The latest U.S. polls show Republican candidate Donald Trump catching up with his Democratic rival Hilary Clinton, and traders reacted to the news by dodging high-risk assets, selling South Korean stock and buying the safe-haven Japanese yen.
The latest sudden shift in the polls comes days after the FBI announced that they are re-investigating Hillary Clinton’s email server over suspicious communications the former secretary of state sent and received. Director James Comey had made a formal statement to Congress informing them of the probe.
To be fair to Mr. Trump, Clinton’s lead was already narrowing significantly even before the FBI’s recent actions, but the news coming at this very late stage has set investors on edge and caused them to moderate their bets on a Clinton victory and prepare their portfolios for further volatility in the markets.
“We don’t think this is going to put Trump in the White House, but you need to adjust your investments as conditions develop,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management. “Our basic approach, and advice for our clients, is to price for continued instability over the next week or two.”
The situation mirrors that of the UK Brexit vote earlier in the year, when the financial world was unsure how political events were going to affect the markets in the short-term.
Emerging Asian currencies went toe-to-toe with the greenback at the end of the week, but the dollar eventually steadied itself. The latest uncertainty came after a Washington Post poll showed that Trump was just a single point down on Clinton, a deficit usually treated as statistically insignificant.
“The markets largely priced out the chance of a Trump win and they will now need to revise their forecasts and take the possibility a little more seriously,” said National Australia Bank’s chief currency strategist Ray Attrill in a phone interview for the BBC. “This is not going to be the whitewash for the White House that the markets were previously expecting.”
“Even if Trump wins, I expect the markets to steady fairly quickly. There will of course be some short-term risk aversion in the global financial community but the greenback has historically been quick to recover from these kinds of politically motivated market movements,” Attrill added.
Americans go to the polls on November 8th to choose the 45th president of the United States.
