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Colin Cieszynski

The Before the Bell report is compiled by editors of The Globe and Mail and is updated throughout the morning to reflect latest developments. Colin Cieszynski, Chartered Financial Analyst and Chartered Market Technician, is chief market strategist with CMC Markets.

The election-related slide that started yesterday has continued overnight. Asia Pacific indexes were hammered with the Nikkei falling 1.76 per cent and the Hang Seng dropping 1.45 per cent. In Europe, the FTSE is down 0.4 per cent, the Dax is down 0.7 per cent with some continental indexes down over 1.0 per cent. U.S. index ‎futures are trading down 0.1 per cent with the Dow heading under 18,000 and the S&P testing 2,100. Capital has been flowing into defensive havens particularly the yen, bonds and gold which is up 0.9 per cent and briefly touched the $1,300 (U.S.) per ounce level.

I've been warning for weeks that the markets have been too complacent about the U.S. election and that overcommitting to a Hillary Clinton win was leaving traders exposed to a Brexit-level surprise. Donald Trump's campaign has been picking up momentum in earnest closing a 12-point gap and taking the lead in some polls.

Yesterday and overnight traders started taking the potential for a Trump win or a contested election much more seriously. A close vote or Republican upset could increase political uncertainty and market risk, especially with such wide differences between the two platforms.

The realization that Trump could win sent stocks sharply lower toward key support levels. It also started to drag the U.S. dollar down on speculation that post-election volatility could postpone a Fed rate hike or slow the pace of future increases. Increased political uncertainty sparked rallies in traditional defensive havens. Gold led the charge but more importantly the defensive rally gained breadth with yen joining in and shrugging off a neutral-to-dovish Bank of Japan.

This action sets the stage for Wednesday's Fed decision. Normally with an election less than a week away one would expect the Fed to go very quiet (and many market players still think this way).  As far as the economy goes, it doesn't really matter if the Fed raises rates now or next month, one rate hike this year is widely expected. So whatever decision we get may be more guided by politics.

The Fed may not be able to escape the spotlight this time regardless of what it does. Bank of England Governor Mark Carney politicized his office earlier this year by taking the Remain side in the Brexit referendum and scrambling to deal with that loss. In the U.S., the FBI is under fire from the Democrats for reopening the Clinton investigation, the Fed could come under fire from either of both sides depending on what it does.

Donald Trump has already accused the Fed of keeping interest rates artificially low this year to prop up the economy and that may continue if the Fed does nothing.

Fed Chair Janet Yellen and Governor Lael Brainard have well-known ties to the Democrats, and could lose influence if Trump wins. With the Democrats losing ground, a surprise interest increase is looking possible. First, a rate hike spun as driven by a strong economy could be seen as a sign President Barack Obama's economic policies are working and undermining Trump's calls for change. Second, a rate hike could be seen as a pre-emptive move as there has been speculation that volatility related to a Trump win could close the window to a December rate hike.

So, no increase would mean the Fed remains confident in a Clinton win. A rate hike could be seen as the Fed hitting the panic button and that Democrats are worried about losing the White House and being punted back into opposition.

Crude oil has been under pressure overnight after U.S. American Petroleum Institute inventories jumped by over 9 million barrels last week and may remain active through Wednesday's Department of Energy reports. So far today, West Texas Intermediate and Brent are both trading down about 1.5 per cent. The oil selloff may continue to drag on energy stocks, while the gold rally may light a fire under miners.

It is also a busy week for economic data and earnings reports. ‎This morning brings the ADP payrolls report, a precursor to Friday's nonfarm payrolls. It showed that U.S. private employers added 147,000 jobs in October, below economists' expectations. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 165,000 jobs, with estimates ranging from 130,000 to 190,000. Private payroll gains in the month earlier were revised up to 202,000 from an originally reported 154,000 increase.

Now, here is a closer look at what's going on this morning and what is still to come.

MARKET DATA:

Futures (as of about 8:30 a.m. ET)

Dow -0.17 per cent; S&P 500 -0.11 per cent; Nasdaq: -0.02 per cent; TSX 60 -0.13 per cent

Equities
Japan's Nikkei -1.76 per cent
Shanghai composite index -0.62 per cent
Hong Kong's Hang Seng -1.45 per cent 
Germany's DAX -0.74 per cent
London's FTSE -0.41 per cent
France's CAC 40 -0.61 per cent

Commodities
WTI crude oil (Nymex Dec.) -1.50 per cent at $45.97 (U.S.) a barrel
Gold (Comex Dec.) +0.66 per cent at $1,296.50 (U.S.) an ounce
Copper (Comex Dec.) -0.72 per cent at $2.21 (U.S.) a pound

Currencies
Canadian dollar +0.10 at 74.78 cents (U.S.)
U.S. dollar index -0.27 at 97.43

Bonds
Canada 10-year bond yield -2.65 at 1.18 per cent

KEY ECONOMIC RELEASES

Japan consumer confidence
Euro Area manufacturing PMI
Germany unemployment

(8:15 a.m. ET) U.S. ADP National Employment Report for October. Consensus is an increase of 170,000.
(10:30 a.m. ET) EIA petroleum status report
(1:15 p.m. ET) Bank of Canada senior deputy governor Carolyn Wilkins speaks in Toronto to the Ontario Securities Commission.
(2 p.m. ET) U.S. Federal Open Market Committee announcement

KEY STOCKS TO WATCH

See also: Wednesday's small-cap stocks to watch

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Square, the mobile payments company co-founded and run by Twitter CEO Jack Dorsey, rose 5.7 percent to $11.70 in premarket trading after the company raised its full-year revenue forecast.

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Electronic Arts was up 5.4 percent at $82.02 after the videogame publisher raised its full-year revenue and profit forecasts.

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Tableau Software fell 7.2 percent to $45.97 after the data analytics software maker reported lower-than-expected third-quarter revenue.

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Canadian meat processor Maple Leaf Foods Inc. reported a 70.4 percent jump in quarterly profit as lower costs and higher prices boosted earnings at its prepared meats business. The company's net earnings rose to $31.83 million, or 23 cents per share, from $18.68 million, or 13 cents per share, a year earlier. On an adjusted basis, Maple Leaf earned 32 cents per share, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S. Total sales for Canada's biggest pork processor rose 4.1 percent to $852.1 million, beating analysts' average estimate of $843 million.

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Chinese online shopping giant Alibaba Group Holding Ltd. reported a 55 percent rise in second-quarter revenue, beating analyst estimates on the back of core e-commerce sales and strong media and entertainment growth. It was a second straight quarter of robust results for the company, suggesting it can still generate strong growth even as worries abound about the health of China's economy and its retail sector. Alibaba's American Depository shares were up around 3 percent in pre-market trading ahead of the New York open.

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Time Warner's third-quarter performance beat analysts' estimates, thanks partly to revenue growth spurred by the success of films such as Suicide Squad and Sully. Stripping out certain items, earnings were $1.83 per share. Analysts surveyed by Zacks Investment Research were looking for earnings of $1.36 per share.

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Shaw Communications Inc. reported a 44 percent decrease in quarterly profit from a year ago, when it recorded a gain on the sale of spectrum licenses. The company's net income fell to $154 million, or 31 cents per share, in the fourth quarter ended Aug. 31, from $276 million, or 57 cents per share, a year earlier.

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Drugmaker Allergan missed estimates by 24 cents a share, with adjusted quarterly profit of $3.32 per share. Revenue also missed forecasts, despite strong sales of its glaucoma and Botox treatments. Allergan also announced a $10-billion stock buyback and a first-time quarterly dividend of 70 cents per share. Its shares fell 2.7 per cent in premarket trading.

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Networking equipment maker Brocade Communications will be bought by chipmaker Broadcom in a deal worth $5.5-billion excluding debt. Brocade's shares were up 9 per cent in premarket trading while Broadcom's gained 0.6 per cent.

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Estee Lauder's earnings came in four cents a share above estimates, with adjusted quarterly profit of 84 cents per share. Revenue came in below analysts' forecasts.

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Household products maker Clorox reported a quarterly profit of $1.36 per share, six cents shy of estimates. Revenue was slightly above forecasts. Its shares fell 2.9 per cent in premarket trading.

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Valeant Pharmaceuticals confirmed that it is in talks to sell its Salix stomach drug business. Earlier reports had pegged the sales price at about $10-billion. In New York, its shares were off 2.9 per cent in premarket trading.

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Herbalife said CEO Michael Johnson will step down next year after 13 years on the job. He'll be replaced by COO Richard Goudis. Mr. Johnson will become executive chairman of the nutritional products maker.

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Tesla said its planned merger with SolarCity will add $500-million to its balance sheet over the next three years, while contributing more than $1-billion in revenue next year. Its shares were off 0.7 per cent in premarket trading.

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US Steel reported adjusted quarterly profit of 40 cents per share, half of what analysts were projecting. Revenue also missed forecasts.

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Shopify Inc.  reported a bigger quarterly loss as operating expenses jumped 87.5 percent. The company's net loss widened to $9.1 million in the third quarter ended Sept. 30, from $4.7 million a year earlier. On a per-share basis, the net loss attributable to shareholders increased to 11 cents from 6 cents. Ottawa-based Shopify, which went public in May last year, said revenue rose 88.6 percent to $99.6 million. Its shares were up 4.4 per cent in premarket trading.

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Earnings include: Airboss of America Corp.; Algoma Central Corp.; Alibaba Group Holding Ltd.; AmerisourceBergen Corp.; Anthem Inc.; Athabasca Oil Corp.; ATS Automation Tooling Systems Inc.; Automatic Data Processing Inc.; Baytex Energy Corp.; Brookfield Property Partners LP; Cameco Corp.; CDK Global Inc.; CDW Corp.; Chesswood Group Ltd.; Cogeco Communications Inc.; COGECO Inc.; Continental Resources Inc.; Delphi Automotive PLC; Energy Transfer Equity LP; Energy Transfer Partners LP; Equinix Inc.; Excellon Resources Inc.; Facebook Inc.; Fidelity National Financial Inc.; First Solar Inc.;  GMP Capital Inc.; Golden Star Resources Ltd.; Granite Oil Corp.; High Liner Foods Inc.; Home Capital Group Inc.; Host Hotels & Resorts Inc.; HudBay Minerals Inc.; Industrial Alliance Insurance and Financial Services Inc.; Information Services Corp.; Intact Financial Corp.; Kinaxis Inc.; Kinross Gold Corp.; Magellan Midstream Partners LP; Mandalay Resources Corp.; Manitoba Telecom Services Inc.; Maple Leaf Foods Inc.; Marathon Oil Corp.; Metlife Inc.; Newalta Corp.; Office Depot Inc.; Parsley Energy Inc.; Pengrowth Energy Corp.; Penn West Petroleum Ltd.; PHX Energy Services Corp.; Prudential Financial Inc.; Qualcomm Inc.; Redline Communications Group Inc.; Shopify Inc.; Spectra Energy Corp.; Sunoco LP; Time Warner Inc.; Tourmaline Oil Corp.; Trez Capital Mortgage Investment Corp.; Trinidad Drilling Ltd.; Twenty-First Century Fox Inc.; Ur-Energy Inc.; Vereit Inc.; Whole Foods Market Inc.; ZCL Composites Inc.; Zoetis Inc.

With files from wire services

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