Banks, mar­kets gird for US elec­tion tu­mult Traders ex­pect US stock prices to swing by 2% in ei­ther direc­tion

Kuwait Times - - BUSINESS -

Big global banks, in­clud­ing Mor­gan Stan­ley, JPMor­gan Chase & Co and Gold­man Sachs Group Inc are bracing for po­ten­tial tu­mult on fi­nan­cial mar­kets af­ter yes­ter­day’s US elec­tion. As the out­come of the most bit­terly fought US pres­i­den­tial elec­tions starts to roll out by to­day in Asia, the re­gional mar­kets will the first to trade on the re­sults.

As a re­sult, Asia-fo­cused banks HSBC and Ja­pan’s No­mura Hold­ings Ltd are among in­sti­tu­tions boost­ing staff lev­els, while oth­ers are rais­ing the mar­gin re­quire­ments for trad­ing to cope with a pos­si­ble spike in vol­ume or volatil­ity. Bank prepa­ra­tions ahead of the elec­tion re­flect their ex­pe­ri­ence fol­low­ing Bri­tain’s shock vote to leave the Eu­ro­pean Union in June, when the S&P 500 fell 3.6 per­cent the day af­ter the poll.

In the United States, Mor­gan Stan­ley told staff to con­sider us­ing stop-loss or­ders, an au­to­mated trad­ing mech­a­nism that sells an in­vestor’s po­si­tion as soon as a stock hits a pre­set level, if the re­sult causes trad­ing vol­umes and volatil­ity to spike.

The bank also told ad­vis­ers in its wealth man­age­ment unit to pre­pare for elec­tion­re­lated con­ver­sa­tions with clients and pointed them to rel­e­vant pieces of re­search, ac­cord­ing to a Nov. 7 memo re­viewed by Reuters.

2 PER­CENT SWING

Traders ex­pect US stock prices to swing by about 2 per­cent in ei­ther direc­tion to­day, the day af­ter the elec­tion, based on the price of S&P 500 in­dex op­tions. Op­tions on the Pow­erShares QQQ Trust Russell 2000 ETF, are pric­ing sim­i­larly large swings be­fore the week is out.

Some banks are pro­ject­ing a more ex­treme drop in the event of a vic­tory for Repub­li­can Don­ald Trump, with Cit­i­group Inc es­ti­mat­ing that a Trump vic­tory could trig­ger a 3 per­cent to 5 per­cent sell-off for the S&P 500.

US stocks rose on Mon­day as Demo­crat Hil­lary Clin­ton’s prospects bright­ened af­ter the Fed­eral Bureau of In­ves­ti­ga­tion said it would not press crim­i­nal charges re­lated to her use of a pri­vate email server while sec­re­tary of state. In­vestors have tended to see Clin­ton as a more sta­tus quo can­di­date, while Trump’s stances on for­eign pol­icy, trade and im­mi­gra­tion have un­nerved the mar­ket.

The “mar­ket pretty much told you who was go­ing to win to­day,” said one cap­i­tal mar­kets of­fi­cial at a ma­jor bank who was not plan­ning any ex­tra­or­di­nary staffing mea­sures.

An­other of­fi­cial at a ri­val bank said Mon­day’s 2.2 per­cent rally in US stocks had low­ered Wall Street’s col­lec­tive angst over the elec­tion to DEFCON 4 from DEFCON 2, re­fer­ring to the US De­fense Depart­ment’s lev­els of alert.

Bro­ker­age No­mura said in a re­port on Mon­day the elec­tion was the largest “known un­known” mar­kets have had to con­tend with since the global fi­nan­cial cri­sis. It said a Trump vic­tory would likely lead to a more than 6 per­cent drop in Asian eq­ui­ties.

The elec­tion could re­sult in both higher trad­ing vol­umes and higher volatil­ity as it’s a big­ger event for in­vestors in this re­gion than Brexit, said Stephane Loiseau, head of So­ci­ete Gen­erale’s Asia Pa­cific cash eq­ui­ties and global ex­e­cu­tion ser­vices. It plans to in­crease front of­fice, back of­fice, and tech­nol­ogy staff, “en­sur­ing we have a clear es­ca­la­tion sys­tem for han­dling de­ci­sion-mak­ing”, and pos­si­bly rais­ing risk lim­its.”

Chris We­ston, chief mar­kets strate­gist at IG Mar­kets in Mel­bourne, said his firm had raised mar­gins on US indices and some dol­lar trades to 1 per­cent from 0.5 per­cent, but doesn’t ex­pect to see “a mas­sive col­lapse or spike”.

HSBC will bol­ster staff on trad­ing floors in ma­jor hubs in­clud­ing Lon­don and Hong Kong to deal with client re­quests, said a per­son with di­rect knowl­edge of the plan. “Around any high pro­file, po­ten­tially mar­ket-mov­ing event, it is not un­usual for some trad­ing desks to in­crease staffing lev­els,” said a spokesman for Europe’s big­gest bank. No US stock ex­change plans ex­tra­or­di­nary mea­sures to cope with po­ten­tial mar­ket volatil­ity, ex­change of­fi­cials told Reuters on Mon­day.

More than half of the stock and bond fund man­agers polled by North­ern Trust in the third quarter said they ex­pected the elec­tion to cause a large in­crease in mar­ket volatil­ity. The ex­tra staffing is sim­i­lar to what the bank did dur­ing Bri­tain’s vote to leave the Eu­ro­pean Union, he said. — Reuters

KUALA LUMPUR: An em­ployee waits for cus­tomers at a hi­jab shop in Kuala Lumpur yes­ter­day. — AFP

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