Market analysts warn of deeper sell-off as Trump tests Covid-positive

Investors are warning against higher volatility and a potentially deeper sell-off in risk assets after the news of President Donald Trump and the First Lady testing positive for Covid-19 shattered the calm in global markets on Friday.

US equity futures slumped more than 1.8% as of 2:37 p.m. in Tokyo and Asian stocks also declined following the announcement. The dollar and the yen climbed as the news stoked risk aversion. VIX October futures rose 8.2% to 33.2, while November futures gained 5.9% to 34.4.

Markets hate uncertainty and this ticks all those boxes, said Jeffrey Halley, senior market analyst for Asia Pacific with Oanda Corp. Not because of the President alone, but because this potentially means it has spread to the upper-level echelons of the government in the US.

This is what other investors are saying:

We’re struggling to get our head around it because such things are clearly not in the manual of investment management, said Gary Dugan, chief executive officer at Global CIO Office. He could be isolated for two weeks so that may mean he calls an invalid election. This will induce nervousness in the markets and we could see a 10% correction in US equities that will likely drag down Asian equities for the balance of the year.

Longer-term, people will see a sharper contrast between Asian and US equities. Asia has political stability and strong technology companies in the north. For people looking to allocate globally, this just makes Asia more attractive.

There will be another sell-off, Nirgunan Tiruchelvam, analyst at Tellimer, said by phone. The potential sell-off can last for few days.

It might also impact Trump’s chance of getting elected. People are going to go for gold and other safe assets.

Tech will most vulnerable because its valuations are stretched.

Investors should hedge themselves against S&P, said Justin Tang, the head of Asian research at United First Partners in Singapore. Most people may still be having their hedges on given what happened in March. A lot depends on what happens in next seven days.

If Trump goes to ICU it is going to be a big problem but if he is asymptomatic that volatility may get contained.

Trump’s coronavirus test result is fanning speculation that Biden will lead in the US presidential election, driving risk-off rallies in the yen and dollar, Kengo Suzuki, chief foreign-exchange strategist at Mizuho Securities Co. in Tokyo. Trump’s test result also shows a surprise spread of coronavirus in the US.

We’re just a month to the election so this news does throw the election campaign into a disarray for the Republican Party, Jingyi Pan, market strategist at IG Asia Pte.

COMMENT NOW