THETRADETECH DAILY THE OFFICIAL NEWSPAPER OF TRADETECH 2024
Laurent Clavel :
Exploring the macroeconomic impact on the cross-asset landscape
Do you expect more volatility due to the significant number of elections taking place in 2024 ? Most elections have only a modest impact on financial markets , mostly limited to their local market . In 2024 , we expect markets to focus on the US presidential elections , especially as the 2016 precedent ( with Donald Trump ’ s victory ) was followed by significant market price action ( and most likely reaction ). Our research actually shows that even US presidential elections have on average little impact on financial markets . However , because of the expected wide divergence in economic and international policies between the two candidates but also because of significant political polarisation in the US , we do expect a meaningful impact this year .
The TRADE catches up with Laurent Clavel , global head of multi-asset at AXA Investment Managers , to discuss the impact of geopolitical risks on different asset classes , the impact of elections this year , as well as how volatility alters trading strategies .
How does volatility alter trading strategies and are there any trading strategies that you expect to increase or decrease in popularity this year ? Rising volatility is most often associated with a risk-off market episode , with equities down and yields falling , hence long-dated government bonds and the US dollar gaining value . Volatility can also offer a buying opportunity . We are already witnessing an increase in derivative positioning around the US election day and we expect this to keep building up , especially if polls remain tight .
Which asset classes are geopolitical risks having the most impact on ? Commodities , especially oil prices , are usually the most and earliest impacted assets by geopolitical risks . Because most of inflation volatility comes historically from oil prices , this in turn has an impact on bonds . The impact on equities is not as obvious in aggregate and we often witness a late but sudden impact when geopolitical tensions morph from distant risks into much closer and more significant materialisation . Middle Eastern tensions illustrate this stock market short-sightedness with oil prices rising progressively , feeding into bond yields and , later on and more suddenly , affecting stock prices with a spike in volatility . Besides , equity reaction will vary considerably across sectors , first driven by the indirect impact of commodity repricing , later on via the potential increase in real rates and rise in volatility and risk aversion . by rising geopolitical risks .
“ We are already witnessing an increase in derivative positioning around the US election day and we expect this to keep building up , especially if polls remain tight .”
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