Ahead of the U.S. elections and the increasingly close race between Clinton and Trump, traders are in for a wild ride. With the political risk back on the board, traders prepare for the sudden changes that are likely to occur.
World stocks, oil prices and the USD fell while gold and other safe-haven assets such as the Swiss Franc firmed as news of the tightening race hit the news just days ahead of the U.S. elections. Investors became rattled as it became clear that Clinton was not a shoe-in for president, as was the consensus among most.
Until recently, the Democrat Hillary Clinton was sitting comfortably ahead of her rival Trump until news about a further investigation by the F.B.I. surfaced shortly before the elections are to be held. Public polls showed that if Hillary was to win, it would likely mean that stocks would perform better than if Trump’s administration were to take over the presidency. However, with the recent reopened investigation into Clinton, stock markets began to jitter as the race became tight again. The F.B.I. announced that it was investigating newly discovered emails that relates to Clinton’s private server use.
Asian markets slumped to a seven-week low on Wednesday while much of Europe hit a four-month low alongside Wall Street. British gilts surged regardless of being slammed recently because of uncertainty in the post-Brexit future.
Craig Erlam, an Oanda senior market analyst in London, said that while investors knew that the U.S. elections were going to create uncertainty in the market, no one was prepared for events that took place over the last few days. Clinton is seen as the status quo candidate while Trump’s stance on foreign policy, immigrants and trade relations causes anxiety in many investors’ eyes.
Recently traders have begun to buy contracts such as the CBOE Volatility Index .VIX call options to try to take advantage of the volatile markets as of late. The open VIX call contracts were ahead of puts by more than 3 times, which is the highest it has been in over five months, based on option analytics data by the firm Trade Alert.
Randy Frederick from Charles Schwab in Texas said that the VIX has been climbing for the last six days telling us that option prices on the S&P 500 are being bid up. He also noted that there is an increased demand for hedging as one can see from the volume of trading on the S&P 500 and VIX.
The FTSE fell 0.4% alongside Germany’s DAX that fell 0.7% as fears grew over the elections. The top 300 shares in Europe’s index also fell by 0.4% after hitting a four-month low.
Financial analysts at Barclays say that a rise in the polls in favour of Trump would mean that the S&P 500 could fall 5%. If he were to win the presidential race, analysts predict that it could fall by as much as 10%. Online trading at firms such as CMC Markets remains volatile while the election draws near.
Further market tension that is a concern for online trading was due to the Federal Reserve’s two-day policy meeting with a statement posted on Wednesday. They announced that there will be no rate hike now but there might be one in December. This confirmed what many analysts believed would happen. However, some analysts are not convinced that there will be a rate hike in December.
With markets in their current volatile state due to the uncertain presidential elections, more investors are turning toward the safe-bet stocks and assets. Hedging activity is on the rise prior to the election results, a trend that has only recently begun. Randy Frederick said that some of the pickup may be due to the elections nearing but it is most likely spurred by the F.B.I. investigations.
Clinton’s polls did not seem to suffer much with her 5 point lead over her rival according to poll by Reuters while an ABC poll showed Trump surge with a 2 point lead. The conflicting poll data further adds to the uncertainty. Analysts at Goldman Sachs pointed out that the S&P 500 Index was at 6.6, which was the lowest it has been in an October in 23 years.