Taking the lead from the US election

The US election has been attacking our senses from all sides this week.

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The markets were plagued by risk aversion, which saw prices across equity markets entering a downslide. The most watched S&P 500 index printed eight consecutive session of losses as of Thursday.

For the week ahead, Asia will likely see a week of two halves. The jitters in the market is likely to be sustained into midweek when the election results will be made known, while the second half will be anybody’s guess.

 

US Elections

We have finally arrived at the week in which the person who holds the fate to the next four years for the world’s largest economy will be made known. The markets are strongly favouring Democratic nominee Hillary Clinton over Republican candidate Donald Trump, the latter associated with heightened volatility for the markets. While a Clinton-win had largely been priced in ahead of the elections, we were thrown a step back with the eruption of the FBI investigation last week, sparking some concerns in the markets.

Results for the elections are expected to trickle in over Wednesday morning (Singapore time) and this might be one of the most turbulent times we will see this year. The two most profound impact for Asia markets come through the trade and interest rate channels, where the candidates have vastly different routes in terms of policies.

Source: Bloomberg

Strong directional trades will be expected for certain asset classes such as the US 500 cash, spot gold, USD/MXN and the Volatility index, where we have shared in an in-depth report. Nevertheless, we may not be finding the UK Referendum as a looking glass for the upcoming elections as the market appears well aware of the probabilities on both candidates taking the oval office and the limit to one person dictating policies for the whole nation.

 

Asia Indicators

At this point, I do feel that we should put aside all other matters and focus solely on the elections, but I realised we have to be reminded that life goes on after the elections. Notably, China’s October trade balance and inflation data will be released in the following week. An improvement to China’s trade is expected based on market consensus while the inflation rate is also expected to accelerate in the upcoming release. Given that China’s trade data will be due ahead of the elections, some ripple may still be seen in the neighbouring markets, such as for the HSI, though the impact may be contained with risk aversion at its heights.

A series of data is also expected to come from other Asian economies including Q3 GDP figures from Indonesia, Hong Kong and Malaysia while the Bank of Thailand, Bangko Sentral ng Pilipinas and Bank of Korea will hold their central bank meetings in the week. 

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