Major risks in November are undergoing critical changes

With only 3 weeks left until the US election on November 5th, the potential risks that the election results may bring to the market have already been priced in by traders. Goldman Sachs trader Brian Garrett released a report today stating that the VIX fear index is still at a high level. Especially when the S&P hits a new all-time high, the VIX index remains above 20, which is extremely rare. At this moment, there has been a reversal in the election situation. The team led by Liu Gang from CITIC Securities indicated that the previously strong momentum of Harris has been surpassed by Trump. Not only has there been a reversal in betting odds, but Harris is also behind in 6 out of 7 key swing states, further adding uncertainty. According to the Goldman Sachs report, the basket index betting on a Republican victory has recently surged to a new all-time high, while the basket index betting on a Democratic victory continues to decline. The report states: "A Trump victory is likely to have a positive impact on risk sentiment, but more at the expense of Europe and other parts of the world, and have a positive impact on US assets. In our view, the overall environment for risk assets remains positive." Goldman Sachs had previously stated that based on the sensitivity of the Republican policy excess return fund (24REPL) to the election events during the "Trump trade" frenzy this summer, if Trump ultimately wins the presidential election, the fund is expected to rise by 8%. UBS has also identified a similar trend, as recent election polling data has shifted towards the Republican Party. The basket index betting on a Republican victory launched by the bank has consistently outperformed the basket index betting on a Democratic victory, with a cumulative increase of nearly 6% over the latter in the past five trading days. What is the impact on assets? CICC stated that whether the president can gain support from Congress after the election, especially the support of the House of Representatives that leads fiscal policies, will directly affect the smooth progress of related policies. Combining the latest polls, CICC has outlined four possible scenarios: Republican Victory (39%): Trump is elected and both the Senate and the House of Representatives are controlled by the Republicans, similar to Trump's election in 2016. This scenario is more favorable for advancing Trump's policy proposals, especially tax cuts and other fiscal policies; Democratic Victory (18%): Harris is elected and both the Senate and the House of Representatives are controlled by the Democrats, similar to Obama's election in 2008. Harris's fiscal policies are likely to progress more smoothly in this scenario; Trump + Democratic House (13%): Similar to the divided Congress situation after the 2018 midterm elections, President Trump faces greater difficulties in advancing fiscal policies when in opposition to the Democratic-controlled House of Representatives. Therefore, it is not ruled out that he may first advance trade policies such as tariffs through executive means; Harris + Republican House (5%): Similar to the situation since the 2022 midterm elections, President Biden is in opposition to the Republican-controlled House of Representatives. Harris's fiscal policies face challenges in advancement, with governance space being obstructed, mainly focusing on continuing Biden's policies and adjusting administrative execution methods. In assessing the impact of the election on assets, CICC believes that in addition to the differences in Trump's and Harris's policies themselves, the sequence of policy advancement also has a direct impact. Overall, the most probable direction is: overall positive for U.S. stocks but negative for Chinese assets; the U.S. dollar is likely to strengthen, gold remains neutral, interest rates are expected to rise; bulk commodities may benefit from Trump's stimulus expectations. U.S. stocks may perform better under "Republican Victory," the combination of "Trump + Democratic" may cause inflation disturbances, "Democratic Victory" may bring tax pressure; Overall, there is upward pressure on U.S. bond yields, with greater pressure under Trump; the U.S. dollar is likely to strengthen, gold remains neutral, uncertainties come from administrative interventions in devaluation and safe-haven demand driving gold; Trump's policy stimulus may benefit commodities despite supply constraints, and long-term demand may also be positive; Trump's tariffs may be unfavorable for Chinese assets