Now that Hurricane Sandy has come and gone, residents and businesses in the Northeast are slowly trying to return to normalcy. Power is still out for a large swath of New York City and many websites have had spotty service (ours included) due to damage to data center sites in the region, but the NYSE resumed trading for the first time this week. With most financial firms operating with a very lean staff, it should be no surprise that it felt like the day after a holiday on the New York Stock Exchange floor. Yet it is far from a holiday for most people in the Northeast who have spent the day cleaning up and recovering from the storm. Since we are lucky enough to escape with no major damage, our first thoughts are to the families impacted by the storm. Our second thought is how the storm could impact the U.S. economy and more specifically the U.S. dollar. Having seen Mother Nature wreck havoc across the globe in recent years in ways much worse than what was seen this week, we know that there shouldn't be much impact on fourth quarter GDP. Nonetheless, the initial cost is still estimated to be between $30 to $50 billion in uninsured property damage and lost business activity. However when New Zealand and Japan suffered from devastating earthquakes, spending on rebuilding made up for the hit to economic activity but this does not mean that the Hurricane will have zero impact on the U.S. dollar - quite the contrary.
First and foremost, economic reports for the months of October and November will definitely be distorted by the Hurricane. Even though the data will return to normal levels in the months to follow, the outcome of the October and November economic reports could cause an erratic reaction in the U.S. dollar. Most likely these numbers will show a decline in economic activity which could cap gains in USD/JPY but drive the greenback higher against other currencies because of risk aversion. Hurricane Sandy also boosted President Obama's chance of reelection. According to InTrade, President Obama's election odds soared to 65% and with less than a week to go before the elections, it may be difficult for Romney to recover his losses because Hurricane coverage have put both candidates' campaigns on hold. If President Obama wins the election, the initial impact could be dollar weakness because of the perception that Democrats are less business friendly and because of concern that Obama will continue to face resistance getting the lame duck Congress to reach an agreement on how to handle the fiscal cliff.