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He also shelved the second presidential debate, now America really begins Countdown towards the vote of November 3. With many unknowns, including that of times have a sure result. And accepted.
In fact, if politics has its rituals and prerogatives, the market operates at different levels. Paradoxically, whoever wins the polls takes a back seat: the important thing is to know that someone has won. And in a short time.
And here the matter gets complicated, unleashing a trend of tension on volatility that could bring with it some shocks between the date of the vote and the day of the inauguration of January 20, 2021, the day of the oath and the consequent taking of possession of the new president.
For example, 61% of respondents in the latest Bank of America survey of US fund managers are sure of this, according to which the result of the vote will still be contested, as shown in the table .
Source: Bank of America
On the other hand, Donald Trump has repeatedly advanced the suspicion of fraud and threatened consequences in the event of a defeat at the polls that he considered the legitimate daughter of the polls. Verbal and social excess of the electoral campaign? Almost sure. The truth is that we are talking about a country where weapons are the daily bread and where recent news has shown that their use in contexts other than those contemplated by the Second Amendment is anything but rare or pilgrim.
And at the center of fears for a possible controversy or even a violent queue on November 3 is the postal vote, a very widespread and shared option in the time of Covid and that, in fact, has already been seen today 47 million Americans they have cast their vote in advance.
And here comes a fundamental distinction: According to a recent poll conducted on behalf of the Wall Street Journal and Nbc, in fact, 47% of Joe Biden supporters will choose this method of voting, while 86% of Donald Trump supporters , perhaps in deference to the president’s “dubious” attitude toward the virus, they intend to vote in person at polling stations.
Thus, the recent Supreme Court ruling that rejected the Republican appeal and found that the vote by mail was valid in a key state like Pennsylvania already operates as a further destabilizing element. Because precisely that state, along with another battlefield state such as Wisconsin, does not by law allow the opening of packages before voting day, a prerogative that according to all analysts could lead to considerable delays in the count. And therefore potentially in the final proclamation.
Needless to say, a blessing for anyone who wants to muddy the waters with more or less veiled suspicions. But how much will this excess volatility weigh on the markets? Enough of. And these three graphs certify it plastically (PUBLISH THE ELECTION_RALLY, GOLDMAN_VOLATILITY AND BOFA_VOLATILITY GRAPHICS HERE),
Source: Deutsche Bank
Source: Goldman Sachs
Source: Bank of America
The first shows how a Deutsche Bank study can be inferred and valued. a historical upward trend in the stock immediately after the vote and the announcement of the winner. But it is the other two images, contained respectively in ad hoc reports by Goldman Sachs and Bank of America, that highlight the particularity of the current electoral campaign and the high probability that this custom will not be respected.
The volatilityin fact, it is expected at current and relatively high levels for an extended period of time relative to the voting date, precisely until the end of January when the game will be closed for good and the new administration will be established. Almost three months of additional uncertainty, potentially all additional work for a Fed that could necessarily be questioned to ease related tensions and criticism. Which ones, for example? One over all.
Particularly linked to the operations of the Central Bank.
Source: Bloomberg / Zerohedge
As this graph shows, the dynamics of political tension in the stock market due to electoral uncertainty already has a Vix price, in area 30 and destined to remain at that limit for at least another two months. On the other hand, the one that has not folded so far is the credit volatility index, planted at almost nirvana levels. And more and more analysts, half and quietly, begin to glimpse a development of this dyscrasia: something has to give.
But who will act as the driving force behind the reunion, the return to historical correlation and the tandem trend? Will equity volatility disprove Goldman and BofA’s gloomy forecasts, and will it rejoin the ranks early thanks to a clear and smoothly accepted voting result? Or will it be fixed income see your fear indicator skyrocket, a symptom that official rates and actual rates are really starting to conflict with each other?
Indeed, given ultra-low yields and continued growth in the corporate default rate in the US, such a bloody outlook for credit does not seem particularly credible, at least on a purely theoretical level. In fact, equity volatility is a far cry from what it was in January, while credit volatility has remained virtually immobile. Exactly, something has to give. Especially since without a Fed endorsement everyone deems ready to return to the field in grand style in the event of a specific emergence of a tail risk in three weeks (contested vote, indeed, or a second wave to the European style that is going to hit the US and its economy with new locks), the fact is that the room for some significant and unexpected market movement remains open. Above all, in light of the price discrepancy inherent in volatility indices. In short, unexplored territories. Even for a country like the US, capable of shocking the world with the presidential surprise of 2016.
And lastly, be careful to underestimate the quiet, diplomatic stance that Wall Street could definitely choose between now and November 3. In fact, this last graph shows a trend little discussed so far but that is always increasing in terms of magnitude.
Source: Dealogic
If proxies are really useful in terms of benchmarking, this is where the data published by Dealogic takes on a not inconsiderable value as an item of study: in the third quarter of this year, in fact, the sales of American companies totaled the figure A record $ 253 billion, five times the previous three months and 51% more compared to the same period in 2019. This despite the fact that the pandemic has largely suppressed corporate valuations in several key sectors.
Translated? America fears a capital gains tax hike promised by Joe Biden during the election campaign. Perhaps more than Covid. And also from the Vix in zone 30.