Market Data 
Prediction market probabilities saw a meaningful shift in favor of former US president Donald Trump and a Republican victory following the first presidential debate, Goldman Sachs said in a note.
The Wall Street bank has previously outlined estimates on how major assets might change in response to different US election outcomes, considering potential changes to fiscal stance, taxes, and trade policy.
Asset market shifts around such events provide an alternative view of how the market is processing information about potential election results, Goldman noted.
“Specifically, we can show how markets moved over the debate window and compare that to the shift in probabilities,” it wrote. “This allows us to construct a potential estimate of how the election of either candidate in November (a shift to a 100 percent probability of either candidate winning) might impact asset markets.”
The debate window saw modest upward movements in US equities and bond yields, along with mixed performance in the foreign exchange market. The shifts in asset prices were relatively small compared to the changes in election outcome probabilities, Goldman analysts said.
They pointed out that the movements in equities and bonds aligned with their fundamental estimates. However, analysts expect more pronounced and widespread USD strength from a shift towards a Republican presidency than what was observed in FX markets.
There were clearer indications of USD strength right before and during the early stages of the debate. Other factors, particularly resistance to CNY and JPY weakness, may have obscured the debate’s impact.
“But the market may also not yet be fully focused on the policy outcomes from a Trump presidency, particularly with respect to potential tariff policies,” analysts wrote.
“We think focus on that aspect of the agenda is likely to increase as the election approaches, and remains a major risk to hedge,” they added.
Goldman analysts continue to believe that positioning for USD upside remains an attractive strategy in anticipation of a Trump election victory, highlighting that any easing of concerns over French political risks could offer good entry points.
Moreover, they identify front-end inflation longs, upward movements in nominal rates, and significant downside in major equity indices as potential hedges against key tail risks surrounding the US election.
