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Despite Trump closing the gap of late, the market’s base case scenario is that we’ll see a Clinton presidency with a Democrat Senate and Republican House, followed somewhat behind by a Clinton presidency and the Republicans gaining both the Senate and the House. The wind is to Trump’s back in the polls, though, and the prospect of a Trump win and a split congress has increased.
Markets have been responding with traders reducing risk, buying volatility structures (the volatility index or ‘VIX’ has gained 73% in the last seven sessions) and increasing exposure to safe haven assets such as gold or JPY to ride out this period of uncertainty. However, I feel the market is specifically keen to understand:
- If Trump does win, will he genuinely follow through with his promise to sack Janet Yellen? How much influence would Trump exert on the Federal Reserve?
- Will the loser even accept the result, or will we be thrown into a period of uncertainty similar to 2000 and the Bush vs Gore election?
Key times to consider on Wednesday
Similar to the UK referendum, the vote counts will be staggered through the day and a candidate must gain 270 votes through the Electoral College to be named president (understand more). Each state therefore carries a different number of Electoral votes, but it’s the swing states that are most important in determining who will be named president. The states that will really get the market’s focus above others include Florida (polls close 11:00 AEDT), New Hampshire (11:00 AEDT), Ohio (11:30 AEDT), North Carolina (11:30 AEDT), Pennsylvania (12:00 AEDT), Nevada (14:00 AEDT) and Iowa (14:00 AEDT). Results of each state should be known within 1-2 hours after the times disclosed.
Keep an eye on Pennsylvania, North Carolina and Florida. If Clinton polls well here (say taking two out of three states), the market will feel the probability of Clinton polling well in other key battleground states is elevated.
In terms of absolute votes, the states with the largest number of votes are: California (55 Electoral votes), Florida (29 Electoral votes), New York (29 votes), Texas (38 votes). California will be latest to report their votes at 15:00 AEDT.
If the result is not close, we should have a firm understanding by 15:00 AEDT.