Are Markets Becoming Complacent Again?

As the US heads to the polls on Tuesday, traders around the world are strapping in and preparing for what could be 48 hours of substantial volatility, particularly in event of a Donald Trump victory, an outcome the markets appear confident is now unlikely.

The problem is the market has been complacent in the not too distant past, having left itself very exposed to Brexit which resulted in some very aggressive moves in the early hours of June 24. I don’t think we’re quite seeing the same level of confidence in the markets ahead of this election but still, it does appear we’re quite vulnerable now to a Trump victory which is not as ludicrous as the betting odds – currently pricing in 80% chance of Clinton victory – would suggest.

Election Chances

Source – fivethirtyeight.com election forecast

Yesterday’s rebound in US equity markets was quite punchy so close to the election. Granted we were just seeing the losses from the previous nine session losing run reversed on the news that Hillary Clinton had been cleared again by the FBI but still, a full reversal in one session is some going and it would seem to suggest that there will be no lingering damage from the reopening of the investigation in the first place, something I’m not convinced about given the mistrust people already have towards Clinton.

As you can see on the chart below, the polls suggest we’re in for a much tighter race than the odds would suggest.

US Poll of Polls

Source – Real Clear Politics Poll Average

We’re currently seeing a little more caution in the markets this morning, something that may continue throughout the session given that markets are very likely to become quite volatile overnight tonight. European equity markets are expected to open a little higher, tracking some of the latter gains from the US session on Monday. Gold meanwhile is trading up slightly around $1,282 which suggests there is still a partial Trump hedge in place despite other markets suggesting otherwise.

US Election PreviewEverything else today, such as economic data and the few earnings reports that are scheduled to be released will more than likely be overlooked today, given that all of the attention will be on the election. Still, from the UK we will get manufacturing and industrial production figures for September as well as the NIESR GDP estimate for the three months to the end of October, while in the US we’ll get JOLTS job openings for September.

Another U-Turn

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.