Cost of Hedging Europe Stocks Rises to Brexit High as U.S. Votes

  • Stoxx 600 rises amid volume lower than 30-day average
  • Clinton held lead over Trump in most pre-election polls

Is a Vote for Trump a Vote for Populism?

As Americans cast ballots for their next president, European stocks rose, while traders paid up the most since the Brexit referendum for protection against declines.

The cost of bearish options on the Euro Stoxx 50 Index has jumped about 50 percent relative to bullish contracts in the past two weeks, data compiled by Bloomberg show. The bets increased as the runup to the election roiled equity markets, sending the broader Stoxx Europe 600 Index to its longest streak with no gains since 1994. The benchmark measure closed 0.3 percent higher, erasing a loss of as much as 0.3 percent, as investors sought early hints about the outcome of the vote. Miners and banks led the advance.

Investors who were caught unawares by the U.K.’s June decision to leave the European Union have steered clear of aggressive new positions ahead of the U.S. election. The volume of Stoxx 600 shares changing hands was 12 percent lower than the 30-day average. Most opinion polls showed Democrat nominee Hillary Clinton ahead of Republican Donald Trump, while stocks rallied yesterday after the Federal Bureau of Investigation reiterated its decision not to seek criminal charges against her.

“Light volumes show many asset managers are unwilling to commit,” said Michael Ingram, a market strategist at BGC Partners in London. “There is still a niggling worry that they will, once again, be drawn in on misleading polls and slam face-first into a Trump slump.”

The Stoxx 600’s advance today is in keeping with historical trend. Since its inception about three decades ago, the index has risen on every U.S. election day. Clinton led Trump by three percentage points among likely voters nationally, according to the final Bloomberg Politics national poll published before the election, with Goldman Sachs Group Inc. saying she’s more likely to win. Results will arrive after states begin to close polls at 6 p.m. Eastern time.

Trading of bearish Euro Stoxx 50 options has surged this month, with more than 900,000 puts changing hands daily on average through Monday, compared with about 524,000 calls. The put-to-call ratio is heading for its highest since May 2010, data compiled by Bloomberg show.

The Stoxx 600 capped its biggest two-day advance in more than a month, rebounding from a 4.5 percent drop in the previous 11 sessions. While uncertainty about the outcome of the U.S. vote has dominated investor sentiment in recent days, tepid earnings reports and worries about tightening monetary policy have also weighed on stocks since a four-month high in September. Profits at the benchmark’s members are down 1 percent so far this season, according to a note by JPMorgan Chase & Co.

Among stocks active on corporate news:

  • Credit Agricole SA rose 5.6 percent after the French bank said quarterly profit doubled from a year earlier and bond-trading income surged. 
  • Associated British Foods Plc jumped 5.8 percent after forecasting an improvement in annual earnings, saying it will benefit from higher sugar prices and a favorable translation effect from the pound’s decline. 
  • ArcelorMittal tumbled 4.3 percent after the world’s biggest steelmaker warned that a surge in coal prices would hurt earnings in the last three months of the year. The move came even as a gauge of Stoxx 600 miners rallied 1.4 percent, with BHP Billiton Ltd. and Antofagasta Plc tracking gains in copper.
  • Marks & Spencer Group Plc declined 5.2 percent after the retailer said it plans to close all its stores in 10 foreign countries and shutter 30 outlets at home. 
  • Imperial Brands Plc lost 3 percent as the maker of cigarettes said its investment plan will drag on full-year earnings.
  • Vestas Wind Systems A/S slid 9.1 percent after forecasting slower growth next year.
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