Financial market research and analysis

The mounting pre-election stress is taking the wind out of the US markets’ sails.

News that Donald Trump overtook Hillary Clinton for first time since May (source: ABC poll) triggered an aggressive sell-off across the US markets. The S&P500 index slipped below 2100 since the first time since July 7^th, as the Dow Jones tested the 18000-support in more than a month. The SPX volatility index, VIX, rose 2.60% to 19.05 for the first time since June, confirming the rising panic in the equity complex.

The US dollar retreated against the majority of its G10 counterparts, except the Aussie (-0.20%), that suffered a heavier unwind due to a surprise 8.7% drop in Australia’s building approvals.

Gold (+0.63%), the yen (+0.57%) and the Swiss franc (+0.57%) lead gains on the back of a rush into safe haven assets.

Traders also preferred stepping out of the global stocks and emerging markets.

Nikkei (-1.76%) and Topix (-1.78%) tanked on the back of a sharp appreciation in the yen. Hang Seng index (-1.45%), Shanghai’s Composite (-0.63%) and Australia’s ASX 200 (-1.16%) joined the sell-off.

The sell-off in high risk, emerging market currencies gained momentum. The so-called ‘Fragile Five’ are severely threatened by the deterioration in global risk appetite.

The Brazilian real closed 1.18% lower yesterday. The Turkish lira fell 0.25% against the US dollar in Asia and is preparing to extend losses to fresh all-time lows. The South African rand (-0.11%), Indian rupee (-0.16%) and the Indonesian rupiah (-0.10%) softened.

The surprising gain in Donald Trump’s popularity has taken its toll on the Mexican peso (-0.61%). The peso traded to three week lows against the US dollar, bringing the 19.5 level back on the radar in the run up to the November 8^th election.

Gold rallied to $1293 on the back of rising risk aversion pre-US election. The 200-day moving average, $1280, is expected to lend support to the safe haven inflows to gold. On the upside, the $1297 (minor 23.6% retrace on Dec’15 to Jul’16 rise) could be a reasonable target before a further rise to $1317, 100-day moving average.

Today, the Federal Reserve (Fed) will announce its last monetary policy verdict before the US election. The FOMC is expected to sit on its hands until the election euphoria is over.

A potential Clinton victory, our base-case scenario, would build a favourable base for a Fed interest rate hike by the end of 2016, should the labour market and inflation in the US allow the FOMC to proceed with its second rate hike since the 2008 subprime crisis.