A look at the day ahead in U.S. and global markets from Mike Dolan
Even with the uncertainty of what most pollsters see as a dead heat in the White House race, world markets are in a upbeat mood as Americans cast their ballots on Tuesday and await the result.
One reason for the relative calm is that bookmaker odds on a Republican “clean sweep” of the presidency and both houses of Congress have lengthened compared with last week, with gridlock now the best guess whoever wins the Presidency.
That takes some of the edge off fiscal policy worries, even if trade tariff calculations remain in the mix as the president can pursue them independently.
Another prosaic reason is stock markets tend to rally once the anxiety of the waiting passes.
And then there is also the small matter of a second Federal Reserve interest rate cut of the year on Thursday that’s likely to follow either way too.
Albeit in more edgier pandemic times, the VIX “fear index” index of U.S. stock volatility was some 15 points higher than it is now on the eve of the last tight election in 2020 – and it fell more than 10 points within a week of the contested results.
At less than 22 on Tuesday, the VIX is almost half its highest close during the yen-related blowout this August and December VIX futures are four points lower.
The real volatility this time around is bond markets, where the Treasury MOVE index is more than twice what it was in 2020 – and at its highest for a year.
That said, Treasury yields held steady into the vote at 4.3% and Wall Street stock index futures were steady to firmer too.
Many of the recently buoyant “Trump trades” backing a win for the Republican candidate – betting on a higher dollar and Bitcoin and weaker Mexican peso and Chinese yuan – remained on the back foot as prediction markets on the outcome are now basically 50-50. But these did steady somewhat after Monday’s recoil.
While some of the results will start to stream in overnight, it could take days for the result to be clear given the reliance on the handful of swing states that will likely decide the outcome.
Perhaps the most important battleground, Pennsylvania, did not have a clear winner in 2020 for four days after election day as officials sifted through a backlog of mail ballots. The state is among only a few that do not permit election workers to process mail ballots until 7 a.m. ET on election day – which means it could take days before the outcome is known.
CHINA BOOST
World stocks were mostly higher, with Chinese mainland and Hong Kong benchmarks outperforming after news that the country’s services activity expanded at the fastest pace in three months in October – an early signs that Beijing’s big stimulus push may be improving confidence.
With the standing committee of China’s top legislature meeting this week too, Chinese Premier Li Qiang said he was confident China would meet this year’s growth target and the government had the requisite fiscal and monetary tools for that.
The Australian dollar edged higher after Australia’s central bank held the line on interest rates at a 12-year high of 4.35% on Tuesday, as expected, and cautioned policy would need to stay restrictive for some time yet.
Japan’s Nikkei gained more than 1% after its return from Monday’s holiday as the yen held steady and the corporate earnings season impressed.
Helped by this week’s higher oil price, Britain’s was higher too – but British government bonds remained on edge after last week’s government budget and the weakest demand of the year at Tuesday’s 10-year gilt auction.
In corporate news, Boeing shares rose 2% ahead of the bell after U.S. West Coast factory workers accepted a new contract offer late on Monday, ending a bitter seven-week strike that halted most jet production and deepened a financial crisis at the troubled planemaker.
In Europe, Vestas, the world’s largest maker of wind turbines, was a negative surprise and its shares slid more than 10% on a lower-than-expected third-quarter operating profit and disappointing outlook.
British fund manager Schroders also dropped 10% after it reported net outflows of client funds of 2.3 billion pounds ($3 billion) for the quarter ended Sept. 30.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* U.S. Presidential and Congressional Elections
* US October service sector surveys from ISM and S&P Global; Canada September trade balance
* US corporate earnings: Super Micro Computers, Marathon, Dupont De Nemours, Archer-Daniels-Midland, Emerson, Microchip Technology, Jack Henry, Devon Energy, Assurant, International Flavors and Fragrances, Yum! Brands, Gartner, Progressive, Cummins, STERIS, Henry Schein, Targa etc
* US Treasury auctions $42 billion of 10-year notes
* European Central Bank President Christine Lagarde and ECB board member Isabel Schnabel both speak, ECB Vice President Luis De Guindos attends European Union finance ministers meeting
* Bank of Canada and Bank of Japan publish meeting minutes
(By Mike Dolan,; mike.dolan@thomsonreuters.com)
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