What happened six days ago?
FBI Director James B. Comey announced that his agency is again looking into the private email server used by Democratic presidential nominee Hillary Clinton and some of her inner circle when she was secretary of state, because of newly discovered emails “that appear to be pertinent to the investigation.”
That’s when the Comey effect hit the Vix.
The rest is history, or what passes for it these days. The latest Vix surge followed news that the Washington Post-ABC News tracking poll had Donald Trump at 46 percent and Clinton at 45.
It’s not that the markets know something the rest of us don’t — in fact, just the opposite. All that the markets know is what is in the news. The markets are very much part of the echo chamber.
“There’s most definitely the feeling that the election is up for grabs now,” said Russell Rhoads, director of education at CBOE’s Options Institute. “If anybody has any doubt this is not about the election, they’re wrong,” he told MarketWatch.
“Since the FBI reopened its case into Hillary Clinton’s emails last Friday,” Craig Erlam, a senior market analyst at OANDA said in a note quoted by Agence France-Presse, “her substantial lead in the polls has been decimated. … It’s been clear for some time now that markets would much prefer the stability that a Clinton victory would bring for the US economy and the reaction over the last 24 hours or so since the polls started to change so dramatically just confirms this.
“Trump risk is well and truly being priced in again,” he wrote.
“Markets are now going to have to recalibrate for a coin toss outcome versus what they thought was a sure thing,” Nicholas Colas, chief market strategist at Convergex told the Financial Times. “This will happen headline by headline and tick by tick.”
If the Vix were not enough of an indicator of the markets’ view on Trump, take a look at the Mexican peso, which had a brief moment of glory, rising against the dollar, during the debate season, when it appeared that Clinton was probably headed to victory on Election Day. Since Trump, with his anti-North American Free Trade Agreement, anti-Mexican rhetoric is thought to be bad for Mexico, what’s bad for Trump is good for the peso, and vice versa.
Now, in the wake of Comey’s announcement, traders are selling the Mexican peso.
They are buying the yen, considered a safe and stable currency, a safe haven, shielded from Trump and other factors. And they are buying the Swiss franc, also a refuge.
“The Trump risk is in revival,” Chihiro Ohta, a Tokyo-based senior strategist at SMBC Nikko Securities, told Bloomberg News. “With Trump, there always follows an uneasiness over whether policies will be managed properly in the U.S.”
Before the FBI announcement, “the market had pretty much priced out most of the risk of Donald Trump becoming president,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in London, told Bloomberg News. “Obviously, the markets had to reassess that view now.”
And they will reassess again if Trump gains more in the polls, or if Clinton begins a recovery. It could be a rough ride until Election Day.
Be assured, though, the Vix is not all-knowing. The Vix is not a savant.
It’s just scared — of Trump.
More from Morning Mix