So it looks like the die is cast and the fighters have been chosen. Hilary vs Donald in the November US elections. Hilary becomes the first women to win the nomination of a major party to contest an election and Donald becomes the first man to win the nomination of a major party to contest the election as an “independent” within a major party. You probably thinking what am I talking about. Well the Republican power house were/are not in favour of Donald representing the Republican Party, but what choice do they have now. They are saddled with Donald and will now have to throw their weight and support behind their chosen one. My gosh, if you thought the UK’s EU referendum was exciting, the US elections are going to be something direct out of Hollywood.
If you are a fan like I am, Sky Atlantic has a show called Madam Secretary (based on the experiences of Hilary when she was Secretary of State under President Obama). I am sure the producers of the show will be hoping Hilary goes one step further and wins the US elections so that they now have a new story line, MADAM PRESIDENT. Wow now that would be history in the making, following in the great footsteps of PM Golda Meir and Chancellor Merkel. You can be rest assured between now and November there will be some pretty ugly revelations and disclosures and accusation. The US elections are never a clean fight so I expect this one to be no different. What is certain is the financial markets will swing into top gear ahead of the elections with stocks, FX and bonds highly volatile. I would think that a win for Mr Trump would send the USD into a mini fall while stocks would initially fall as Mr Trump has yet to give us a clear indication on his economic policy (other than being a Republican which equals SPEND and use debt to build)
According to Sky News, “billions of Pounds leave the UK ahead of the EU vote”. Whether or not this is directly related to the EU referendum remains to be seen. Perhaps investors are using the referendum to shift their assets to other areas as the uncertainty gathers strength. Regardless, this is a worrying factor and one the BoE can do without, especially at a time when inward investment is needed to continue building the UK economy.
On the plus side, the GBP has traded pretty well today with GBPUSD trading around 1.4600 and GBPEUR above 1.2820 (0.7800 EURGBP). This is a good sign and shows that the FX market despite the recent polls is positive about the referendum (REMAIN). Financial markets (rather than polls) for me are a better barometer of the likely result. Time will tell how right they are, or not!
With the delay in the FED announcing a rate hike in June, the likelihood is we see the USD trade in a range for the time being until fresh data (and polls) are announced. Volatility will remain with us for the time being as it is better to hold “gamma” than receive premium (sell options) and manage your negative gamma in the face of such uncertainty. There is simply too much going to risk going short “vega” selling options in other words. Pay your premium and enjoy the volatility knowing that you are covered and will make money on either a move up or down.
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