Even before the second presidential debate has begun, let alone the actual election, financial markets are increasingly warming to the view that Hillary Clinton will be the next president of the United States.
Following the release of damaging remarks from Republican nominee, Donald Trump, over the weekend, financial markets have opened the new trading week firmly in risk-on tone.
Stock futures are rising and riskier currencies — such as the Mexican peso — are also strengthening. The USD/MXN has tumbled in early trade on Monday, falling 1.62%. From the highs seen just before the first presidential debate, it has now fallen close to 5%.
Though not a slam-dunk case — something investors worldwide have learnt not to price in wake of the UK EU referendum — it’s safe to say that markets now see a Trump presidency as an outlier, rather than a distinct chance.
Part of the reason behind this shift in sentiment has been a surge in the probability of a Clinton Victory based on recent polling.
Take the chart below from Nate Silver’s fivethirtyeight.com website, that shows the probability of a Clinton or Trump presidential victory since June. It comes courtesy of Citibank.
There’s been a distinctive shift towards Clinton, starting with the first presidential debate in late September. In recent days the gap between the two contenders has widened significantly with a the probability of a Trump victory tumbling to just 18.7% based on most recent analysis.
The website states that the “win probabilities come from simulating the election 20,000 times, which produces a distribution of possible outcomes for each state”.
While the polls and probability of a Clinton presidential victory are shifting in her favour, it’s clear than the risks are skewed towards the opposite outcome occurring.
A Clinton presidential victory is nearly priced in, while the opposite outcome has been largely discounted.
With Trump likely to throw a few hail Mary’s today in a bid to rescue is flagging campaign, it’s easy to see where the near-term risks lie heading into the second debate.
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