The Daily Shot 11.9.16

By SoberLook

The United States

Once again we begin with the US where as of midnight on Wednesday, the presidential election resembles the Brexit shock. Donald Trump has pulled ahead in the betting markets as polling results come in.

Source: electionbettingodds.com

The market reaction was quite violent on higher US policy uncertainty.

1. Treasury yields dropped sharply.

Earlier in the day, the US 2016 rate hike probability rose to 86%, and it seems that the markets are now taking the hike off the table.

Also during the day US market-based inflation expectations rose to the highest level in almost a year – a trend that is now likely to reverse.

2. US equity futures dropped 5%, and VIX spiked in response to the elections news.

 

3. The dollar gave up 3.5% against the yen as the results came in.

During the day traders were bidding up US dollar puts, hedging against a Trump victory (a hedge that worked out quite well). The chart below shows USD/JPY risk reversal – the spread between the 1-week call and put implied volatility.

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