With US election poised on knife-edge, stocks swing wildly

US President Trump’s plan to take legal action raises uncertainty, drives investors towards ‘safer’ assets.

US ballot counting
With millions of ballots still to be counted, a final result to the US presidential election could be some time away [Bing Guan/Reuters]

Share markets were whipsawed, while bonds and the US dollar rose on Wednesday as results from the United States presidential election proved far closer than opinion polls had predicted, potentially leaving the outcome in doubt for days to come.

Democratic contender Joe Biden took to the air to declare he was still optimistic about winning and called for all votes to be counted, no matter how long it took.

President Donald Trump responded saying he had won, that “they” were trying to steal the election, without providing evidence, and that he would go the US Supreme Court to fight for the win if needed.

Investors had initially wagered that a possible Democratic sweep by Biden could ease political risk while promising a huge boost to fiscal stimulus.

But the mood quickly changed as Trump snatched Florida and ran much closer in other major battleground states than polls had predicted.

US equity futures went on a wild ride, rising then falling, climbing again as the voting seemed to favour Trump before buckling again in tandem with European futures after Trump promised to make a Supreme Court challenge.

“Expectations of a landslide victory for the Democrats, priced into US equities in the first two trading days of the week, and indeed over the last month or so barring the selloff in late October, have not been vindicated,” Han Tan, market analyst at trading firm FXTM, said in a research note sent to Al Jazeera.

AXA Group’s Chief Economist Gilles Moec in London said the uncertainty over the election “means possibly quite a lot of volatility”.

“As it is not clear, markets are going to overreact to every tiny piece of news,” such as any further talk from Trump or Biden about legal fights.

Dealers said investors could be thinking a status quo result would at least lessen political uncertainty and remove the risk a Biden administration would roll back corporate tax cuts.

The technology sector seemed encouraged, with NASDAQ futures rising as much as 2.2 percent at one point before easing back to being 0.6 percent up. E-Mini futures for the S&P 500 dropped 1 percent after Trump’s news conference. EUROSTOXX 50 representing European stocks was down 0.5 percent.

US stock index futures chart [Bloomberg]US stock index futures chart [Bloomberg] (Bloomberg)

Andrew Brenner, head of international fixed-income assets at NatAlliance Securities, said the move in techs looked like investors are betting on the Senate potentially staying Republican.

Brenner said that under a Biden administration, tech stocks were seen faring worse, partly due to Democrats going after the sector in hearings and also that a potential rise in capital gains tax would hit tech companies hard.

Japan’s Nikkei was ahead by 1.7 percent, while MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent.

Chinese blue chips rose 0.2 percent, with markets uncertain how China-US relations would develop from here.

But Hong Kong’s benchmark Hang Seng Index ended 0.2 percent lower.

China suspended Ant Group’s $37bn stock market listing in Shanghai and Hong Kong on Tuesday, thwarting the world’s largest initial public offering with just days to go, in a dramatic move that left investors and bankers scrambling for answers.

The Shanghai stock exchange first announced it had suspended Ant’s initial public offering on its STAR market, prompting Ant to also freeze the Hong Kong leg of the dual listing, which had been due on Thursday.

Shares of e-commerce giant Alibaba, from which Ant was spun off, slumped more than 9 percent in Hong Kong trade, before ending the day down 7.5 percent.

‘Wait and see’

Some investors were now hedging against the risk of a contested election or at least a drawn-out process as mail-in ballots were counted.

“It’s a wait-and-see,” said Matt Sherwood, head of investment strategy at Perpetual in Sydney.

“I think the odds of a clean [Democrat] sweep are diminishing, almost by the minute. That reduces the possibility, or the likelihood at least of a large stimulus program being agreed to in the first days of a Biden administration.”

That saw 10-year Treasury bond yields fall all the way back to 0.81 percent, having been at a five-month top of 0.93 percent. Bond yields fall as their prices rise, something that tends to happen when investors fear economic or political uncertainty.

The US dollar had a roller-coaster session, reversing early losses to be last up 1 percent on a basket of currencies at 93.902. The euro fell back hard to $1.1640 and away from a top of $1.1768.

“Given the lack of clarity, expect to see more volatility in [foreign exchange] markets into Friday,” Chris Turner, global head of markets at Dutch Bank ING said in a research note sent to Al Jazeera.

The chance of a Trump victory saw the dollar jump 2 percent against the Mexican peso on the assumption US trade policies would continue to favour tariffs. Norway’s crown and Australia’s risk-sensitive dollar both tumbled too.

Going the other way, the dollar eased 0.9 percent on the Russian rouble which had been one of the hardest fallers in the run up to the election.

Still to come …

Investors are still awaiting the outcome of US Federal Reserve and Bank of England meetings this week, which are expected to at least give a nod to further stimulus.

The Reserve Bank of Australia on Tuesday cut interest rates to near zero and boosted its bond-buying programme, adding to the tidal wave of cheap money flooding the global financial system.

Gold had recently been buoyed by all this liquidity but ran into profit-taking on Wednesday, losing 0.6 percent to $1,896 an ounce (31.1 grammes).

Oil prices held gains made after industry data showed crude inventories in the United States dropped sharply.

Dealers noted a returned Republican administration would likely be more positive for the oil industry than Democrats that favoured renewable technology.

US crude futures were up 90 cents at $38.56 a barrel, with Brent crude futures gaining 91 cents to $40.62.

Source: Al Jazeera and news agencies


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Published On 3 Nov 2020
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