The Race to the White House Comes to an End
After months of disbelief that Trump would make it this far, polls open today and America (hopefully) votes in their masses.
The timeline is a little vague, but we're hoping to start seeing some activity around midnight UK time and then perhaps as early as 3am it could be over, as swing states such as Ohio and Florida will have been announced by then. The expectation is for a mild sigh of relief from a Hillary win, with the Mexican Peso probably the biggest gainer and the Yen the biggest loser in the FX space. Even if Hillary does win, we've got the risk of Trump not accepting the outcome and will no doubt kick up a fuss, particularly if he wins the popular vote, but Hillary picks up the win by having the electoral colleges.
Of course, a Trump win is what the markets fear and we don't quite know what the reaction would be to that outcome. Most anticipate a 5-10% decline in the Mexican Peso, at least a 5% surge in the Japanese Yen, stock markets are likely to take back all the risk they put on yesterday – which the biggest one day rally in eight months – and fall by a few percent globally and then there's the Pound… Sterling of late has been treated as an emerging market currency in terms of risk an can find itself sandwiched between the Argentinian Peso and Nigerian Naira as one of the worst performing currencies of 2016 and when it comes to risk, there's a heightened degree of sensitivity around it. Our concern is that even if we see a move higher versus the Dollar, other currencies will have a larger move higher, which will ultimately leave Sterling lower against them.
The difficulty is knowing what people are thinking. Typically the safe-haven move is to pile into the US Dollar and even though that sounds bizarre in these circumstances, there's still an outside chance of that happening. So all we're expecting in the instance of a Trump win is a lot of volatility and a sure fire buy into Yen and the Swiss Franc. Anything more than that is open to debate and we'll just have to be here all night to make the most of it! Thereafter, if it's a Hillary victory we'll hope to be able to move onto other subjects by the weekend, if it's the Donald, that subject isn't going away for the foreseeable.
Away from the election; the UK saw house prices rise last month, at their fastest since March. The average house rose 1.4% in October and are now about 5% higher than they were this time last year. Another positive for the UK is the retail sector, where sales grew 2.4% versus this time last year, which was actually the strongest growth since January. The flip side to this is that a survey of 300 manufacturing businesses revealed that three in five are planning to spend the same or less on machinery than they did last year. This highlights the problems that businesses have with political uncertainty, particularly when it's time to write large cheques for investment.
The market has been muted overnight and will likely remain so for the rest of the day. We'll expect the big activity to come in from about 11pm and then into the night.
Have a great day (and keep your fingers crossed!)
©Hamilton Court FX