September 26, 2016, 3:45pm EST

All eyes are on the Presidential debate/face-off tonight.  Heading into the event, stocks are lower, yields are lower and the dollar is lower — all a “risk-off” tone.

And the VIX (implied S&P 500 vol/an indicator of uncertainty) has popped higher from the very low levels it had returned to as of Friday.  Speculators are out today making bets on a political firework show tonight, and thus betting on more uncertainty in the outcome and in post-election policy making.

If we step back a bit though, given the difficulties in getting through the legislative process, the biggest potential market influence from the election may be more about the prospects of getting a fiscal stimulus package done, rather than the many promises that are made on an campaign trail.  Both candidates have been out promising a spending package to boost the economy.  And on the heals of a package from Japan, and the unknown risks from Brexit, the idea is becoming more politically palatable.

As we discussed on Friday, the Fed has taken a strategically more pessimistic public view on the economy, in effort to underpin the current economic drivers in place (stability, low rates and incentives to reach for risk).

Following the Fed and BOJ events last week, the 10-year yield is back in the 1.50s and sitting in a big technical level.  This will be an important chart to keep an eye on tomorrow.

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