Investors take fright at
rising chances of Trump U.S. election win
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[November 02, 2016]
By Jamie McGeever
LONDON
(Reuters) - World stocks, the dollar and oil fell on Wednesday, while
safe-haven assets such as gold and the Swiss franc rose as investors
were rattled by signs the U.S. presidential race was tightening just
days before the vote.
Investors were beginning to rethink their long-held bets of a Nov. 8
victory for Democratic candidate Hillary Clinton amid signs her
Republican rival Donald Trump could be closing the gap, deepening the
recent decline across major stock markets.
Asian stocks hit a seven-week low on Wednesday, while European bourses
followed Wall Street's lead overnight and slid to a four-month low.
Bonds rose alongside gold, the Swiss franc and Japanese yen, with the
yield on 10-year U.S. Treasuries falling for the third day in a row.
British gilts, which have recently been slammed by uncertainty
surrounding the post-Brexit UK outlook, surged too.
"The lead up to the U.S. presidential election was always expected to be
lively but the events of the last couple of days have seriously taken
their toll on investor sentiment," said Craig Erlam, senior market
analyst at Oanda in London.
Investor anxiety has deepened in recent sessions over a possible Trump
victory given uncertainty on the Republican candidate's stance on key
issues including foreign policy, trade relations and immigrants, while
Clinton is viewed as a candidate of the status quo.
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Europe's index of leading 300 shares was last down 0.4 percent <.FTEU3>,
having earlier hit a four-month low of 1,313 points. Britain's Britain's
FTSE <.FTSE> and Germany's DAX <.GDAXI> fell 0.4 and 0.7 percent,
respectively.
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> dropped 1.1 percent to seven-week lows while the yen's
rise to a two-week high helped push Japan's Nikkei <.N225> down 1.8
percent.
U.S. stock futures <ESc1> recovered earlier losses, pointing to a fall
of only 0.1 percent at the open. This would still signify a fresh
four-month low for Wall Street.
PRICING A TRUMP VICTORY
The tumultuous presidential race appeared to tighten after news that the
Federal Bureau of Investigation was reviewing more emails as part of a
probe into Clinton's use of a private email server.
While Clinton held a five-percentage-point lead over Trump, according to
a Reuters/Ipsos opinion poll released on Monday, some other polls showed
her Republican rival ahead by 1-2 percentage points.
Barclays strategists estimate that a rise in Trump's polling odds to 50
percent could see the S&P 500 fall 4-5 percent, and potentially as much
as 10-11 percent if he wins.
This has unnerved markets and the CBOE volatility index <.VIX>, often
seen as investors' fear gauge, rose to a two-month high above 20
percent.
The tension in markets came as the Federal Reserve holds its two-day
policy meeting, with its statement due later on Wednesday. While traders
do not expect a rate hike just a week ahead of the presidential
election, they are looking for signs that the Fed will move in December.
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A man walks past at an electronic board showing the Japanese yen's
exchange rate against British pound (R) and Euro outside a brokerage
in Tokyo, Japan, July 6, 2016. REUTERS/Issei Kato
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Investors have grown increasingly confident in recent weeks that the Fed
will follow through next month, attaching an 80 percent probability to
such a move, according to fed funds futures pricing.
But currency traders have sold the dollar this week in part because they
suspect Trump would prefer a weaker dollar given his protectionist
stance on international trade, and in part because the uncertainty
surrounding a Trump win might lead to a more dovish stance from the Fed
in the months ahead.
The dollar fell again on Wednesday, after posting its biggest one-day
fall on Tuesday in two months.
The euro <EUR=> rose 0.4 percent to touch $1.11 for the first time in
more than three weeks. It is up about two percent from its 7-1/2-month
low of $1.0851 hit last week.
Against the yen, the dollar fell 0.8 percent to 103.24 yen <JPY=> from
three-month high of 105.54 yen set on Friday.
"If you had a long dollar position on the view that the dollar would
gain because Clinton would win, you would surely close that position
because her victory is less certain," said Koichi Yoshikawa, executive
director of financial markets at Standard Chartered Bank.
Other safe-haven assets also rose. The Swiss franc hit a four-month high
of 1.0750 francs per euro, its highest level since late June, while gold
<XAU=> reached a four-week high of $1,297 per ounce.
Oil prices fell for the fourth day in a row, sliding to one-month lows.
Brent crude futures fell more than 1 percent to $47.53 per barrel, and
U.S. crude was down as low as $46.06. Oil has lost 10 percent in
the last two weeks.
(Reporting by Jamie McGeever; Additional reporting by Hideyuki Sano in
Tokyo; Editing by Tom Heneghan)
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