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Investors gear up for Tuesday's US presidential election

Published 06/11/2016

Analysts are anticipating a
Analysts are anticipating a "Brexit-like event" for markets if Donald Trump wins the vote

Investors are anxiously gearing up for Tuesday's US presidential election, with analysts anticipating a "Brexit-like event" for markets if Republican candidate Donald Trump wins the vote.

Experts are expecting a sharp sell-off in global stocks and the US dollar as investors flee to safe-haven assets such as gold and government bonds in the event of a Trump victory.

However, a win by Democratic candidate Hillary Clinton will lead to a market rally, Neil Wilson, a markets analyst at ETX Capital said.

"With Donald Trump having closed the gap on Hillary Clinton the election result is too close to call and markets are on a knife-edge. There is a definite sense we're heading for a Brexit-like event," Mr Wilson said.

It would extend losses on the S&P 500 Index, which saw one of its longest losing streaks since the financial crisis last week, and a further decline in the US dollar which softened against a number of global currencies in the election run-up, including the pound.

The dollar has depreciated around 2% since the FBI reopened the probe into Mrs Clinton's email server, amid fears that it could hurt her chances of being voted in as president.

"Back in June the pound plunged 5% in a matter of seconds when Sunderland voted heavily for Leave. We could see similar gyrations in a broader range of markets, particularly if volumes are down overnight," Mr Wilson said, adding that markets are likely to "overreact" as each individual state is called for either Mr Trump or Mrs Clinton.

Jane Foley, head of FX strategy at Rabobank, warned that US households could subsequently suffer from a surge in consumer prices if Mr Trump heads to the White House.

"A Trump presidency certainly has the potential to herald in a sharp increase in inflation. Not only would a weaker dollar import inflation, but protectionism would also add to cost pressures.

"Trump has indicated a will to bring back jobs to the US manufacturing heartland but, since wages in the US are significantly greater than wages in Mexico or China, Americans would have to pay a lot more for many US manufactured products," she said.

Analysts have kept an eye on the spike in the CBOE Volatility Index, which Mr Wilson says is "displaying signs of the Brexit swoon all over again".

The index, which serves as a "fear-gauge" and measures implied volatility on the S&P 500, has reached its highest level since June at 22.

"European stocks are feeling the heat too," Mr Wilson said, adding that the FTSE 100 has slipped to near its lowest level since mid-September and the Euro Stoxx 50 volatility index has jumped to its highest level since July.

But there is a significant chance of a so-called "relief rally" in the event of a Clinton landslide.

"The more the market falls in advance of the election, the greater the potential for two-way volatility and a significant bounce if Clinton does get up," FXTM chief market strategist Hussein Sayed said.

In the meantime, safe-haven assets like gold have touched one-month highs, as investors search for a risk-free place to stash their cash.

Mr Wilson said: "This election has huge ramifications for the world economy and markets everywhere are highly sensitive to the outcome."

Press Association

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