US election day has arrived and relief turned to cautious unease in Tuesday’s trading. European stocks drifted lower as investors braced themselves for the likelihood of election-induced volatility on Wednesday.
The day finished with the same quiet tone it started with. With voters hitting the booths, it’s too late for any last minute news to make a difference.
The FTSE 100 was slightly higher, just above 6,800 on Tuesday. Positioning in UK blue chip companies ahead of the US election looks defensive. Investors sought the safety of lower volatility utility shares while the healthcare sector, which has been sensitive to a possible clampdown on drug prices under the next President, was shunned.
Two of Britain’s clothing retailers Marks & Spencer and Primark-owner ABF were headed in different directions after reporting first-half results.
M&S shares dropped on Tuesday after it reported falling food and clothing sales in the first half of the year. M&S is shuttering 30 of its clothing stores and opening 200 new ‘Simply Food’ shops as part of a CEO Steve Rowe’s turnaround plan. It looks like the beginning stages of a capitulation. After years of trying to turn around its department store business, Steve Rowe has started to trim the fat. It’s a logical idea that should have been put in place years ago at M&S; when sales fall, close stores, if they rise again; opening stores is always an option.
Bank stocks were top fallers as Royal Bank of Scotland announced it was setting aside £400m to put into a compensation fund for small businesses that lost out because of the bad practises in its ‘Global Restructuring Group.’
US stocks opened slightly lower on Tuesday as Americans headed for the polls. It is a pullback after the major averages gained over 2% on Monday, snapping a nine-day losing streak for the S&P 500 that was its worst run since 1980.
The US dollar was slightly firmer against most major currencies on Tuesday with only the Swedish krona making any significant headway against the greenback.
A Donald Trump win would likely see the US dollar see significant losses against the pound, euro and yen. The dependency of the Canadian and Mexican economies on the US means the Mexican peso and Canadian dollar would be the biggest losers from a Trump win, and his potentially more isolationist administration. Since a Clinton win is expected, volatility in the dollar would likely be greater to the downside if Trump were to win.
Sudden moves followed by a quick U-turn could be on the table for the Swiss franc, were Donald Trump to find his way to victory. The Swiss National Bank has said it is willing to intervene on any safe-haven FX flows.
The price of oil erased early gains to turn lower, in a similar pattern to trading on Monday. Positive news is being taken as a selling opportunity as traders drive the price lower on low expectations for an OPEC agreement on cutting output. The implications of a failed Algiers deal is understood within OPEC, its chief has it would ‘extend instability’ in oil markets.
Oil appears to be taking more of a cue from risk-sentiment than dollar-trading. The positive correlation between WTI crude and the S&P 500 has been stronger over the past 48hrs than the negative correlation with the US dollar.
Oil was higher in early trading after OPEC raised its forecast for global oil demand next year. The cartel is forecasting that lower prices will stimulate higher consumption. The OPEC forecast comes hours after a similarly rosy outlook from the U.A.E. energy minister who says oil market is close to being balanced
The price of gold spiked above $1290 before stabilising around $1285 per oz on Tuesday. The end of the FBI probe titled the odds a little bit back to Hillary Clinton but the race is still very close. The notorious unreliability of polls and the unique nature of this election race mean nobody’s betting the farm gold keeps going lower. If Donald trump wins and gold moves the same amount as on Brexit day, it would make new highs for the year at $1390 per oz.