Investors are warning of higher volatility and a potentially deeper sell-off in risky assets after President Donald Trump and the First Lady’s announcement testing positive for Covid-19 shattered calm in global markets on Friday.
US equity futures fell as much as 2% and Asian stocks fell as wellad. The dollar and yen climbed as the news fueled risk aversion. October VIX futures jumped almost 12%.
“Markets hate uncertainty and it ticks all of those boxes,” said Jeffrey Halley, senior market analyst for Asia-Pacific at Oanda Corp. “Not because of the president alone, but because it potentially means he has spread to the upper echelons of the US government”
Here’s what other investors are saying:
“This will induce nervousness in the markets and we could see a 10% correction in US equities which will likely cause Asian equities to fall for the rest of the year,” said Gary Dugan, Managing Director of the Global CIO Office .
“Over the longer term, people will see a sharper contrast between Asian and US stocks. Asia has political stability and strong technology companies in the north. For people looking to allocate globally, this makes Asia more attractive. “
Rush for Havens
“There will be another sale,” Nirgunan Tiruchelvam, analyst at Tellimer, said by phone. “The potential sale can last a few days. Technology will be more vulnerable as valuations are stretched. ”
“It could also impact Trump’s chances of being elected. People go looking for gold and other safe assets. ”
Investors will move towards a safe haven positioning, according to Halley from Oanda. Expect stocks and energy to fall, the US dollar to rally, especially against pro-cyclicals like the euro and the Australian. Said gold will rally too.
Hedge against S&P
“Investors should guard against S&P,” said Justin Tang, director of Asian research at United First Partners in Singapore. “Most people can still have their hurdles given what happened in March. It all depends on what will happen in the next seven days.
“If Trump goes to the ICU it’s going to be a big deal, but if he’s asymptomatic the volatility can be contained.
“This will lead to further weakness in the dollar as it adds to the likely prospect that the US stimulus package will not be approved until after the election,” said Jun Kato, chief market analyst at Shinkin Asset Management. “It could also push the Fed to adopt a more accommodating tone that caps US yields and weighs on the dollar.”
The yen could climb to 104 to the dollar, Kato said.
Risk aversion “will make the dollar more attractive, keeping emerging currencies on its back,” according to Mingze Wu, a currency trader at StoneX Group.
“We are just one month away from the election, so this news throws the election campaign into disarray for the Republican Party,” Jingyi Pan, market strategist at IG Asia Pte.
– With the help of Masaki Kondo, Joanna Ossinger, Chikako Mogi and Chester Yung