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US election: Trump victory sparks global equity sell-off

- The situation on financial markets is quite similar to what happened after the Brexit vote on June 23rd with financial markets pricing in the wrong outcome

- Equity markets were wearing red this morning as uncertainty picks up, however short-term panic reaction will most likely be short-lived

- Safe haven assets rose substantially on the prospect of a Trump victory; the reaction was more acute as many investors had priced in a Clinton victory

- Buying pressures on the Swiss franc against the single currency remained subdued as investors continued to sell the dollar to buy euro

- We do not expected EUR/CHF to come under significant pressure, which takes the pressure off the SNB’s shoulders

- Trump election will very likely have an impact on the Fed monetary policy, further downside moves in the markets are likely to happen within the next few weeks as markets will start pricing in first Trump measures

- Volatility should remain high for some time

 

Against all odds, Donald Trump is about to become the 45th US president. Financial markets reacted as expected by aggressively selling the Mexican peso, which fell more than 10% overnight. USD/MXN moved to an all-time high as it hit 20.7818 before easing towards the 19.95 level. The Canadian dollar was also under pressure as it fell almost 2% against the greenback, climbing to 1.3523 before easing to 1.34 as the initial panic reaction lost steam.

 

The situation on financial markets is quite similar to what happened after the Brexit vote on June 23rd with financial markets pricing in the wrong outcome. Safe haven assets rose substantially on the prospect of a Trump victory; the reaction was more acute as many investors had priced in a Clinton victory. The Japanese yen was up 2.80% against the greenback with USD/JPY falling as low as 101.20. Even the pound sterling, which has been heavily sold-off over the last few weeks on the anticipation of a hard Brexit, is extending gains against the USD. The yellow metal was up 3.30% as short-term uncertainty spiked, lifting safe haven assets. Silver was also better bid as it rose more than 2% to $18.75 an ounce.

 

Yann Quelenn, market analyst: “US markets to collapse amid Trump election surprise: The American election reached its epilogue very early this morning, even though Trump’s victory was widely unexpected by financial markets, with polls largely anticipating a Clinton victory. It is the second time this year that pollsters get it wrong after the Brexit vote.

 

Financial markets hardly priced in a Trump possibility and this is why, over the late hours of the night, each announcement of a Trump advantage created major turmoil in the markets. During the ballot counts, the peso lost 5% against the greenback. Global stocks are also declining, in particular Japanese stocks which declined 5%. Gold and silver have been the biggest winners of the elections result thus far.

 

The Trump election will very likely have an impact on Fed monetary policy. Further downside moves in the markets are likely to happen within the next few weeks as markets start to price in Trump’s first moves.

 

The Fed is now front and centre until the end of the year, with markets now pricing a December rate hike likelihood of 51.2% as a collapsing stock market would likely prevent the US central bank from normalizing monetary policy. However, Trump will only start his presidency a month from now and the Fed will still have their hands free until then despite multiple statements from the new US president. For us it is an eventuality that Donald Trump will try to diminish the Fed control. Volatility will remain high for some time.” ---

 

Emerging market currencies were surprisingly resilient in Asia with the Thai baht rising 0.15% against the USD, while the CNH fell 0.20%. The worst performer was the Korean won, which slid 1.25%. In Eastern Europe, the Polish zloty was up 1.21%, the Romanian Leu surged 1.13%, while the Hungarian Fortint rose 1.07%.

 

The Swiss franc extended gains against the US dollar with USD/CHF falling to 0.9550 before easing back to 0.9670 as markets stabilised. Buying pressures on the Swiss franc against the single currency remained subdued as investors continued to sell the dollar to buy euro. We do not expected EUR/CHF to come under significant pressure, which takes the pressure off the SNB’s shoulders, for some time at least.

 

The equity markets were wearing red this morning as uncertainty pick-up. The Japanese Nikkei was down 5.36%, the broader Topix index was off 4.257%. Mainland Chinese markets took moderate losses with the Shanghai and Shenzhen Composites off 0.62% and 0.58% respectively. In Europe, equity futures are massively down, with the Euro Stoxx 50 falling 3.48%. The German DAX was off 3.37%, while the SMI slid 2.46%. Therefore, European equity should open lower; however short-term panic reaction would most likely be short-lived.

Wednesday, 09 Nov, 2016 / 9:06

Note: Company News is a promotional service of the Directory and the content isn't created by Finance Magnates.

Source : http://en.swissquote.com/fx/news

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