on voting day, and strategic voting are among the reasons not to translate polls that measure the share of the popular vote into seat outcomes in a first-past-the-post system. 

3. It's hardly impossible that Canada may face a protracted period of uncertainty in various minority government scenarios. 

4. Historically, there is little to no credible evidence that markets react to federal elections or do so in ways that are anticipated. Attempts to point to such effects typically don't control for other factors like the ones cited above - or like the global crisis and its impact on stocks. 

5. Of course, a clear distinction this time around concerns the differences in party platforms along the lines of surplus/deficit projections, funding requirements, the mixture of taxation and spending policies, resource sector policies like carbon taxes, and trade agreements. This is juxtaposed against the backdrop of an economy that was weak over the first half of this year but that is gradually on the mend now. 

6. Nevertheless, as Moody's recently put it, "A minority government of any party could have difficulty in implementing its platform." Thus, hasty market judgements may be unlikely. 

7. Over time, adjustments to fiscal, monetary, and regulatory policies and the interplay between them will drive domestic influences upon Canadian markets in addition to global effects. 

8. Moody's has already weighed in with a comment that the election is "unlikely to change Federal creditworthiness." Thus they are signalling no immediate ratings implications regardless of the outcome, although global bond markets have been little influenced by rating agencies over the years.