8 November, 2016
Risks assets received a boost on Monday after the FBI announced it will not change the conclusion it reached in July after investigating Hillary Clinton's new emails.
The S&P 500 reacted as if a Clinton win looks more certain, surging by more than 2% and ending 9 days losing streak, its longest in more than three and a half decades. The Mexican peso led the rally in currencies, while safe-haven bonds and gold were dumped with the market’s fear gauge VIX index.
There’s no doubt that financial markets and businesses are hoping for a Clinton win with latest polls supporting this outcome, however in a year full of surprises I will be reluctant to take big positions and would rather hedge against the unknown especially that a Clinton win is priced in to some extent. We shouldn’t forget that the Pound traded at 1.5 against the dollar on the day of the Brexit referendum.
Whether Clinton or Trump wins the election, the longer-term impact will be decided by who rules the Senate and the House. Both the House and Senate are currently controlled by Republicans, and according to FiveThirtyEight the Democrats have 68.9% chance of recapturing the Senate. Markets best case scenario should be a continued congressional gridlock which makes it difficult for the president to pass new legislations.
With almost 24 hours remaining to the election results, investors today seem to sit on the sidelines. The U.S. dollar is moving in a very narrow range and Asian equities are flat.
Earlier today, data from China showed that both imports and exports shrank for the second straight month in October, leaving the country with $49.06 billion trade surplus. Overseas shipments dropped 7.3% year-on-year indicating that global demand for Chinese goods remained sluggish especially from Europe where exports slid 8.7%. The Yuan depreciation was not enough to offset weak global growth and Chinese officials are left with little options to meet their growth targets, however I believe that the Yuan will continue to depreciate against the dollar but in a slow pace to prevent big shocks like the ones seen in the beginning of 2016.
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