As the US election overhang clears, market dispersion rises as a period of risk-friendly casual looks to follow the post-election frenzy – Stock Market Analysis Today – Market dispersion rises as election overhang clears.
And with more limited fiscal stimulus on the way, monetary policy can help extend post-election rallies in risk sentiment, creating a bridge to a post-vaccine environment.
Greater political certainty following the US presidential election is driving sharp declines in cross-asset implied volatility. This dynamic is especially pronounced in US equities and the Chinese Yuan relative to their histories.
Last Friday, the S&P500 scored its best week since March and USDNCH to the lowest level since June 2018, as investors continue to march their way through the remnants of election risk. Investors must be recognising that a split Congress is still suitable for stock markets on the silver lining premise that the two parties will keep each other in check on issues like taxes and regulation.
USDCNH is trading heavy, heading towards 6.5. SHCOMP is +1.9% after the US election result.
Of note, People’s Bank of China (PBoC) vice governor Liu Guoqiang said in a conference last Friday that exit of monetary easing is a matter of time and it is also necessary amid economic recovery but the timing and method of exit need to be carefully evaluated, mainly based on the status of recovery.
He added that the international economy is recovering in general (he sounded very optimistic), and China’s overall situation is better than its global peers. This headline has added to the bid tone in CNY NDIRS on Friday afternoon.
USDJPY implied vols have come off lower to start the week with 1m trading down to 6.70 from 7.0. I think they are susceptible to another material round of selloff as soon as the USD slide lower loses momentum.
Gold investors seem to like the idea of just enough stimulus to weaken the US dollar, push gold higher but will not necessarily cause yields to rise sharply—kind of the best of both worlds for gold.
US dollar looks like a lousy safe-haven
The US dollar is looking like a lousy safe-haven given the US political and economic uncertainty, which looms ominously.
Gold always finds a good bedfellow in market uncertainty, which improves gold market appeal.
Still, the market bears are lying in wait for this bout of systematic market pressured buying to fade, which is getting triggered due to plummeting vol suggesting that the bounce could prove short-lived (less than a week).
And once exposures rise back to high levels, hedges need to be put back on and at that point, extreme positioning could exert short-term bearish pressure due to rising Covid-19 case counts.
Stock Market Analysis Today – Market dispersion rises as election overhang clears