US election – how will the market respond?
Markets are awash with anxiety as we enter the final countdown to the US Presidential election. Asian markets will be the first to react, although they may close before a result is known depending on how tight the election is.
So how will the markets respond to the election?
If Trump wins, the market is expecting a 5% to 10% sell off as a knee jerk reaction, but hopefully a Brexit style recovery afterwards.
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Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 09 Nov 16
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Markets are awash with anxiety as we enter the final countdown to the US Presidential election. Asian markets will be the first to react, although they may close before a result is known depending on how tight the election is.
So how will the markets respond to the election?
If Trump wins, the market is expecting a 5% to 10% sell off as a knee jerk reaction, but hopefully a Brexit style recovery afterwards.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
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So how will the markets respond to the election?
If Trump wins, the market is expecting a 5% to 10% sell off as a knee jerk reaction, but hopefully a Brexit style recovery afterwards.
A Clinton win could see the US market easily recover the 3% it has already lost, but this also depends on who wins the other elections for the Senate and House.
We’ve also got our eye on the price of oil, with Brent Crude recently down significantly - despite hitting its 2016 high less than a month ago.
The fall in oil prices is due to fears in the market that there will be no agreement at the up-and-coming OPEC meeting, as well as tentative signs that production in the US may not be falling as fast as expected.
Even if Trump wins the election this week, there will be little excuse for the US Federal Reserve not to hike interest rates in December following strong recent data.
Non-farm payrolls in the US increased by a solid 161,000 during October. Annual wage growth rose to a seven-year high of 2.8%. And the trade deficit narrowed suggesting that Quarter 3 GDP growth will probably be revised up to slightly more than 3% annualised in the US. All this lends support to expectations of an increase in inflation and a rate hike.
China is due to release its usual swath of data this week and we expect most of it will point down:
FX reserves should have declined further during October.
Exports are unlikely to have staged a sudden turnaround after contracting in September.
Consumer price inflation is likely to have edged up - mainly driven by those pesky hog prices.
On a positive note, imports should have fared better with growth likely to have returned to positive territory. Imports associated with coal and metals, such as Iron Ore should improve more than the headline rate.
Finally, I am surprised the Australian dollar hasn’t fallen further given the current flight to safe havens, the rally in the Yen and prospect of a US rate hike. This is a good long-term sign for the Australian equity markets. Once the dust settles after the election we expect the Australian dollar to make a run for the 81c level. But I am not that good on currency forecasts!