Financial Market Research and Analysis

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Precarious risk rally pre-US election

The US election is all that matters, as markets are holding their breath to find out who, between Hillary Clinton and Donald Trump, will be the next US president.


The outcome of the US presidential election is important for the global markets, as the new US president will set the tone for the world’s most powerful economy’s external politics and trade relations for the next four years. 


In this context, a victory for Republican Party nominee Donald Trump could be expected to hit business sentiment across the global markets, hence is defined as a major, world-wide risk from a market perspective heading into Tuesday’s election. 


Last week, the FBI investigation on Hillary Clinton made the markets price in a higher probability for the conservative candidate Donald Trump’s victory. Yet, the dark clouds seem to be dissipating this Monday, on news that the FBI sent a letter to Congress citing that Hilary Clinton hadn’t committed a crime with her private server. 


The FBI news triggered a risk rally across the global financial markets.


The US dollar gapped higher at the open and gained against the majority of its G10 peers. The Mexican peso soared by 2.20% in Asia.


Commodities traded higher; copper futures gained 1.35%, while iron ore rallied 4.56%.


The world equities legged higher before the critical day; Nikkei (+1.61%), Hang Seng (+0.79%), Shanghai’s Composite (+0.26%) and ASX 200 (+1.35%) closed in the positive territory.


European markets took over a green market. The DAX rallied past 10400, although factory orders in Germany unexpectedly contracted by 0.6% in September.


All FTSE 100 (+1.53%) stocks, except four, opened in the positive, regardless of company specific news.


Randgold (-2.06%) and Fresnillo (-2.58%) were the major losers, as gold cheapened 1.30% on the back of a global risk-on rally.


UK mining and energy stocks lead gains on firmer oil and commodity prices.


BHP Billiton (+3.56%), Glencore (+2.92%), Rio Tinto (+2.69%), Royal Dutch Shell (+1.51%)


This being said, we remain skeptical on the level of optimism across the risk markets and question whether or not, such a last minute rally could be sustainable heading into the US election. Therefore, we warn that the current risk rally could rapidly come to exhaustion, if traders choose to take profit and retreat on the sidelines before the US election storm.