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US Presidential election to drive market volatility next week

Into the final few days of campaigning for the US Presidential election the opinion polls have tightened. Subsequently volatility has ramped up and this is likely to continue in the coming week as the result of the US Presidential election is finally known. Financial markets will continue to run off the expectation and subsequent identity of the next President with an incredibly polarised outlook.

Volatility ahead

Next week we will finally know the result of the US Presidential Election, or will we? The polls have tightened significantly in the wake of the further FBI investigation into Hillary Clinton’s emails and the prospects of an unlikely Trump victory have improved. It is apparently harder for Trump to win the electoral college votes target of 270 and could conceivably win the national vote and still not be President. With Trump already refusing to rule out potential “vote rigging” we may still not have a definitive result. However, the polls still suggest Hillary Clinton will be President and this would certainly help to shift market sentiment back towards positive again. The dollar has come under significant corrective pressure in the past few days and the safe havens such as gold, the yen and US Treasuries have also gained ground. These moves will retrace if Clinton is declared the victor. Furthermore, the dollar would be able to then get back on the strengthening bandwagon that is coming in front of what is an increasingly likely Fed rate hike in December. The FOMC meeting this week has set the market up for a December hike if there are no significant economic shocks (a Trump victory perhaps?). However, whilst risk appetite may be boosted again on a Clinton victory the move may be a little short lived as markets will need to come to terms with the Federal Reserve still being the only hiking central bank in town.

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