Macroscope | US politics and the Fed could deliver a dose of double trouble for markets
Expect choppy trading conditions over the next six weeks and beyond
An eerie calm seems to be descending on markets ahead of the US presidential elections.
Cross-market volatility seems reasonably subdued, with currencies, bonds and stocks keeping in a fairly moderate holding pattern. It is not so much that markets are becoming complacent, but more a sign that investors are left wondering what to do next.
It could well be the calm before the coming storm. It is often said there is nothing as uncertain as a sure bet and while the prospect of a Hillary Clinton presidency is gaining stock, nothing yet is set in stone.
As Britain’s Brexit referendum proved to the world, betting on the “most likely” outcome can at times prove extremely risky. Donald Trump is far from down and out until the last vote is counted. Until then the markets remain stuck, waiting with bated breath.
While the US election result is critically important to global markets, the world is still bogged down by the same big problems. World growth losing momentum, trade frictions running high, geopolitical risks boiling over, global policymaking losing its way and hyper-inflated financial markets stretching the bounds of fundamental credibility remain uppermost concerns.
The outcome of the US presidential elections will be important, but it is probably safer to say the US Federal Reserve holds much more sway over the fate of world financial markets in the coming months. Considering the gloomy backdrop of global risks, the Fed’s much-anticipated December 13-14 rate policy decision will have profound implications for markets.