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LONDON: Investors, already nervous ahead of the November US elections, now have something else to worry about: the president’s health.
Donald Trump’s COVID-19 diagnosis triggered a sell-off in stocks and oil and an increase in demand for traditional safe-haven assets like gold and bonds on Friday (October 2).
“The president of the United States has a disease that kills people. People are reducing their risk because of that,” said Chris Weston, head of research at Pepperstone in Melbourne.
READ: US Futures And Asia Stocks Fall As Trump Tests Positive For COVID-19
But the fate of investors depends, to a large extent, on how the president of the United States deals with a disease that has killed more than a million people around the world.
“This is a new uncertainty in a world that is already mixed, which is not the best,” said Chris Bailey, European strategist for Raymond James.
If his symptoms are mild and he recovers quickly, markets could stabilize and Trump could use the experience to project his image as a fighter in the campaign against Democratic challenger Joe Biden.
But if the 74-year-old becomes seriously ill and has to be hospitalized, as British Prime Minister Boris Johnson did earlier this year, or if the virus spreads to other members of his administration, investors will be alarmed.
“What worries me more than anything is the question mark about the legitimacy of the electoral process,” David Arnaud, a fixed income fund manager at Canada Life Asset Management, said of Trump’s diagnosis.
The news prompted investors to prepare for a period of increased volatility, with most agreeing that markets will remain nervous for the foreseeable future.
Volatility indicators rose, with the widely watched VIX to nearly 29 points, from around 27 points on Thursday.
Although the moves weren’t as big as those seen during the market chaos in March, the Trump news comes at a critical time with only one month left until the US election.
LEE: Trump will fulfill his duties ‘without interruptions’ while recovering from COVID-19: doctor of the president of the USA.
And in a sign of greater uncertainty after the November 3 US election, the November futures contract premium over the VIX widened relative to its December counterparts.
There was a similar story in the currency markets with one-month indicators of implied volatility between the dollar and the yen rising to more than one-month highs near 7.5 percent. Indicators of volatility for the Australian dollar also rose.
Arnaud said he was positioned for uncertainty in the coming weeks by increasing exposure to safe-haven assets like the US dollar, Japanese yen and US Treasuries.
US equity futures fell nearly 2 percent in London before cutting back on some losses, while government bond yields fell as investors weighed in on the impact of the president’s illness and the lockdown on financial markets.
While MUFG strategists said Trump’s diagnosis could strengthen his argument to open up the US economy.If it recovers quickly, some like Saxo Bank say that Biden’s chances of victory had increased, which is negative for risk assets.
Betfair suspended betting on the outcome of the US election on Friday, its website showed. Betfair had a 60 percent chance of winning from Biden on Wednesday after the first debate.
READ: Timeline of Trump’s Activities the Week COVID-19 Came Home
Investors, who have fueled a prolonged rally in global equity markets, were already nervous due to lack of progress on further US fiscal stimulus and a brief sell-off of high-flying US tech stocks last month.
Meanwhile, 10-year US Treasury yields fell more than 1 bp to 0.66 percent, just above a one-month low, a classic signal from investors looking for cash. called safe havens.
“Whether it’s Trump or Biden, the biggest problem is uncertainty. As long as you’re not sure who will win the election, it’s difficult for markets to really settle down,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo. She said.
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