Volatile market conditions in Asia trading ensued as the vote counting got underway in the US elections but a sense of calm was restored in the early evening.
The net result is a stronger USD, and the commodity currencies underperforming. After S&P futures were limit-down 5% in Asia trading, the S&P 500 is currently up 0.8%, a remarkable turnaround in sentiment, while the VIX is down 17% to 15.5.
The market’s focus has been the US elections and, while Mrs Clinton looks likely to win the popular vote, the electoral maths gives Mr Trump the prize of President-elect. He will be sworn in on 20 January.
Markets were prepared for a Clinton victory and the prospects of Trump winning sent a wave of shock across the market. The knee-jerk reaction was to sell the USD, flock to currency safe havens like EUR and JPY, and reallocate assets from equities to bonds. Markets turned around in the early evening as the selling pressure evaporated and Trump’s conciliatory tone in his victory speech supported that change in momentum.
The USD major currency TWI is up 0.7% and close to its highs for the session, after being down about 1.2% at one stage.
Of the majors, JPY took the wildest swing, with USD/JPY moving from the 105 level down to a low of 101.20, before recovering to 105.60.
EUR/USD was up as much as 2.5% to a high of 1.1300 and now trades 0.8% lower at 1.0940. After the shock results of Brexit and the Trump victory, attention is turning to Italy’s referendum on the constitution next month and elections in France, Germany and the Netherlands next year.
With the focus elsewhere, GBP has managed to make modest gains, one of the few currencies to make headway against the USD.
The NZD broke up through 0.74 yesterday morning helping the TWI reach a new high for the year of 79.43. It held up surprisingly well into the local close, even as Trump looked like the victor at that stage.
A subsequent slump saw the NZD reach a low of 0.7274 yesterday, and it has reached a fresh low this morning. Attention turns to today’s MPS and press conference. While the US situation will remain centre-stage over coming weeks, there is a history of the NZD being supported on MPS days, as the Governor talks up the strength of the economy and speaks of his lack of ability to impact the (strong) NZD. However, markets are on edge post US election, and we’d suggest that global factors will dominate in the trading sessions ahead.
It’s too early to make bold calls on how the market will trade over coming weeks.
The Trump curve-ball that has been delivered has significantly raised the level of uncertainty about the outlook and there are more questions than answers. Will Trump tone down his anti-trade rhetoric is a key question, as that policy agenda worries the market the most. Price action since the NY open suggests that the market isn’t ready to assume the worst.
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