It is true in any democratic country that if the incumbent party, in this instance the safe bet Hillary Clinton, wins the election the more at ease the Forex markets feel. The reason for this is that there will not be any drastic policy changes.
The general consensus is that if Clinton wins, the markets will be kind because of continued policy, and if Trump wins we could experience wild volatility because of a change in policy. On the other side of the coin – statistics since 1920 suggest that on average the S&P 500 loses about 3% when the current President is not up re-election. The candidate’s policies also suggest that Trump is more market friendly that Clinton.
As we mentioned earlier – this is 2016, and as we have seen with Brexit – anything can happen. People want change and they don’t care about the short term volatility in the financial markets to get that change.
There will be possible outcomes however:
Keep an eye on the polls leading up to Election Day, and in particular, the USD. We could see wild swings depending on who is leading the polls, and we could see a continued “risk on” and “risk off” battle. Pairs to monitor are those with a safe haven element – EURUSD, USDCHF and USDJPY.
This could be a close call – regardless of who wins the election. We have seen the stats above, you also need to factor in that Equities traditionally do better under Democratic leadership. Trumps policies are friendlier to the markets though. Indices are at inflated levels as it is and I wouldn’t be surprised to see the Indices come off its high regardless of who wins the Election, the market can then reassess once the dust has settled.
With the increased volatility in the markets and literally very little other options, we may see funds move into Gold and other metals, this is more evident in the increased levels of the Volatility Index. Clinton’s policies are also less friendly towards the oil price as she is a staunch supporter of renewables, so this may also be something to keep an eye on.
Traditionally bonds favour the conservatives and Trump is showing some ultra-conservatism leading into Election Day. It would be prudent that a Republican win will boost Treasuries.
US Elections Could Effect Financial Markets
There will be the inevitable volatility leading up to the Election and immediately afterwards as the market waits for the dust to settle. Reluctantly, I think that this will have less of a medium to long term impact than Brexit. The US has a unique political system and the Senate has the ability to make anything radicle unlikely. The other reason is that despite the public mudslinging, the two parties policies are not too far apart.
Regardless, this has been a US Presidential Election for the ages, which could only be believable in an already unbelievable 2016!