Markets rocked as US Presidential race goes down to the wire

Australian investors face a rocky couple of days as the final outcome of the US presidential election race becomes clearer and global markets come to the terms with the prospect of a contested result.

With the markets glued to the numbers rolling in, the Australian sharemarket closed flat at 6062.1 points, at a point where Democrat presidential candidate Joe Biden had secured 223 electoral college votes to President Donald Trump’s 145.

Global markets jumped around as expectations faded throughout the session that the Democrats would sweep both houses and the Presidency.
Global markets jumped around as expectations faded throughout the session that the Democrats would sweep both houses and the Presidency.

The Republican incumbent did, however, appear on track to win a number of battleground states, including Florida, keeping alive his hopes of a second term in the White House.

BetaShares ETFs chief economist David Bassanese said there was still some ways to run before a definitive result could be called, meaning investors faced a tumultuous few days ahead.


“Obviously, all we can say at the moment is that it is a lot closer than the polls suggested,” he said.

“You’ve also got the uncertainty of the postal votes … which it may come down to. Some are saying that that favours Democrats, others Republicans. So who knows.”

Mr Bassanese said the ASX appeared to have been driven by betting markets on Wednesday, something he warned was not necessarily a reliable indicator.

“Markets are hopeful of a decisive, quick result, so they can then focus on fiscal stimulus that is on its way whoever wins,” he said.

“If it only takes a few days, the markets won’t mind that. What they won’t like is if the results of that counting lead to court battles.”

Global markets jumped around as expectations faded throughout the session that the Democrats would sweep both houses and the Presidency.

“The market has really just been following the newsflow today,” JPMorgan Asset management global markets strategist Kerry Craig said.

“Something that was looking quite ‘Blue’ but has been coming closer and closer to ‘Red’ over the course of the day.”

Mr Craig said an unclear outcome had left regional markets in a holding pattern.

“Even in Asia – China, Hong Kong, Indonesia – they’re all flat or slightly up – which is a reflection of what is happening (in the US),” he said.

A Democrat victory was expected to weaken the US dollar and bring more stimulus spending funded by higher-yielding government debt.

But the futures market suddenly started pointing to strong gains on Wall Street, particularly among technology stocks, as results showed Trump was ahead on key states. Futures softened again as Joe Biden’s vote increased.

The Australian dollar dropped as much as 3 per cent against the greenback, falling from US72.2 cents to US70.5 cents as the US dollar strengthened suddenly.

The yield on 10-year US Treasury bonds dropped in the space of a few minutes on Wednesday morning, Australia time, from 94 basis points to 79 basis points, before bouncing back to 84 basis points.

“It is an unusually volatile day but it reflects the surprising results that are appearing as the US election count continues,” Nomura Holdings economist Andrew Ticehurst said.

“The first move this morning was government bond yields in Australia and the US rising. However, in the last few hours as more results came in the pendulum seems to have swung towards Trump as fiscal spending would be less likely under a Republican presidency.”

Commodity prices also moved around with gold prices falling about $20, while oil prices increased 2.4 per cent to $US38.56 per barrel for US crude oil.

Mr Biden had vowed to shake up the gas and oil industry and transition from being a ‘dirty’ economy to a clean nation.

“A lot of money has come off the bond table, as investors get ready to flick-on the risk-on switch and deploy capital into US equities tonight (at their open),” Bell Direct market analyst Jessica Amir said.

“Money has also come off the gold table too, as investors dial-up their risk.”

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