Wall St rises ahead of US election

The ASX is set to rally after volatility fell and US stocks climbed as investors wait for a clear election result.

Investors are focused on the US election as polls opened in a fractious race. Picture: AFP Photo/Timothy A. Clary.

US stocks climbed Tuesday, extending a volatile stretch for financial markets at the close of a fractious US presidential campaign.

In Europe, stocks edged up, with all eyes fixed on the election across the Atlantic.

The Australian share market is set to rise this morning, with ASX futures up 26 points at 8.15am (AEDT), although trade could be rocky as the election results trickle in.

US stocks fell early in the session but rebounded in the afternoon, in a broad market rally that reversed many of the morning’s top trades. US oil prices settled higher and government bonds fell.

In recent days, risky assets such as stocks have risen as Hillary Clinton pulled ahead in polls and sold off as the race tightened. On Monday, the S&P 500 snapped its longest losing streak in nearly 36 years with a 2.2 per cent gain, its biggest jump since March.

Many investors said they were cautious heading into Tuesday evening, with some citing the sell-off in the days immediately after the UK’s surprise vote to exit the European Union.

“People had assumed on a flip of a coin that Brexit wouldn’t happen,” said Matt Lloyd, chief investment strategist at Advisors Asset Management, which oversees about $US18.5 billion in assets.

Trading will likely continue to be volatile until the results of the US election are in, analysts said.

“What the market wants to see is that there’s a clear winner, that there’s no sort of uncertainty surrounding the results,” said Quincy Krosby, market strategist at Prudential Financial.

At the close, the Dow Jones Industrial Average rose 73 points, or 0.4 per cent, to 18332 after adding more than 140 points earlier in the session. The S&P 500 gained 0.4 per cent and the Nasdaq Composite rose 0.5 per cent.

The Stoxx Europe 600 climbed 0.3 per cent following a muted session in Asia.

As investors bought stocks, US government bonds pulled back. The yield on the 10-year US Treasury note rose to 1.867 per cent from 1.826 per cent on Monday. Bond yields rise when prices fall.

The last round of national polls showed Mrs. Clinton with a steady but narrow lead over Donald Trump, ranging from 3 to 6 percentage points.

“We are more cautious than usual,” said Luca Paolini, chief strategist at Pictet Asset Management, noting he had scaled back on stocks, particularly cyclicals, and trimmed some exposure to emerging markets and US high yield ahead of the vote.

Historically, stocks have risen more often than not in the period from election day through the inauguration, according to the WSJ Market Data Group, which looked at the 30 presidential elections since the creation of the Dow Jones Industrial Average. The Dow industrials have risen an average of 4.6 per cent when the same party remained in power, and declined an average of 4 per cent from election day to inauguration day after a party change.

Mr Paolini said he was prepared to consider adding to his portfolio should investors overreact to the presidential result. Longer term, the market tends to be driven by corporate profits, the economy, and monetary policy, which currently look strong in the US for the next few months, he said.

The cost of protecting against swings in currencies such as the Mexican peso and Japanese yen rose Tuesday, signalling that investors were bracing for volatility when US election results roll in.

The overnight implied volatility on a US dollar-Mexican peso options contract, a gauge of how expensive it is to hedge against overnight swings in the pair, surged to all-time highs Tuesday. The metric was recently at 69.975 per cent, up from 16.075 per cent Monday. For the Japanese yen, many investors’ preferred haven, implied volatility jumped to 34.55 per cent from 10.563 per cent Monday, according to Thomson Reuters data.

The dollar rose 0.6 per cent against the yen and fell 0.7 per cent against the peso in intraday trading Tuesday.

US crude oil rose 0.2 per cent to $US44.98 a barrel, and gold slipped 0.4 per cent to $US1,273.40 an ounce — reversing course from earlier in the session.

Peter Hug, global trading director at Kitco Metals, was preparing for a volatile and illiquid gold market on election night, cancelling plans to work as the results roll in.

“It’s a market that is almost impossible to trade,” he said. “Between 8 and 10 o’clock, you could have some explosive moves here and its all going to be on sound bites ... Based on what I’m seeing today, I just do not want to not be around.”

One metal seemed largely unmoved by the election. Copper, which rose 3.1 per cent to $US2.3790 a pound, logged its 12th consecutive session of gains — its longest winning streak in at least 28 years.

Improved economic data and manufacturing activity from major consumers China and the US have helped copper prices gain in the past two weeks, as investors speculate on a pick-up in demand.

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