Markets nervous as US election race tightens

Markets have hit a new bout of nervousnes as the United States presidential election race tightens and speculation rises about increasing US interest rates.

Wall Street sold off sharply on Tuesday, with the S&P 500 touching a nearly four-month low, amid growing concern over the impending election and prospects for higher US interest rates.

The CBOE volatility index, a gauge of near-term investor anxiety, jumped to almost a two-month high. The tumultuous presidential race between Democrat Hillary Clinton and Republican Donald Trump has appeared to tighten in the past week after news that the FBI was investigating more emails as part of a probe into Clinton's use of a private email system.

"There is some anticipation that the markets have built in a Hillary victory, and that a Trump victory is going to roil the markets," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "And that's why we're seeing the market sell-off here, because some of the poll numbers have tightened up over the last week."

Federal Reserve meeting

The sell-off in equities comes as the US Federal Reserve holds its two-day policy meeting, with its statement due on Wednesday. While traders do not expect the central bank to raise interest rates just a week ahead of the presidential election, they are looking for signs confirming broad expectations that the Fed is set to hike rates in December. This also hit global bond markets which endured further losses

The falls on Wall Street were part of a wider picture of uncertainty which affected markets. Sterling was back under pressure on Tuesday, having briefly been boosted by news that Mark Carney would stay on until 2019 at the helm of the Bank of England, a decision that eased concerns for now about perceived attacks on the bank's independence.

Mr Carney’s announcement late on Monday that he would stay in his post until the end of June 2019 – three months after Britain is scheduled to leave the EU – pushed sterling up, and it reached a 12-day high of $1.2281 on Tuesday before easing back to $1.2230 at 4.15pm, 0.1 per cent down on the day.

It fell back 0.7 per cent to 90.35p against a broadly stronger euro, having been below 90p in recent trading sessions.

Criticism from some ruling Conservatives and right-leaning newspapers that Carney had taken too political a stance in the run-up to Britain’s EU membership referendum had prompted speculation over the past week that the governor might leave before 2018, the scheduled end of his initial term.

That uncertainty fuelled jitters over Britain's economic prospects as it heads into negotiations on post-Brexit relations with the European Union. But on Monday, prime minister Theresa May moved to back Mr Carney, having previously been critical of his policy of ultra-low interest rates and quantitative easing.

– (Bloomberg/Reuters)