Halister News

(Bloomberg) -- U.S. credit spreads are edging wider into the presidential election, just like before the 2012 vote. But don’t yet bet on an encore of that year’s post-event rally, as a close result this time could raise risks of legal challenge and recounts, prolonging uncertainty, Bloomberg strategist Simon Ballard writes.

• U.S. HY corporate spread index currently quoted 531bps OAS, +48bps since Oct. 27; many investors may be running fairly flat (hedged) risk exposure going into Tuesday
  • In 2012, similar spreads widened 48bps between Oct. 18 and Nov. 16, before rallying by more than 100bps through January 2013 following President Obama’s re-election
• A Clinton victory still seems the majority expectation, the confirmation of which should fuel a relief risk rally; however, market performance could be damped if there’s only a small margin of victory
• On the other hand, a Trump victory may fuel more adverse knee-jerk market reaction; maintain wider spread bias across synthetic credit indexes, IG and HY corp bonds, dollar weaker
  • Uncertainty over implementation of Trump rhetoric into policies likely to fuel defensive bias among investors, short-term flight to quality in corporate credit
  • Could lead to re-evaluation of risk tolerance more globally, and possibly capital outflows

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

(Bloomberg) -- The real’s drop reflects potential that Brazil’s assets could serve as a hedge for investors seeking protection in case Donald Trump beats Hillary Clinton in the U.S. presidential election, Vladimir Caramaschi, chief strategist at CA Indosuez Wealth Brasil, said in a phone interview.

• Local assets seen as less expensive hedge than Mexico’s; high liquidity, along with recent months’ BRL and Brazilian stocks gains, also adds to conditions for hedging
• NOTE: BRL has dropped more than MXN since Oct. 28, after FBI reopened investigation on Clinton’s e-mails, causing her advantage over Trump to shrink
• BRL may drop further if Trump wins, given his “protectionist rhetoric”; if Clinton become president, there may be a relief rally
• “The market still expects a Clinton win, but fears Trump’s election. Because of that, it is seeking protection from a surprise”
• Eventual post-Trump-win commodities drop also could be a drag for BZ assets
• While first reaction is likely to be negative, extent of market losses will depend on Trump actual post-win policies; some proposals, such as those related to protectionism, may face resistance from both parties, including Republicans
• U.S. job report reinforces the case for Fed hike this year; rate increase mostly priced in