Markets gear up for two wild weeks of elections and rate moves
Event-risk packed fortnight looms for markets
Bond and currency volatility gauges rising
Vanguard portfolio manager has moved more into cash
By Harry Robertson and Naomi Rovnick
LONDON, Oct 25 (Reuters) -Investors globally are piling into the U.S. dollar and betting on rising volatility ahead of a crucial two weeks in which the United States and Japan elect leaders, three major central banks decide on interest rates and the new UK government presents its budget.
The U.S. currency hit a three-month high this week in response to a strong U.S. economy and potential win for Republican former president Donald Trump in the Nov. 5 election.
Meanwhile, gauges derived from financial contracts called options, which are used to hedge against swings in the market, show investors are anticipating a jump in currency and bond volatility over the next month.
Still, stocks have remained broadly calm on strong U.S. data and earnings, though the VIX .VIX index of expected equity market swings sits above its 2024 average, signaling possible turbulence ahead.
"We're going to have quite an incredible, volatile two weeks," said Ales Koutny, head of international rates at Vanguard, who said he had sold some assets in favour of cash.
"We're going to start getting some increased vol, and that’s only going to settle down the week after the (U.S.) election."
TRUMP TRADES
Trump is neck and neck with Democrat Vice President Kamala Harris in the polls. Yet investors are taking their cues from betting markets, where the odds have shifted in Trump's favour.
The dollar =USD has rallied more than 3% so far in October as bond yields have climbed towards three-month highs, partly because markets are preparing for potentially higher U.S. tariffs flagged by Trump if he wins that could push up inflation and force the Federal Reserve to keep rates higher.
Trade worries have helped drive a gauge of expected volatility in the euro over the next month to its highest in 18 months EUR1MO=.
"We've shifted the portfolio defensively," said James Athey, fixed income portfolio manager at Marlborough, adding that he expects the dollar to rise further and has reduced his exposure to U.S. government debt in favour of German bonds.
Investors wary of inflation and populism are rushing into gold, Bank of America said on Friday, while Citi data showed hedge funds were piling into the dollar.
Markets might be underestimating risks posed by geopolitics and impending elections, the International Monetary Fund warned this week.
US JUGGERNAUT
The bigger driver for the dollar, however, has been relentless U.S. economic strength. Stronger-than-expected jobs data, retail sales numbers and jobless claims figures have caused investors to dial back Federal Reserve rate cut bets.
The Nov. 1 jobs data for October could be a flashpoint - feeding into the Fed's rate decision six days later, where traders now expect a 25-basis-point rate cut, having previously seen a strong chance of a second 50-bps reduction.
Bond yields have bounced around as traders struggle to judge the Fed, pushing a measure of expected volatility in the $27 trillion Treasury market to 10-month peaks .MOVE.
And the CBOE Skew index .SKEWX, measuring demand for financial contracts called options that pay out when stocks suffer big falls, is near levels that usually signal anxiety.
Overall stocks have remained comparatively placid, with the S&P 500 index down a modest 0.9% this week.
Strong earnings from the likes of Tesla TSLA.O have kept the equity market calm, Janus Henderson multi-asset manager Oliver Blackbourn said, as well as robust U.S. data.
Artemis fixed income manager Liam O'Donnell said he had bought five-year Treasuries in the last two days and thought markets were exaggerating how high U.S. rates would stay were Trump to win.
POLLS, POLICY
Britain's Labour government meanwhile presents its first budget on Wednesday after winning power in July, before the Bank of England 's interest rate decision on Nov. 7.
Memories of a bond market rout after Prime Minister Liz Truss’s disastrous budget in 2022 hang over the event.
British government bond yields rose sharply GB10YT=RR on Thursday after finance minister Rachel Reeves said she would change the fiscal rules to allow her to borrow more to invest.
Allianz Global Investors, PIMCO, abrdn and Artemis say they are keen on gilts, betting yields have risen too far.
"We have recently initiated a long duration position in gilts," said Linda Raggi, senior investment manager for fixed income at Pictet Asset Management. "We believe the budget will be focusing on supporting growth (and) think gilts have room to outperform once the event risk passes."
Japan's politics and central bank also loom large, after a rate hike and yen surge helped spark market chaos around the world in August.
Japan's ruling Liberal Democratic Party may lose its majority in Sunday's snap election and potentially form a coalition with opposition parties who back monetary stimulus.
The Bank of Japan is expected to hold rates steady on Oct. 31 and traders will watch for hints on the outlook that could shift the yen, which has slumped more than 8% since mid-September.
U.S. MOVE Treasury volatility index hits 10-month high https://reut.rs/48mQPBB
Expected euro volatility rises to 18-month high https://reut.rs/4hcA14a
The risk premium on British bonds is at one-year high https://reut.rs/3BXuOgt
Reporting by Harry Robertson and Naomi Rovnick; Editing by Dhara Ranasinghe and Emelia Sithole-Matarise
متعلقہ اثاثے
تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
