US election risks for equities and commodities markets – Westpac


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.

Feed news

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD bounces from 1.18 after robust German Manufacturing PMI

EUR/USD is trading above 1.18 after German Manufacturing PMI beat estimates. Other PMIs missed expectations. US fiscal stimulus and the election developments are eyed.

EUR/USD News

GBP/USD retreats amid mixed Brexit headlines

GBP/USD has retreated from the highs around 1.31 after UK minister Truss reiterated that the UK could leave without a deal. Ireland´s Coveney expressed more optimism. UK retail sales beat estimates while PMIs were mixed.

GBP/USD News

XAU/USD's reversal from $1,914 contained at $1,895 support area

Gold’s upside attempt witnessed during the Asian and European trading sessions has been halted at $1,914 on the Early US session as market sentiment plunged and the precious metal has dropped to find support at $1,895.

Gold News

Forex Today: Dollar clings to gains after the presidential debate, Bitcoin extends gains, PMIs eyed

The US dollar is holding onto Thursday's recovery, The presidential debate was more civilized than the previous one and post-event opinion polls are awaited. Earlier, hopes for a stimulus bill faded and allowed the dollar to recover. PMIs and COVID-19 statistics stand out on Friday.

Read more

WTI hits one-week low at $39.55 after Baker Hughes’ report

Front-month WTI futures’ reversal from day tops near $41 has extended to one-week lows at $39.55 on Friday after Baker Hughes reported that US oil and gas rigs increased to their highest level since May last week.

Oil News

Forex MAJORS

Cryptocurrencies

Signatures