Australian markets will be among the first responders if, as expected, the US election outcome starts to become clear this afternoon.
The fact that markets have moved towards pricing a Clinton victory this week is likely to impact how things play out today. Potential scenarios for this afternoon’s trading include:
- The moderately bullish scenario. This is likely if it becomes a Clinton win becomes apparent early. An early call on Clinton winning Florida could lead to this scenario. While this would be a relief for stock markets, the extent of any rally may be limited by the pre-emptive gains of the past 2 days and the realisation that a Fed rate hike will follow in December.
- The Volatile scenario: This will unfold if the result is close and the fortunes of each candidate wax and wane. A Trump win in Florida would set the scene for this.
- The Bearish Brexit scenario: Rightly or wrongly, markets are going to be concerned about a Trump victory, particularly given the potential consequences for world trade and its impact on many large companies in the US stock market. Like Brexit, the rally over the last 2 days, increases the downside potential if Donald Trump does win the election
CFD’s over US stock indices will be a key barometer of market thinking on the election outcome. Other markets to follow include the Mexican Peso and the traditional safe havens like the Japanese Yen and gold. USD/MXN is sitting right at its 200 day moving average and trend line support. A clear break below this would indicate the market is moving to extend its response to a Clinton victory.
The US election is not the only significant development today. The rally in commodities continues with this week’s stellar gains in copper being extended while there was another rally in iron ore. The copper market is responding to ongoing declines in US inventories and this should ensure early support for mining stocks today.