Investing.com -- Barclays analysts suggested in a note Friday that while markets have largely priced in a Trump victory, uncertainty remains high due to close polling results.
According to Barclays, “betting odds continue to favour a Trump victory,” but with the polls showing a near tie, market participants face a potential reality check.
“Current market set up likely has a risk of travel and arrive if the outcome turns out to be less like betting odds, and more like the polls,” the analysts note, hinting at the volatility that could ensue if Trump fails to secure a decisive win.
Despite recent earnings volatility and mixed economic data, Barclays notes that a pro-cyclical rotation remains underway, buoyed by unexpected rebounds in economic indicators.
However, the bank highlights that “surging rates due to fiscal instability worries” are dampening the reflation trade, especially as fiscal uncertainties loom.
European markets, which have struggled to keep pace with the U.S., may be particularly sensitive to the election results, says Barclays.
In the event of a Trump loss, Barclays suggests that Europe could experience a modest lift, particularly in trade-sensitive equities, where the bank believes “a lot of negatives are likely priced in.”
Even if Trump wins, the analysts speculate that European markets could see benefits from a potential de-escalation in the Ukraine conflict.
Overall, Barclays warns that anything less than a strong Trump victory “could see these trades suffer some volatility, or even reversal, after the election,” as markets recalibrate based on the official results.