9 November, 2016
Recent history has once again repeated itself, and by this I mean that investors were caught completely off guard by not pricing in the reasonable possibility that Donald Trump could become the President of the United States. This is the exact same thing that happened during the EU referendum vote, when investors sided substantially towards pricing in a remain outcome and they were left in complete shock earlier in trading as a result of Donald Trump gaining momentum.
The beat to the drum of music that Donald Trump could win this election has got louder, resulting in chaos throughout the financial markets as a result of investor uncertainty. The markets crashed earlier in Asia trading with investors transitioning to full-on “risk off” mode as a result of the shock of Trump going into the lead.
So what has happened in the markets?
Investors moved into complete “risk off” mode with major stock markets crashing, including the Dow Jones Index losing over 600 points at one point. A period of “risk off” is bad news for the stock markets and Trump momentum is seen as dangerous news for the stock markets. It must be pointed out to investors that Donald Trump has not won the election at this point and Clinton has now taken the lead in dramatic fashion, although the markets did crash earlier in Asia as a result of investor shock.
“Risk off” basically means investor appetite towards riskier assets is diminished, meaning a massive negative for emerging market currencies. Both the Mexican Peso and Chinese Yuan weakened to record levels against the Dollar during trading so far in Asia. Why the Peso? Donald Trump is clearly anti-Mexico and Trump winning is seen as extremely bad news for the Mexican economy with this resulting in the Peso nosedive as a result of Trump momentum.
While Donald Trump has also displayed some very negative views on China in the past, as he has done with a multitude of other matters to be honest, it is possible that the swing towards Trump did contribute towards the offshore Renminbi hitting another record-low against the Dollar. The USDCNH crashed through 6.80 but suddenly pulled back to 6.76 within minutes, before later consolidating around 6.79.
This move was probably manipulated by election nerves sending investors flying away from riskier assets, but we can’t rule out the possibility that the People’s Bank of China (PBoC) might have pushed the buzzer to intervene and protect the Yuan from further losses as it reached 6.80. This is by no means confirmed, but it is one of the options that we can’t rule out of the equation.
The price of Oil has been another loser to the previous sudden twist of momentum towards Donald Trump. While this hasn’t been touched upon very much, Trump winning would have negative consequences on the price of oil. Forget about the ongoing OPEC drama, the threat of growth forecasts being downgraded at least over the short-term due to investor uncertainty in theory weakens demand for commodities like oil.
So who are traders currently favoring?
It has been proven time and time again that when there is uncertainty in the markets that the Japanese Yen proves itself as a best friend to investors and this is happening once again. The Bank of Japan (BoJ) will be in complete dismay if Trump pulls this off because it is going to send the USDJPY towards gravity, after already pulling back from 105 to just below 102 during trading in Asia this morning.
Safe-haven appeal for Gold is also being driven through the roof with the precious metal rallying from just above $1265 to marginally above $1320 on investor uncertainty.
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