Wall Street have battened down the hatches before Tuesday as US voters choose their next president, potentially determining the direction of the economy for the next four years.
In some corners, speculation is skewed towards a Trump victory. But professionals can hardly be convinced to pour money into the financial markets at the moment given a dead heat in the latest polls.
Analysts said only 7 of the 50 states are truly competitive this year, with the rest all comfortably Democratic or Republican. Among them, Pennsylvania stands out as the most decisive one.
But Harris has unexpectedly surpassed Trump in a new poll in Iowa, with likely women voters responsible for the turnaround in a red state, according to a Des Moines Register/Mediacom Iowa Poll released on Saturday.
Concerns about potential political violence have prompted officials to take a variety of measures to bolster security during and after Election Day as Trumps may readily challenge any loss.
Patience
Election Day will quickly be followed by the Fed’s policy decision and a big chunk of Corporate America is still due to report their earnings. With the level of unpredictability, patience is a virtue for traders.
The early focus as the exit polls close will be on bond and currency markets. A CME index of implied volatility across a group of developed market currencies last week hit its highest level since early last year.
Large speculators turned net long on the VIX futures for the first time since January 2019, data compiled by the CFTC showed. Corporate insiders are hesitant to play the stock market.
John Schlegel, JPMorgan Chase’s head of positioning intelligence, said many of the bank’s prime brokerage clients had been scaling back some of their bets to brace for the potential swings.
Berkshire Hathaway cash pile reached $325.2 billion in Q3, a record for the conglomerate, as Warren Buffett continued to refrain from major acquisitions while trimming some of his most significant equity stakes.
Gold
Bullion hit fresh peaks last month amid uncertainties around the Middle East and US election. It has been positively correlated to the greenback lately, indicative of insatiable safe-haven appetite.
Investment flows were key to the metal’s 13% gain in Q3, with total demand for ETFs, bars and coins reaching the strongest levels since Russia’s invasion of Ukraine in 2022, said the WGC.
The increase was underpinned by stronger investment flows from the West, including more high-net-worth individuals, that helped offset waning appetite from Asia, the report showed.
Rising Treasury term premium underscores fear of a second Trump presidency. His economic policies are widely seen as inflationary at a time when US borrowing is highly elevated.
Typically, higher bond yields put gold markets under pressure, but presidential candidates that have shown few concerns about the ballooning budget deficit will help deter who tend to buy the dip.
Yen
Japan’s record ¥3.02 trillion current account surplus, deep yen liquidity and relatively low inflation all help make the world’s third-most traded currency attractive as a store of value.
Gold hovers around record levels, potentially limiting big gains in the event of a market meltdown, while the yen is trading at historically cheap levels. The Swiss franc lacks the liquidity of the yen.
Ales Koutny, the London-based head of international rates at Vanguard, sees potential for the yen to rise against the Swiss franc “as the rhetoric with tariffs in Europe is much higher than versus some of the friendly Asian countries.”
If the yen’s current weakness adds to inflation, the odds of a hike later in the year will likely increase. Market positioning suggest there are less bearishness on the currency compared with earlier in the year.
“The yen is still a safe haven,” said Naomi Fink, chief global strategist at Nikko Asset Management. “If we saw de-risking, I would still expect the yen to appreciate and yen-funded ‘carry trades’ to unwind.”
EBC Capital Market Consulting Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Trading Platform Security or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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