Tight US presidential race roils global markets

There was a hint of panic selling when the early results showed Democratic Party presidential candidate Joe Biden only marginally ahead of Donald Trump.

There was a hint of panic selling when the early results showed Democratic Party presidential candidate Joe Biden only marginally ahead of Donald Trump. Picture: AFP

A wild ride in global markets unfolded on Wednesday as US election votes began to be counted, with Australian shares and the currency caught up in the turmoil.

After warming to the prospect of major US fiscal stimulus flowing from a clean sweep of the White House and congress by Democrats (as strongly indicated by opinion polls and betting odds in recent weeks), investors were initially shocked as that outcome ­appeared to slip away.

So-called value stocks that would benefit from faster economic growth in the event of major US fiscal stimulus surged on Tuesday, with the Russell 200 index of smaller US companies up 3.2 per cent while highly priced growth stocks lagged, with the Nasdaq rising by 1.9 per cent.

The “risk-on” move initially continued early on Wednesday, with S&P 500 futures rising 1 per cent and the dollar hitting a three-week high of US70.22c despite aggressive monetary policy easing including quantitative easing announced by the Reserve Bank of Tuesday.

But there was a hint of panic selling when the early results from Miami-Dade County — known as a liberal county and the state’s most populous — showed Democratic Party presidential candidate Joe Biden only marginally ahead of Donald Trump, and betting odds swung in favour of the President.

“Early on [US futures] fell as it became apparent that a Biden landslide was not on. So we saw US futures after polls had closed drop 200 points on fears it could now be ‘close’ with no result, for a while,” said Bell Potter Institutional sales director Richard Coppleson.

 

That saw the Australian dollar drop as much as 2.4 per cent to US70.22c and the S&P/ASX 200 share index tumble 1.3 per cent to an intraday low of 5986 as S&P 500 futures dived 0.9 per cent. COMEX metals futures fell 1.9 per cent and West Texas crude oil faded after a 2 per cent intraday rise.

The dollar later bounced to US71.38c, S&P 500 futures rose as much as 1.9 per cent and the Nasdaq rose 3.5 per cent, hitting an intraday trading limit, as investors suddenly embraced the possibility of Mr Trump retaining the White House, with positive implications for tax and regulatory risk, albeit with the potentially much less fiscal stimulus than under Mr Biden.

With the potentially stifling ­effect on interest rates of less US fiscal stimulus favouring expensive growth stocks in the technology sector at the expense of value stocks, the S&P/ASX 200 closed flat.

AMP Capital’s head of investment strategy and chief economist, Shane Oliver, said it was surprising to see most risk assets reacting positively to the better than expected showing by Mr Trump even as it increased the risk of a contested election outcome.

“Yes the reaction is surprising but it looks to me like a bit of a knee-jerk reaction on the assumption that Trump wins, it won’t be contested and therefore Biden’s tax hikes and re-regulation have been averted,” Dr Oliver said.

“Markets could spin around again if it looks like it will be contested.”

Platinum Asset Management chief investment officer Andrew Clifford said the markets could still expect a major stimulus program regardless of the outcome.

“Ultimately, the big issue determined by this election is just how much fiscal spending comes in the next administration. If the Democrats had swept the election, you probably would have been fairly comfortable that there would be significant infrastructure spending and other programs,” Mr Clifford said.

“I think ultimately we will still see significant spending of one type or another coming through.”

US Treasury bond yields dived and the yield curve flattened, with US 10-year yields down 13 basis points to 0.77662 per cent and the 30-year down 15 basis points to 1.5276 per cent as there would presumably be less upward pressure on interest rates under Mr Trump.

And the rebound in risk assets that emerged in the Australian and Pacific session soon began to fade.

S&P 500 futures dived 0.9 per cent after the Australian market closed, WTI Crude oil futures fell 0.5 per cent, and copper futures lost 1.5 per cent while Nasdaq futures pared their gain to 1 per cent.

Japan’s Nikkei 225 benefited from a weaker yen, rising 1.7 per cent, while China’s Shanghai Composite rose 0.2 per cent, the Hang Seng fell 0.2 per cent and the KOSPI rose 0.6 per cent.

AMP Capital’s Dr Oliver noted that Australian shares finished little changed despite the Nasdaq futures rising and the dollar falling sharply from a three-week high.

Concern in markets began to build after Mr Trump tweeted that Democrats were “trying to STEAL the Election” and “we will never let them do it”.

He later expanded on those sentiments in a subsequent press conference when the President falsely declared that he had won re-election against Mr Biden and said he would ask the Supreme Court to intervene, even as states including Michigan, Pennsyl­vania, Wisconsin, Georgia and others were still counting legally cast votes as normal after a US election.

“This is a fraud on the American public,” Mr Trump said while complaining about ongoing vote-counting after noting that he held leads in several states that had not been called in his favour, including Pennsylvania and Michigan.

“Frankly we did win this election,” he said. “So we’ll be going to the US Supreme Court.

“We want all voting to stop.”

Dr Oliver said: “All of this would be consistent with a Trump victory being a slight negative for Australia as it would mean slightly less US fiscal stimulus and probably the resumption of trade wars in the year ahead.

AVATRADE chief market strategist Naeem Aslam said: “The US election has become a mess, and President Trump has made it clear that he is going to go to the Supreme Court.

“Basically, we are seeing a nightmare situation come true because now we are talking about legal battles.

“This uncertainty is going to keep traders on edge, especially after Trump has used the word ‘fraud’.”

The volatile market reaction to the US election came ahead of the Federal Reserve’s board meeting and monetary policy decision early on Friday (AEDT).