Markets have started to reflect growing confidence in a potential Donald Trump victory, with equities and the US dollar rising in alignment with expectations, according to a recent report from Citi Research.
Even as the markets are better reflecting the potential for a Trump presidency, some of the trades look fairly priced for either outcome, according to the brokerage.
The US will go to vote on Nov. 5, with Republican candidate and former President Donald Trump and Democrat candidate Kamala Harris staring at a close battle. Along with the presidential elections, voters in the US will also elect all 435 members of the House of Representatives—the lower chamber of the US Congress—and 33 out of 100 members of the Senate, which is the upper chamber of the Congress.
Christophe Barraud, known as the "world's most accurate economist," has predicted a victory for Republican nominee Donald Trump in the upcoming US presidential elections.
Global equity-based ‘Trump Trades’ still have some room to run in case of a victory outcome for the former president.
In terms of foreign exchange-based trades, the US dollar-euro pair trade still has a potential upside in case of a full 'red wave', based on the brokerage's models.
While some strategies for pricing in a Trump victory have become less attractive, multiple ones, across foreign exchange, debt as well as US equities, continue to show potential.
A Harris win, on the other hand, could see the US dollar and yields decline and equities across the globe rebound, Citi said.
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A Volatile Path Ahead?
While Morgan Stanley also said that macro markets may be pricing in a Trump win, it expects further volatility as the US elections near, recommending taking defensive positions.
"Average daily moves around elections moved up 3-6 times for India, Mexico, and South Africa, and we expect the US election may drive similar volatility across Asia," a note by the brokerage states.
Despite financial markets appearing to price in a Trump victory, Citi Research remains cautious, describing the election as “too close to call.” With swing state polls within their margin of error and betting markets continuing to suggest a tight race, Citi advises investors that both major political outcomes remain plausible.
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