World shares sweat razor-sharp US elections, safe-haven bonds are on supply
© Reuters. A monitor shows the Nikkei stock index at a forex trading company in Tokyo
By Wayne Cole and Marc Jones
SYDNEY (Reuters) – Equity markets were shaken while bonds and the dollar rose on Wednesday as the U.S. presidential election results turned out to be far closer than polls predicted, potentially putting the outcome in doubt for the next few days.
Democratic contender Joe Biden blew up to declare that he was still optimistic about winning and demanded that all votes be counted no matter how long it took.
President Donald Trump responded that he won, that “they” were trying to steal the election without showing any evidence, and that he would go to the US Supreme Court to fight for victory if necessary.
Investors had initially bet that a possible democratic influence from Biden could reduce political risk and at the same time promise a huge boost to fiscal incentives.
But the mood quickly changed when Trump snatched Florida and came much closer in other major battlefield states than polls predicted.
U.S. stock futures went wild, rising and falling, climbing again as the vote appeared to favor Trump before contracting again in parallel with European futures after Trump swore to face a Supreme Court challenge put. ()
“It may mean a lot of volatility,” said Gilles Moec, chief economist for AXA Group in London.
“Since it is not clear, the markets will overreact to every tiny piece of news,” such as any further conversation by Trump or Biden about litigation.
(For the latest US election results and news, visit: https://www.reuters.com/world/us-election2020)
Traders said investors might think a status quo outcome would at least reduce political uncertainty and remove the risk that a Biden government would roll back corporate tax cuts.
The tech sector seemed encouraged. NASDAQ futures rose as much as 2.2% at one point before falling back to 0.6%. However, the e-mini futures for the S&P 500 fell 1% after Trump’s press conference. The EUROSTOXX 50 futures recently fell 1.6% after having been marginally higher just 30 minutes earlier. .
Andrew Brenner, director of international fixed income at NatAlliance Securities, said the technician change was a game for the Senate who could potentially remain Republican.
Brenner said tech stocks underperformed below a Biden gain, in part because Democrats followed the sector in hearings and that a possible hike in capital gains tax would hit tech stocks harder.
was up 1.7%, while MSCI’s broadest index for stocks in the Asia-Pacific region outside Japan rose 0.2%.
China blue chips rose 0.7%, with markets uncertain how Sino-US relations would develop from here.
Some investors were now protecting themselves against the risk of a controversial election, or at least a lengthy process, as the postal vote was counted.
“It’s a wait and see,” said Matt Sherwood, head of investment strategy for Perpetual in Sydney.
“I think the likelihood of a clean (democratic) sweep is decreasing almost by the minute. This diminishes the possibility or likelihood that, at least in the first few days of a Biden administration, a big stimulus plan will be agreed.”
As a result, ten-year government bond yields fell to 0.81% after hitting a high of 0.93% in the five months.
The US dollar had a roller coaster ride, reversing early losses by 1% against a basket of currencies of 93.902. The euro fell hard to $ 1.1640 and fell from a high of $ 1.1768.
The chance of a Trump victory caused the dollar to jump 2% against the Mexican peso on the assumption that US trade policy would continue to favor tariffs. Norway’s krone and Australia’s risk-sensitive dollar also fell.
Conversely, the dollar fell 0.9% against the Russian ruble, which had been one of the toughest fallers ahead of the elections.
Graphic – Global Markets Since Trump’s Election: https://fingfx.thomsonreuters.com/gfx/mkt/jbyprxazdpe/Pasted%20image%201604321715307.png
Investors are still waiting for the outcome of this week’s Federal Reserve and Bank of England meetings, which are expected to provide at least further stimulus.
The Reserve Bank of Australia cut interest rates to near zero on Tuesday and stepped up its bond-buying program, which contributed to the tidal wave of cheap money that inundated the global financial system.
Gold had recently been carried by all of that liquidity but was profit-taking on Wednesday and lost 0.6% to $ 1,896 an ounce.
Oil prices made gains after industry data showed that US crude stocks fell sharply. [O/R]
Traders noted that a returned Republican government would likely be more positive for the oil industry than Democrats, who favored renewable technologies.
Futures rose 90 cents to $ 38.56 a barrel, while futures rose 91 cents to $ 40.62.
Graphic – Increase in world market capitalization over the past four years: https://fingfx.thomsonreuters.com/gfx/mkt/bdwpkjmoovm/Pasted%20image%201604323646730.png
Chart – Equity markets in Asia: https://product.datastream.com/dscharting/gateway.aspx?guid=516bc8cb-b44e-4346-bce3-06590d8e396b&action=REFRESH
Graphic – Asia-Pacific Reviews: https://product.datastream.com/dscharting/gateway.aspx?guid=80e5bbdc-eae6-4b37-bc49-a2d8056b75de&action=REFRESH
Graphic – Major Emerging Markets Currencies Split by US Elections: https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqazmzpx/Pasted%20image%201604396878980.png