Research Team at Westpac, lists down the US election risks for equities and commodities markets by taking reference from the recent Brexit scenario.
Key Quotes
“Equities
- UK equities fell 9.5% from high to low in the day after the referendum but a recovery saw the net decline for the day trimmed to 3.1%. Equity market volatility on the otherhand rose sharply on the day and remained elevated, the VIX posting an intraday range on 24 June of 6.8pts and rising 8.5pts overall on the day.
- US equities can expect a similar reaction to a Trump win – a large intraday fall and potentially smaller net losses overall for the day. The caveat is that US equities are arguably less complacent - UK equities rose a solid 6.5% in the week into the UK vote while US equities are overall down in October, even allowing for Comey's letter absolving Clinton of any wrongdoing.
- UK equities staged an impressive recovery after initial Brexit losses, the FTSE rising 2.6% a week later and 6.2% a month later, lower interest rates and a sharp fall in GBP insulating equities. Domestically focused stocks underperformed while those that benefit from a weaker GBP outperformed. It’s not unreasonable to assume a similar longer term US equity market reaction under a Trump win – a weaker USD vs the majors (ex NAFTA and emerging markets currencies) and a sharp fall in US interest rates as Fed hike odds are trimmed sharply could conceivably help stabilise US stocks. If equities can look past the near term cloudy economic picture, the prospect of individual and corporate tax cuts and another potential Homeland Investment Act, encouraging repatriation of multinationals’ overseas earnings, would certainly be plusses for US stocks.
Commodities
- Expect a similar outcome to Brexit - safe haven demand for gold should push it higher on a Trump win. Gold rose 5% in the day after the UK vote, those gains holding in subsequent weeks, though gold fell 3.7% in the week before the UK vote as confidence in a “remain” win grew. By contrast gold prices have risen modestly through October as Trump's odds have firmed.
- Oil prices fell 4.9% on Brexit, but in the week into the vote they rose almost 10%. By contrast oil prices have fallen sharply in October though increasing doubts around an OPEC production cut have been a very big part of the story. Regardless, risk aversion in the immediate wake of Trump win likely weighs on oil prices.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800, as traders lack directional impetus amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days.
US core PCE inflation set to ease in February on month as Federal Reserve rate cut bets for June mount
The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.8% YoY in February. The revised Summary of Projections showed that policymakers upwardly revised end-2024 core PCE forecast to 2.6% from 2.4%.