Nov 4 (Reuters) - U.S. stock market futures were in for a wild ride and longer dated Treasury yields buckled on Wednesday as results from the U.S. presidential election proved far closer than expected with investors gearing up for extended uncertainty.
President Donald Trump falsely claimed that he had won the U.S. election with millions of votes still uncounted after his Democratic rival, Joe Biden, said he was confident of winning a contest that will not be resolved until a handful of states complete vote-counting over the next hours or days.
Counting of mail-in ballots in some key states could take many hours or days, however, leaving the outcome uncertain. Investors had hoped to avoid a prolonged process that would delay any stimulus to help an economy reeling from the coronavirus pandemic.
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The U.S. dollar had a roller coaster session, reversing early losses to be last up 1% on a basket of currencies at 93.902.
SALMAN AHMED, GLOBAL HEAD OF MACRO AND STRATEGIC ALLOCATION, FIDELITY INTERNATIONAL
“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.”
MARK HAEFELE, CHIEF INVESTMENT OFFICER, UBS GLOBAL WEALTH MANAGEMENT, ZURICH
“Equity markets have reacted to the increased probability that President Trump will win re-election. We continue to anticipate elevated market volatility until there is more clarity on the election outcome.
“The medium-term path for markets is more contingent both on fiscal stimulus and on vaccine approval and distribution rather than the election result. In our base case, we expect a vaccine to be widely available by 2Q21, and some form of fiscal resolution after the election.”
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 STUBBS, HEAD OF MARKETS STRATEGY, J.P. MORGAN INTERNATIONAL PRIVATE BANK, LONDON
“All we can say at the moment is that some of the extreme outcomes we had expected are not going to happen.
“I don’t think anyone has a very clear reading on whether a lame duck Senate would pass a stimulus a bill and maybe if Biden is dealing with a Republican Senate then what is the outlook for that scenario. There is lot of uncertainty there.”
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.”
NIGEL GREEN, CEO, DEVERE GROUP
“President Trump has falsely claimed that he won the 2020 presidential election – one of the most consequential in history - early on Wednesday morning. This means the outcome will be contested by the Democrats and will probably end up in a complex battle in the courts – and also most likely on the streets of America too.
“This monumental uncertainty in the world’s biggest economy is going to send global stock markets into a tailspin as investors get rattled about a clear outcome taking longer to reach than they hoped. A chaotic contested outcome is exactly what the markets did not want.”
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 Emelia Sithole-Matarise
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