Volatility and the election

09/28/2020 | 08:53am

This is the end of a challenging September for investors, marked by conflicting signals and a strong coronavirus surge in Europe. U.S. stock futures rises today. Could this be the end of the bear market, after four consecutive weeks of declines? Futures tied to the S&P 500 rose 1.3%, while the Nasdaq-100 index gained 1.7%.

The Cboe Volatility Index is also up today. There are lots of factor influencing volatility at the moment: rising levels of coronavirus cases, the looming election, the various threats to economic recovery and continued tensions between Beijing and Washington.

Today, the big bombshell that may affect markets and volatility is The New York Times’ revelations about taxes paid by Donald Trump over the last 20 years.

We regularly heard about Donald Trump's tax return. The American President has, contrary to tradition, refused to make public his income and related taxes for all sorts of reasons since his election. Since then, there has been a tendency in authorized circles to think that these famous declarations constitute a time bomb that could explode in the face of the businessman.

According to the Times, he hasn’t paid taxes on 10 of the last 15 years only paid symbolic sums, such as $750 in 2016 and 2017. The American newspaper, clearly opposing the current tenant of the White House, explains that it is the losses accumulated by his companies that allowed him to escape taxes. The NYT has 20 years of data, but not those of 2018 and 2019.

Donald Trump's ability to get out of the most embarrassing situations means that these revelations, however well-founded, may not necessarily be fatal in the race for the White House. In fact, he replied with his two favorite words: "fake news". One of his lawyers told the NYT that his client had paid "millions of dollars in personal taxes over the past decade". If so, why wouldn’t he publish his tax returns?

The revelations will add nervousness ahead of the vote, and as a result, volatility should increase on financial markets.

Today on the agenda, ECB head Christine Lagarde is scheduled to address the European Parliament's Economic Committee.


Romain Fournier
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