Nov 4 (Reuters) - U.S. stock market futures struggled for direction amid some wild swings while longer dated Treasury yields buckled on Wednesday as results from the U.S. presidential election proved far closer than expected and investors geared up for extended uncertainty.
Early in the count, betting markets flipped from having for months assumed a win for Democrat challenger Joe Biden to suddenly price a high probability President Donald Trump would keep the White House. But as votes continue to stream in they have jumped back in favour of Biden in recent hours and many investors think it’s still too close to call.
There are also doubts about whether the Demcrats will take the Senate from Republicans, undermining pre-election betting that a Democratic ‘clean sweep’ of the Presidency and Congress was likely - complicating the likely passage of a big fiscal stimulus package after the result. Counting to get a final result could take days at least.
Click here for Election 2020 coverage: here
MARVIN BARTH, HEAD OF FX AND EM MACRO STRATEGY, BARCLAYS, LONDON
“Markets appear to have leapt too quickly to assume another Trump upset, but it is still too early to call. This leaves us in ‘election limbo’ awaiting the result and the longer it drags on the more likely we are to go towards a contested election. We think this suggests more risk aversion and a pick-up in volatility, we are already seeing the former, but not the latter. Riskier currencies are underperforming and the USD and US Treasuries have rallied and we think there is more of that ahead.”
VALENTIJN VAN NIEUWENHUIJZEN, CIO, NN INVESTMENT PARTNERS, THE HAGUE
“There is clearly a tighter race than expected on the presidential level, and also in congress. One of the early takes is that the Blue Wave is out of the way - that is pretty clear. The potential read through already from that in terms of the fiscal policy outlook - which will be differently shaped - will also be smaller, that will be almost a certainty. In terms of market impact, what seems to be the most significant so far is the rally in U.S. Treasuries. Those two come closely together, because this is one of the few close-to-certainties that we have.”
“The most important driver there is Republicans holding onto the senate, thereby the fiscal package of three trillion will not be coming through and in the composition of the package, it will be less focussed on state aid or infrastructure spending and more focussed on corporate tax cuts. I don’t expect any comments tonight, but with less fiscal stimulus the Fed will have to remain more dovish for longer and again, weighing on yields.” SIMON KING, CIO, VERMEER PARTNERS, LONDON
“Frankly, I wouldn’t be investing in any political polling companies anytime soon – I doubt anyone will be paying much attention to those again.”
RICK LACAILLE, GLOBAL CIO, STATE STREET GLOBAL ADVISERS
“We expect quite a lot of market volatility. However, the core investment conditions that we see for the next 12 months won’t be reversed by this volatility. The monetary and fiscal stimulus that we’ve seen so far to counter the pandemic is yet to work its way fully through the system, and we expect that it will be one of the big influences on investment conditions in the next 12 months.
“From an investment perspective high quality equities and staples are expected to do better. While areas like healthcare may still do well, particularly if Congress is likely to be split and there is a need for a lot of consensus building before more radical policies take root, we should avoid outright bets, for example, on renewables or the oil and gas sector.
“We should also position ourselves for a bit of a lower dollar and a little bit more in terms of medium term inflation, as we are in a deflationary environment. These are conditions which, with monetary and fiscal stimulus in place, are favourable toward equity investment in the medium term. We should also bear in mind that the volatility that this presidential election still can cause as we wait patiently for a final result, and a risk budget is very important.”
SALMAN AHMED, GLOBAL HEAD OF MACRO AND STRATEGIC ALLOCATION, FIDELITY INTERNATIONAL, LONDON
“Markets are now leaning towards a potential Trump win and within that context, the moves we are seeing make sense. Before the election, there had been what we call Biden trades going through, especially in regulatory-focused sectors, and those are now being unwound.
“If it looks like fiscal stimulus - which was the base case in a Blue Wave scenario - doesn’t materialise, potentially this will move into a risk for the market. So the most important anchor point will be the configuration of Congress and that’s where we have more clarity, in that we have a potentially much closer result in the Senate as well.”
SEEMA SHAH, CHIEF STRATEGIST, PRINCIPAL GLOBAL INVESTORS, LONDON
“Markets are waking up to the idea that there is going to be a wave of uncertainty, and market swings are likely as investors work out the implications.
“The U.S. dollar and Treasuries are rallying, which is what you would expect in terms of safety trade. What is interesting is that stocks have stayed resilient, which is more difficult to read. This might be because the prospect of capital gains tax is diminishing as the race tightens.”
PRASHANT BHAYANI, CHIEF INVESTMENT OFFICER, ASIA AT BNP PARIBAS WEALTH MANAGEMENT, SINGAPORE
“As it has emerged the president is more competitive than the polls suggested, we have seen S&P 500 futures rise over the morning. The interesting move is in Treasuries where yields have been rising, in anticipation of a Blue Wave and reflation, as the race is close so far this has reversed with the Treasury yields dropping.
“However, keep in mind the under-rated race for the Democrats to reclaim the Senate, are key as well to policies in general. In summary, the race is too close to call so expect more gyrations to emerge as other swing states results come in.”
FABIANA FEDELI, GLOBAL HEAD OF FUNDAMENTAL EQUITIES AT ROBECO
“From the point of view of equity markets a divided Congress at this point is the least desirable scenario, independently from which side wins, as this could mean delays in policy execution and in what we believe is a much needed stimulus package in the near term.
“There are two equity trades here: in the short-term, until uncertainty on the outcome (subsides), we can expect investors to turn more defensive and some of those “Blue sweep” trades that we have seen arising since the summer and even more so over the last few days are likely to unravel: EM equities and FX, including China, the renewables theme (on expectation that a Biden administration would favour more environmentally friendly policies), and cyclicals over big tech.”
STEPHANE MONIER, CIO, LOMBARD ODIER, GENEVA
“It’s far too close to call, but right now it is clear that the Democrat landslide suggested by polling is just not materialising. For now, it very much looks that whoever wins the White House, we face a divided Congress.
“This has far-reaching implications for markets, mostly because it means that any kind of pandemic recovery package is still tough to approve. Our portfolios are well balanced to withstand the volatility ahead, and in the very short term we are going to keep some powder dry and reduce our exposure to high-yield credit so that we have a little more cash to deploy once this election is settled.”
DAVID BAILIN, CIO, CITI PRIVATE BANK
“We may be entering a scenario similar to the 2000 election, where the final vote tabulations may be contested and where there may be numerous legal actions at the local, state and Federal levels.
“All of this creates the possibility for twists and turns and a great deal of uncertainty. This may have numerous unforeseen consequences for markets over the coming weeks. Accordingly, volatility is likely to remain high.”
KEVIN THOZET, MEMBER OF THE INVESTMENT COMMITTEE, CARMIGNAC
“A dark blue wave with (Sen. Bernie) Sanders as labour secretary that would have been very painful for markets. The probability of that is now low, so that means we can start to think beyond this short-term movement and over the mid term, there’s some good news behind that - what you will be getting either way will be stimulus.
“The size of the envelope and the focus will vary on who is the future president but either way I see 10-year U.S. Treasuries grinding higher to around 1% either way - a bit higher if Biden wins.”
MONA MAHAJAN, SENIOR U.S. INVESTMENT STRATEGIST, ALLIANZ GLOBAL INVESTORS, NEW YORK
“Generally, this seems like another shock-and-awe outcome once again. The presidential race is looking far tighter than that projected Blue Wave scenario that has really kind of dominated the headlines in recent weeks.
“I think markets were jolted a little bit by how close the race now appears. We are seeing a little bit of a flight-to-safety response in some asset classes.”
Compiled by the Global Finance & Markets Breaking News team; Editing by Richard Pullin, Jacqueline Wong, Kim Coghill and Mike Dolan