The 2016 US presidential election is unprecedented on every level. The race features two of the most unpopular and divisive figures ever seen. Hillary R. Clinton, former Secretary of State and First Lady is a polarizing figure who has veered off to the left. Her trustworthiness is her Achilles heel, and DEM supporters are less enthusiastic about her than the rock-star status enjoyed by President Barack Obama. On the opposite end of the spectrum is the GOP populist, Donald J. Trump. Boorish, chauvinistic and outright offensive, Trump’s tough talk has won him the admiration of a large and growing disenfranchised chunk of Americans. He is by no means a mainstream GOP candidate, and has run a renegade campaign throughout. Nonetheless, we are days away from perhaps the most significant US Presidential race in recent history and markets are reacting with extreme volatility.
Politics is Inextricably Intertwined with Economics in the United States
Heading into the final stretch, Hillary Clinton was up on average by approximately 5 – 6 points over rival Donald Trump. After FBI director James Comey dropped the bombshell letter on Congress that he would be reopening the investigation into Hillary Clinton’s email saga, her lead evaporated. According to the latest Real Clear Politics average of polls, Hillary Clinton now leads Donald Trump by just 1.7 points. Clinton enjoys 47.2% of the vote while Trump is inching higher at 45.5%. What is significant about the latest RCP average is that it falls within the margin of error.
Another significant milestone took place on Monday, 1 November: casino magnate Sheldon Adelson committed to donating $25 million to a Trump Super PAC – this gives Donald Trump tremendous firepower against the barrage of negative ads against him by the Clinton campaign. All in all, this has resulted in the VIX (volatility index) spiking to fresh new highs on Wall Street. Pundits who were of the opinion that a Clinton presidency was in the bag are now having to rethink their predictions. Of equal importance is the massive selloff in Asian equities that took place as the Shanghai Composite Index, the Shenzhen Composite Index and the Nikkei 225 extended losses.
Greenback Takes a Dive as Uncertainty Rocks Global Markets
The US dollar reacts strongly to geopolitical uncertainty and internal pressures. The US dollar index, a measure of the greenback against 6 weighted currencies, was trading at 97.32 down 0.42%. The US dollar index has a 52-week low of 91.92, and a 52-week high of 100.51. The USD/EUR pair was trading lower at 0.9009, down 0.34%. The USD/GBP pair was also down 0.64% at 0.8116, and the USD/JPY pair was down 0.71% at 103.2750. In all instances, binary options traders are going short on the greenback in the run-up to the US presidential election.
Traders perceive Hillary Clinton as the safe option, and this reflects in markets. Her long and established political career brings stability to the financial arena. The Trump effect is more volatile, given that he wants to ‘drain the swamp’, upend existing trade deals and dramatically transform the US economy. It is interesting to point out that the world’s premier safe-haven assets, gold, has also risen sharply in recent days. The precious medal was last trading at $1301.10 per ounce, up $11.60. The election outcome is on a knife edge, and markets are reacting accordingly.
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