As the US presidential election approaches, some corners of the financial markets are experiencing volatility again due to the possibility of Trump returning to the White House.

In recent weeks, prices of assets from small-cap stocks to Bitcoin have risen, while the Mexican peso and US Treasury bonds have declined. Polls show a competitive race between Republican candidate Trump and his Democratic opponent, current US Vice President Harris.

These trends echo the so-called 'Trump trades' that emerged earlier this year when Trump was leading Biden in the presidential nominee race. However, these trades all faded away after Biden dropped out.

A poll released by Reuters/Ipsos on Tuesday showed Harris leading Trump by a slight margin of 45% to 42%, a narrower gap compared to the previous weeks poll.

Trump has taken the lead in online prediction markets like PredictIt and Polymarket. Polymarket even recently predicted that he will win with a 61% to 39% advantage.

According to US media reports on Friday, Trump's increase in votes on Polymarket may be due to four Polymarket accounts collectively spending around $30 million in cryptocurrency betting on his victory. Polymarket has not yet commented on this.

However, investors warn that linking market trends with Trump this time is more challenging as many of these trends are also related to strong US employment data this month and increased optimism in the economy after the Fed's 50 basis point rate cut last month.

Interactive Brokers' Chief Strategy Analyst Steve Sosnick said, "Some of them are definitely likely driven by Trump's rising position in the prediction market." However, he also stated, "It's difficult to separate causation, let alone distinguish different reasons."

The stock with the biggest increase is the Trump Media and Technology Group, a media company founded by the former president, whose stock price has been closely tracking Trump's trends in polls and online prediction markets since it went public this year. Since September 23, the stock has risen by over 140%. Sosnick said, "This is the most trading influenced by the prospects of Trump being elected."

The e-mini russell 2000 index, which is mainly composed of small-cap stocks, has risen by 4% since October 10, approaching its highest level since the end of 2021. The market expects Trump to continue maintaining low tax rates and reducing regulations, which has boosted the performance of small-cap company stocks, although analysts believe that these companies also benefit from increased confidence in the economy.

The strategist stated that in the forex market, Trump's trading is reflected in the strong rebound of the US dollar against a range of currencies, especially the Mexican Peso.

The Mexican Peso is considered susceptible to the impact of new tariffs planned by Trump, its exchange rate has fallen 4% from its September high. Meanwhile, the MSCI Latin America Currency Index dropped by over 3% during the same period.

Karl Schamotta, Chief Market Strategist of Toronto payment company Corpay, stated, "The US dollar against the PesoImplied volatilityRising in tandem with Trump's increasing vote share in the gambling market.

Trump said last Sunday that he will impose tariffs of up to 200% on cars imported from Mexico.

The economic policies of this former U.S. president are believed to be beneficial for economic growth and inflation, both of which could lead to an increase in U.S. bond yields (contrary to bond prices) and a stronger U.S. dollar.

The U.S. Dollar Index, which measures the USD against six major currencies, has risen by over 3% since the end of September, as investors expect the Fed's rate cuts to be smaller. Thierry Wizman, a strategist at Macquarie Global FX and Rates, wrote that the partial rise in the USD may be related to increased confidence in Trump's victory.

With Trump's increasing win rate in the gambling market, positioning himself as a candidate supportive of cryptos, it appears to boost the price of Bitcoin. Since October 10th, the world's largest crypto has risen by 12%, attributed to increased confidence in Trump's victory by Sean Farrell, Managing Director of Fundstrat Global Advisors' Digital Asset Strategy.

He said: 'If Trump is re-elected, the government's discount driven by regulatory risks for cryptos may decrease close to zero, and investors need to consider the possibility (regardless of size) of the U.S. government establishing a strategic Bitcoin reserve in the price.'

In the government bond market, some investors believe that the rise in Trump's status is leading to an increase in the 10-year forward premium (an indicator measuring the compensation required for investors holding long-term government debt securities), and they are concerned that the former president's proposed tax cuts may increase the budget deficit.

The New York Fed's indicator measuring forward premium turned positive for the first time last week since July. This change occurred against the backdrop of a general increase in US Treasury yields.

Matt Eagan, Portfolio Manager and Head of Delegated Teams at Loomis, Sayles & Company, stated that part of the reason is the market's expectation of Trump winning.

However, not everyone interprets these market trends as bets on Trump's victory.

Sonu Varghese, Global Macro Strategist at Carson Group, said, 'I think this election is basically a dead heat. The real situation is strong economic growth, with the Fed providing support to the markets.'

Editor/Lambor