As investors waited for the United States to select a new leader, with polls indicating that the race was close, an unsettling quiet descended on currencies and bonds. Meanwhile, Chinese stocks rose on optimism that China will authorize more government expenditure.
A fresh tab opened 0.3% higher for MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS). After a holiday, Tokyo’s Nikkei (.N225) opened a new tab and saw a 1.4% increase. European, FTSE, and S&P 500 futures were all flat.
The dollar purchased 152.46 yen and traded at $1.0879 per euro after easing as traders made last-minute adjustments to their holdings.
“They’ve priced what they think is price-able, and that’s that,” said Westpac analyst Imre Speizer, adding that a clear win for Republican Donald Trump would increase the dollar. In contrast, a win for Democrat Kamala Harris would decrease it slightly.
With surveys indicating that the candidates are essentially matched, election day brings an end to a contentious campaign that was rocked by assassination attempts on Trump and the departure of President Joe Biden in favor of Harris.
With bonds and the dollar predicted to change according to the election’s outcome, markets are worried about how Trump’s protectionist trade policies, in particular, could fuel inflation and hurt exports in the largest consumer market in the world.
“Ultimately the U.S. election comes down to this – whether the U.S. electorate wants to vote for economic policy continuity, institutional stability and liberal democracy (Harris) or radical trade policy, a further retreat for globalization and strongman democracy (Trump),” the analysts at J.P. Morgan wrote in their note. “In short, a vote for stability or change.”
With implied volatility against the dollar hovering around record highs, China is perceived as being at the forefront of tariff risk, and the yuan, in particular, is trading on tenterhooks.
While Chinese stock markets jumped to nearly one-month highs as investors anticipate meeting top policymakers in Beijing this week to authorize local government debt refinance and spending, the yuan remained stable at 7.1065 to the dollar.
Steven Leung, an executive director at broker UOB Kay Hian in Hong Kong, stated, “Everyone is worried about the election result and not really committing to much, but China and Hong Kong have something more than the election.”
Hong Kong’s Hang Seng (.HSI) opened with a 1.4% increase in value, while China’s blue-chip CSI300 (.CSI300) opened with a 2.4% increase.
As anticipated, with all the attention on the election, the Australian dollar hardly moved after the central bank kept rates. It was last slightly stronger at $0.6601.
“We like selling Dollar/Yen and buying AUDUSD if Harris wins,” Citi currency strategists stated. “If Trump wins, we like buying USD against EUR, SEK, and NOK.”
With 10-year U.S. rates around 4.30%, Treasury markets, which have also factored in a U.S. interest rate cut on Thursday, maintained their position in Asia.
Bitcoin, which has dropped from recent highs and was stable at $67,924 on Tuesday, is thought to benefit from a more lenient regulatory environment should Trump win office.
Due to delays in producers’ plans for more output, oil held strong overnight gains. Benchmark Brent crude futures rose 3% on Monday to $75.18 a barrel.
The battleground states of Georgia, North Carolina, Pennsylvania, Michigan, Arizona, Wisconsin, and Nevada will be the focus of attention when the results are announced after midnight GMT.
Days may pass before the winner is announced, and Trump has hinted that he will try to fight any loss, just as he did in 2020.
