Clinton vs. Trump will Shape Worldwide Market Sentiment

Clinton vs. Trump will Shape Worldwide Market Sentiment
by, David Frank, Economist

Points to consider in this Forex article:

• Commodity prices and Forex universe moves lower, yen gains as it retraces yesterday’s losses.
• Quiet consolidation across the global financial markets as US elections get underway.
• There is a Hillary Clinton vs Donald Trump dichotomy reflected in risk on or risk off dynamics.

The one thing for sure this morning is that all eyes are on the United States as the world’s largest economy, and leader of the free world, takes to the polls to decide who will sit in the White House after Barack Obama leaves. This election season has been the most divisive and heated election witnessed by the United States in its history and has literally divided a nation. The Democratic nominee Hilary Clinton, is perceived as the status quo candidate by global financial markets. As long as the markets see her as winning, investors will be happy. The Republican nominee Donald Trump, with his immigration and divisive trade policies is seen as the wildcard. Needless to say, by tomorrow in the early hours of GMT time, we should have a victor and know who will be the next President of the United States.

This morning, the Australian Dollar, Canadian Dollar and New Zealand Dollar all pulled back. The Japanese yen surged higher in moves that looked corrective after yesterday’s trading session. In the commodity bloc, those Forex currencies outperformed while the anti-risk Japanese yen plunged. Those markets cheered a recent decision by the Federal Bureau of Investigation (FBI) not to pursue further criminal charges against Hillary Clinton over her use of a private email server during the time she served as secretary of state. They will not change their July decision which said while showing a lack of judgement she was not criminally negligible.

Financial markets dislike uncertainty. They like stability and the status quo. Polls are showing Clinton should win with the Congress remaining Republican and he Senate turning over to the Democrats. Hence, the status quo. The former New York Senator, former First lady and secretary state is the perceived as the status quo candidate. Investors are more comfortable betting on her direction of US policy as well as the allocation of assets if she is in the White House.

Her opponent, Republican candidate Donald Trump is anything but conventional. Therefor pricing in event risk if he should win is trickier. Keeping that in mind, it makes sense for traders to risk exposure to more speculative asset classes as the polls narrow, thanks to the FBI probe into Clinton renewed last week. Voters have trust issues with Clinton and her victory is not one hundred percent guaranteed. Polls did not reverse course after the FBI announced that they were ending their investigation. At least not enough for uncertainty and volatility to subside.

These price fluctuations underscore a tense market that is extremely sensitive to a US presidential outcome. Especially as voters head to the polls and all eyes will be watching exit outcomes. There is a batch of second-tier economic data out of Europe today as well as some Federal Reserve speakers that will fade into background noise. Traders and the world are now waiting for the outcome of today’s US Presidential outcome. No matter who wins, directional bias is likely to be muddied for the next several days as volatility will persist.

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