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Markets In Early Stage Of Panic As Trump Leads Polls

Markets In Early Stage Of Panic As Trump Leads Polls

Investors are dumping risk assets this morning as latest ABC News/Washington Post tracking polls showed Trump ahead of Clinton for the first time. Trump’s odds for winning the U.S. elections increased after the FBI reopened its investigation into Hillary Clinton’s use of a private server and he will maximise his leverage on the case with less than a week remaining to the election date.

Most major Asian equity indices fell by more than 1%, as Wall Street’s fear index “VIX” soared above 20 levels for the first time since September 12. The Mexican peso, which has become the popular election proxy, also fell this morning, declining by more than 4.3% for the past six trading days.

The dollar was also hit, plunging to three weeks low versus the euro and one month low against the swiss frank as U.S. 10-year treasury yields fell 7 basis points from yesterday’s highs. Neither earnings nor economic data will provide market direction and it’s going to be a roller coaster ride for the next couple of days as a Trump win appears similar to a Brexit style reaction and probably more severe.

The post Brexit vote market reaction is still fresh in investors’ memory and no one wants to be caught on the wrong side of the trade, it will only take another one or two polls showing a Trump lead to boost markets anxiety and thus a steep sell off in equity markets and high beta currencies.

Gold is likely be the most wanted asset to hedge against political risks, and although it jumped 4% from October’s low, there is still much potential to go higher from current levels.

The Fed is expected to stand pat on rates when they announce policy later today, and while recent round of economic data justifies a rate hike, the Fed doesn’t want to influence the presidential election outcome either way. In a recent report, I expected the Fed to deliver a strong signal on raising rates in December by reiterating a similar sentence from October’s 2015 statement:

In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress both realized and expected toward its objectives of maximum employment and 2 percent inflation.

Although I still believe it’s possible, chances now stand at 50%.

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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