Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 19 July 2016 at 13:30 GMT

Vols market quiet as Trump enters final round

Editor / Saxo Bank
  • US presidential candidate Donald Trump prepares for GOP nomination
  • Protestors fill the streets as Trump's nationalist campaign sparks deep divides
  • Trump presidency would represent a rejection of the post-WW2 order
  • Volatility markets have not yet priced in the chance of a US election shock

Donald Trump
Presumptive Republican nominee Donald Trump's nationalist platform represents an 
enormous break with both Republican and bipartisan policy norms. Photo: iStock

By Michael McKenna

Yesterday saw presumptive Republican nominee Donald Trump appear onstage at the Republican National Convention in a cloud of backlit fog, as if he were (again) a professional wrestler. Longtime observers of the US political scene, however, have near-certainly lost their capacity for surprise.

It is difficult to remember, but this time last year the official line held that the 2016 US election would be a contest between Hillary Clinton and Jeb Bush. At the time, it appeared that the vote would be contested along familiar, ‘90s-esque lines of slight economic difference, spiced lightly with culture-war flourishes. But this was not to be.

On the Republican side, Donald Trump’s candidacy introduced the long-dormant “nationalism versus globalism” dialogue back into the US political discourse, with the candidate suggesting that US leaders have for years placed international obligations and commitments ahead of the interests of their citizens.

According to this suite of ideas, “when politicians talk about ‘immigration reform’ they mean: amnesty, cheap labor and open borders” (this is from a position paper on Trump’s own site). Trump has also defied the traditional US left/right formulation by stating that the Republican-led Iraq war was “a big fat mistake” and prioritising improved US-Russia relations.

As the Republican National Convention winds its way towards its finale Thursday, at which point Trump is expected to receive the party’s official nomination, the cracks and fissures opened by the candidate’s bombastic, reality TV style and nationalist platform are issuing forth all manner of strange surprises.

Going into the convention, a hard core of anti-Trump delegates are still calling for a variety of disruptive measures following the defeat of their effort to “unbind” delegates (in the US system, Republican Party delegates to the convention are “bound” to vote in accordance with the popular ballot in their region; therefore, for example, since Trump won 239,851 votes and 50 delegates in South Carolina, those party members are obliged under current rules to vote for Trump at the convention). 

The deep divide evident within the Republican Party and the US right-wing in general reflects the Party’s profound pre-Trump commitment to platform elements such as free trade, immigration reform (and high levels of immigration itself), free trade, and economic globalisation in general.

As things stand, there are precious few “Trump Republicans” within the party; as was the case with the Brexit vote, Trump’s nationalist policies are more popular on the street than they are in America’s political and media institutions.

As was also the case with the Brexit vote, of course, the relative popularity of Trump’s policies among right-leaning Americans does not mean they don’t face significant, even enormous opposition from the political left. 

To this end, protesters have filled the streets of Cleveland chanting “no KKK, no racists” in opposition to what many see as the bigotry inherent to Trump’s “America First” platform, as well as to derogatory comments made by the candidate concerning Mexican immigrants and about blocking Muslim immigration altogether.

Trump protesters
Trump's detractors and protesters largely see the candidate 
as an authoritarian ruler of the 1930s type. Photo: iStock 

(Again like Brexit, the US election is being treated by many as a sort of broad referendum on the issue of racial prejudice.)

As far as markets are concerned, the possibility of a Trump presidency is being treated as something like an event horizon, with the cultural and political volatility surrounding both Trump and the convention seen as something that is highly likely to hit financial markets in the event of a Republican victory this November.

For the world’s largest economy to elect a president whose mandate is in large part a rejection of globalisation (or at least several of its more visible after-effects) and the post-World War Two order would near-certainly be an enormous shock to currency and equity markets. At present, however, implied volatility readings are barely taking this into account.

“As we approached the Brexit vote,” says Saxo bank head of FX strategy John J Hardy, “you saw an enormous difference in options dated pre- and post- the June 23 ballot. We are not seeing that with the US election.

As Hardy explains, although the US presidency is an enormously powerful and prominent position, the balance of powers inherent to the US political system means that an incoming president cannot simply legislate his or her platform.

At the same time, says Hardy, “you have to imagine that a Trump presidency would create a certain amount of psychological volatility,” and whatever the cause of the current flat vol structure (are markets predicting a Clinton victory, a deadlocked Trump presidency, or a bit of both?), it may well provide some opportunity for traders as we head towards voting day.

After all, one year ago today there were very few people who expected Donald Trump, of all people, to be on the cusp of receiving the Republican nomination. One month ago today, there were a great many people who still hoped that Republican Party rules could somehow be interpreted or altered so as to block him. And this November 8, as Americans head to the voting booths, there will still be a lot of US voters who cannot believe that one of the names on their ballot is Donald J. Trump.

Did we mention that the song that accompanied Trump’s smoke-and-fog shrouded appearance at the convention was “We Are The Champions” by Queen?

Because it was. Of course it was. And there are a great many US voters who are weighing such florid theatrics against a stubbornly slow recovery from the financial crisis, a series of bloody and inconclusive Middle Eastern wars, and the economic fog of what Saxo Bank chief economist Steen Jakobsen terms “the new nothingness”, and thinking “sure – why not. Let’s try this”.

Whether that is a rallying cry or an epitaph depends on both your own political leanings and the outcome of the vote.

Michael McKenna is an editor at


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail