EFTA01387248.pdf

o Trump intends to sign USMCA (or NAFTA 2.0), maybe in Argentina during G20 meeting where everyone will be watching him and President Xi o If we see a Democratic house: • Earlier this year, Dems put out publication that outlined out what they would do if they were in control • Many of these match with Trump's agenda: infrastructure spending, lowering prescription drug prices , Immigration issues, criminal justice reform, etc. o The Fed • The larger the margin of victory for Republicans in Senate, the better the news for Powell, If Trump continues to push on him, a stronger Republican Senate would be more defensive of him o Trade • Too early to know if Cabinet request is just Trump shaking the tree, or something real. Also notable-there are Dems in Senate who are strongly in opposition to China's trade policy o Trump • Could see him changing gears to work with Dems on infrastructure; really the only pillar of his campaign he hasn't yet addressed • Mueller to report to boss on report in coming weeks-but dangerous to speculate too soon Mark Chen, Co-Head GED • What have we been seeing on the desk o Enormous sector rotation theme, bid towards sector ETF in anticipation of sector moves o Used to be the case that midterm elections were not events that markets priced in a move for, but given recent rally off local lows, now seeing midterm election point as the highest point across curves o Overall event risk is not too much higher than the general event risk priced in everyday, given volatility we've been having • Flows o Notable change in sentiment over past 48 hour: Instead of rolling down puts, we are seeing a lot of upside call buying • Some in macro space, but a lot in single names, financials, tech stocks; wave of call buying picked up intensity yesterday • A lot of names being bought could potentially get boost from GOP maintaining house majority in 30% scenario, but still seeing buying across the board • General consensus is we probably do rally out of midterm into the year-end • Year End o A lot of good academic data out there by DB research about general uncertainty effect easing coming out of midterm elections o Think significant probability we rally into year end and out of midterm give that positioning lighter and sentiment shifting • Have not seen panic from clients • Clearly still in high vol market and even if we were to rally, would be in straight line which points to owning optionality • Vol regime we are in is very different from past o Use to be a buy dip, sell vol environment o This time it's a growth story, no one day will decide growth is back on, but will come over time as a result of information filtering into market o Will be a medium vol regime for a while, make sure can withstand drawdowns • Slight premium to election so not anticipate vols meaningfully drop off only slightly, we are not going back to VIX sub 16 world any time soon o 17-25 VIX level range into end of the year o Vol curve is the flattest we've seen in past 3 weeks meaning 1.25% pricing in SPX move is roughly o Bottom line: vol not pricing in a ton on the event II. Midterms Keeping Near Term Vols Bid — Sell to Fund Year End CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0089464 CONFIDENTIAL SDNY_GM_00235648 EFTA01387248