Standby for a few days of very volatile markets here and offshore as the world watches how America votes on Tuesday night and Wednesday morning (Sydney Time) in the 2016 elections.
Investors went for the mattresses last week and will continue to head in that direction today, tomorrow and Wednesday until they see a definite result, with Mrs Clinton beating Donald Trump.
But because Trump will be a sore loser and has said he won’t accept a loss, investors may have uncertainty and volatility for weeks to come.
Some analysts are saying the potential reaction could rival the stunning falls and sell off seen after Britain Voted to leave the EU on June 23.
Others claim much of any adverse reaction is already the share price, but that is a load of codswallop. It isn’t and a win by Trump would see a sell off in shares, a surge in gold and the various measures of fear and volatility jump sharply.
Just what happens to the US dollar is problematic if Trump wins.
Will it rise as nervous investors seen safe havens in US bonds, gold and some other ’safe’ investments, or will the wave of selling of US shares and other assets, and the fact that it is the US Presidential poll, spark a slide in the value of the greenback, and a surge in US bond yields as nervy investors abandon America for safe havens outside the country?
If that happens, watch the prices of non – US assets, such as the Aussie dollar, bonds, bonds and in Europe and Japan rise sharply.
And a win by Trump will almost certainly see the US Federal Reserve not lift interest rates next month, a win by Mrs Clinton will see it happen, especially after the solid jobs report for October with 161,000 new jobs, higher wages (2.8% annual, from 2.7% in September), and 44,000 extra jobs in August and September.
Friday night saw a rise in concerns and eurozone shares fell 0.7% and the US S&P 500 fell 0.2% as US election uncertainty continued to weigh along with a further fall in oil prices.
And, reflecting the weak global lead ASX 200 futures fell 0.6% and the AMP’s Chief Economist, Dr Shane Oliver says he expects another weak open for the Australian share market today driven by US election fears with the ASX 200 likely to fall 25 to 30 points.
Last week saw a slowdown and a turn in some markets as the week went on. While Chinese shares rose 0.4%, US shares fell 1.9%, Eurozone shares fell 4%, Japanese shares fell 3.1% and Australian shares fell 2%.
In Australia, the ASX 200 lost 0.9% to 5180 on Friday.
Bond yields in major countries declined and gold rose on safe haven demand ahead of the US polls. US investors sank an estimated $US50 billion plus into money market funds alone last week as low yielding cash looked a better option than shares.
While prices for metals (especially gold and copper) and iron ore rose, oil fell on a strong US oil inventory build and fears OPEC won’t implement its deal to cut production. US oil futures lost 10% and those for Brent around 8%.
The $US fell on the back of election uncertainty and this along with higher metal prices saw the $A rise. It ended around 76.70 US cents, and again failed to move decisively above the 77 cent level.
The S&P 500 shed 3.48 points, or 0.2%, to close at 2,085.18, falling 1.9% for the week. The streak has been long, but shallow, with the index losing just over 3% over the nine-day slide.
The Dow lost 42.39 points, or 0.2%, to finish at 17,888.28 for a weekly fall of 1.5%. The Nasdaq Composite eased 12.04 points, or 0.2%, to end at 5,046.37, (for another nine-day drop) and lost 2.8% last week.
The S&P has shed just about 3 per cent over the nine-day slide — not a deep decline, but sufficient to bring the index of large US groups to its lowest level since the days following June’s shock Brexit vote. Its rise for 2016 has also narrowed to 2 per cent, from roughly 5 per cent when the losing streak began.
“While relatively shallow, the eight-day slide is consistent with a gradual repricing of equity risk on account of a growing recognition of the unusual uncertainty facing markets,” said Mohamed El-Erian, chief economic advisor at Allianz.
A Donald Trump win could spark an immediate sell-off of up to 5 percent for in the S&P 500 according to analysts at Citi, who also warn on slower growth or even recession for the US (and other analysts reckon a solid win for Mrs Clinton could see a 3% jump in the index). Analysts at Barclays warning markets could drop between 11 and 13 percent in the case of a Trump win as opposed to a 2 to 3 percent bounce if Clinton emerges victorious.
Marketwatch.com reported that a survey run in September by Citi showed Wall Street strongly believes Hillary Clinton is set to clinch victory in Tuesday night’s vote but the poor performance of US equity markets in the wake of the news of the latest FBI probe into the Democratic candidate’s emails, show’s reports of a Trump win are mounting.
According to the latest note out from global equity strategists at Citi on Friday, fears for stocks after a Trump victory are two-fold.
In the longer-term says the research team, "A Trump win risks slower growth or recession if trade is restricted and fiscal expansion plans curtailed. Uncertainty alone could hit the economy. Global growth will also be impacted if uncertainty rises, US growth is hit and U.S.financial conditions tighten."
