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POLITICAL RISK: US Elections Impacts On Financial Markets

POLITICAL RISK
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Two weeks out from the US election, betting markets are now favoring Trump, while polls show the race looks much closer. Financials markets have seen assets likely to benefit from a Trump win outperform over the past 1-2 weeks.

  • Bitcoin is seen as a favored asset under a Trump presidency, with significant inflows into Bitcoin-focused ETFs. The iShares Bitcoin Trust, has seen +$1.39b of inflows in the past week, well above the average weekly inflows of about $500m for the year. Options traders are increasingly betting that Bitcoin will reach an all-time high of $80,000 by the end of November. Implied volatility for Bitcoin options expiring around Election Day is elevated, with more traders favoring call options. The most popular strike prices for calls expiring on Nov. 29 are $80,000 and $70,000, while December contracts cluster around $100,000 and $80,000 strikes.
  • Energy stocks look to also benefit from a Trump presidency and options markets are now pricing in further upside. The closely tracked XLE Energy ETF which is currently trading at 90.28 shows the $95 strike calls have the most open interest for the Nov 15th maturity followed by the $99 calls while there is a 0.78 put/call ratio for the maturity.
  • The markets are signaling that the Harris trade is losing momentum. BofA's Democratic Victory basket, which is heavily weighted with healthcare stocks (8 of the top 10 holdings), reflects this shift. Notably, the iShares US Healthcare ETF has closely tracked betting market odds, and its stock price has declined nearly 10% since the beginning of September, in contrast to the S&P 500, which has risen by 3.60% over the same period.
  • In the FX space, countries that rely heavily on exports to the US could face headwinds. In Asia, THB has been the top performer over the past 3 months and currently trades +9.5%, followed by MYR +8.65% while the KRW is flat over the same period however could face headwinds with Trumps focus on technology and automotive sectors. In South America both the MXN & ARS have already seen significant under performance since July 1, falling between 7-8%. The CLP & BRL are both little changed over the past three months, however both nations reliance heavy of exports to the US.
  • The US 10yr yield has also closely tracked the spread difference of betting market odds

Chart. Polymarket Odds, GS Party Baskets, 10yr Yield

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Two weeks out from the US election, betting markets are now favoring Trump, while polls show the race looks much closer. Financials markets have seen assets likely to benefit from a Trump win outperform over the past 1-2 weeks.

  • Bitcoin is seen as a favored asset under a Trump presidency, with significant inflows into Bitcoin-focused ETFs. The iShares Bitcoin Trust, has seen +$1.39b of inflows in the past week, well above the average weekly inflows of about $500m for the year. Options traders are increasingly betting that Bitcoin will reach an all-time high of $80,000 by the end of November. Implied volatility for Bitcoin options expiring around Election Day is elevated, with more traders favoring call options. The most popular strike prices for calls expiring on Nov. 29 are $80,000 and $70,000, while December contracts cluster around $100,000 and $80,000 strikes.
  • Energy stocks look to also benefit from a Trump presidency and options markets are now pricing in further upside. The closely tracked XLE Energy ETF which is currently trading at 90.28 shows the $95 strike calls have the most open interest for the Nov 15th maturity followed by the $99 calls while there is a 0.78 put/call ratio for the maturity.
  • The markets are signaling that the Harris trade is losing momentum. BofA's Democratic Victory basket, which is heavily weighted with healthcare stocks (8 of the top 10 holdings), reflects this shift. Notably, the iShares US Healthcare ETF has closely tracked betting market odds, and its stock price has declined nearly 10% since the beginning of September, in contrast to the S&P 500, which has risen by 3.60% over the same period.
  • In the FX space, countries that rely heavily on exports to the US could face headwinds. In Asia, THB has been the top performer over the past 3 months and currently trades +9.5%, followed by MYR +8.65% while the KRW is flat over the same period however could face headwinds with Trumps focus on technology and automotive sectors. In South America both the MXN & ARS have already seen significant under performance since July 1, falling between 7-8%. The CLP & BRL are both little changed over the past three months, however both nations reliance heavy of exports to the US.
  • The US 10yr yield has also closely tracked the spread difference of betting market odds

Chart. Polymarket Odds, GS Party Baskets, 10yr Yield