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Saturday 24 June 2017

Markets plunge on fears of Trump victory

Republican presidential nominee Donald Trump holds a campaign event in Eau Claire, Wisconsin. Photo: Reuters
Republican presidential nominee Donald Trump holds a campaign event in Eau Claire, Wisconsin. Photo: Reuters

Lewis Krauskopf in New York

Global stock markets and the US dollar slid for the second straight day yesterday, while safe-haven assets such as gold rallied as investors were rattled by signs the US presidential race was tightening just days before the vote.

Markets had shrugged off electoral risk over recent months but with a week to go and polls narrowing many are increasingly spooked by the prospect of a Donald Trump presidency victory - seen as unpredictable and potentially volatile. The shadow of June's Brexit vote, when most investors were wrong footed by the result that saw sterling plunge, also hangs over the markets.

Uncertainty about the outcome of the election pushed US Treasury bonds - regarded by many as the safest of safe investments - to their highest in a week, while crude oil extended losses after US government data showed a much bigger-than-expected build in inventories.

Investors have had to rethink long-held bets of a November 8 victory for Democratic candidate Hillary Clinton amid signs her Republican rival Donald Trump could be closing the gap, deepening the recent decline across major stock markets.

Weakness on Wall Street, on the heels of falling Asian and European stocks, sent MSCI's 47-country "All World" index down 0.42pc.

The US dollar fell against the euro, yen, Swiss franc and sterling on continued nervousness about the outcome of the election. Traders have also started to load up on contracts such as the CBOE Volatility Index, a derivatives index known as the VIX that is designed as a hedge against volatility. Its often referred to as the "fear index" by traders because it peaks in popularity when conditions deteriorate.

"The VIX has gone up for six straight days, so that right there tells you that people are bidding up the prices of the options on the S&P 500," said Randy Frederick, managing director, trading and derivatives, at Charles Schwab in Austin, Texas.

"As the polls change, the market is growing more nervous and is beginning to price in a Trump presidency," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

"While Clinton represents a status quo, there is little clarity on what kind of impact Trump's policies will have on trade and foreign policy," Bakhos said.

A Reuters equity market poll last month showed a majority of forecasters predicted that US stocks would perform better under a Clinton presidency than a Trump administration.

Meanwhile, US private employers added 147,000 jobs in October, below economists' expectations, a report by a payrolls processor showed.

The US Federal Reserve resumed its policy meeting and was expected to keep interest rates unchanged while setting the stage for a hike in December. The Dow Jones industrial average fell 27.09 points, or 0.15pc, the S&P 500 lost 7 points, or 0.33pc, to 2,104.72 and the Nasdaq Composite dropped 15.77 points, or 0.31pc, to 5,137.81. Europe's broad FTSEurofirst 300 index .FTEU3 was down 1.1 percent at 1,309.99.

"People are pricing in higher odds of a Trump victory," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York. Gold rallied to a one-month high as falling stocks and a lower dollar burnished its appeal as a haven from risk. (Reuters).

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