· With Biden bets and Trump hedges, investors prepare for U.S. Election Day
Investors could confront dramatically different paths for the country on taxes, government spending, trade and regulation depending on who wins the White House, the Republican Trump or Democratic former Vice President Joe Biden.
“At this point, markets fear a contested election,” said Kristina Hooper, chief global market strategist at Invesco. “Anything other than a contested election, a decisive victory in particular, would be good news for stocks.”
For weeks, market moves have indicated investors are betting on a “Blue Wave” by which Biden becomes president and Democrats capture the U.S. Senate and retain a majority in the House of Representatives to gain full control of Congress.
That includes a steeper yield curve and weaker dollar on expectation of a fiscal stimulus package and gains for industries expected to benefit under Biden such as green energy and solar stocks.
“If the Senate goes ‘blue’, I think rates move up and that will help the financial services sector tremendously,” said Peter Bortel, general partner at Bortel Investment Management. “My investments are long-term and I think we benefit from that scenario.”
Over a two-month period that ended on Wednesday, a “Biden basket” of stocks created by JPMorgan gained 4.5% versus a 16% drop for a “Trump basket.”
BIGGEST FEAR
The biggest fear for markets is for Wednesday to arrive with the election still in doubt and the vote too close or contested.
Lacking a clear result, investors would likely flock to safe-haven assets, such as gold and U.S. Treasuries as well as perhaps the Japanese yen and U.S. dollar, Invesco’s Hooper said.
An unclear result - or indeed a result with split party control, for example Biden winning and the Senate staying Republican - would also throw more doubt on prospects for a fiscal relief package.
A bigger surprise for investors could come in a “Red Wave” by which Republicans win the presidency and all of Congress, viewed as a low-probability event but which would likely lead to an unwinding of the so-called Biden trades and a move back to sectors seen benefiting from Trump.
JPMorgan last week called an “orderly” Trump victory the most favorable outcome for equities.
At the end of the day, investors just want some certainty.
“Markets will have to figure out what will change in the next Congress and in the next administration,” said Paul Christopher, head of global market strategy at the Wells Fargo Investment Institute.
· Asian shares buoyed by upbeat China factory activity, oil drops
Asian shares bounced off one-month lows on Monday helped by Chinese factory activity expanding at its fastest pace in a decade, while oil prices skidded as many Western countries slid back into coronavirus-driven lockdowns.
A major risk event this week is the U.S. presidential elections on Tuesday with Republican President Donald Trump trailing Democratic challenger Joe Biden in national opinion polls.
Polls in the most competitive states that will decide the election have, however, shown a closer race, still favouring Biden.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed 0.36%, as China's Caixin/Markit Manufacturing Purchasing Managers' Index offered hope the region's success in containing the coronavirus could spare it the economic pain being inflicted on Europe and the United States.
· Nikkei rebounds from 2-month low on upbeat domestic earnings
Japan’s Nikkei share average jumped on Monday, weathering the impact from downbeat U.S. stocks late last week, as signs of a recovery in domestic corporate earnings and a relatively contained domestic COVID-19 situation lifted sentiment.
The Nikkei rose 1.39% to end at 23,295.48, erasing all of its Friday losses that took it to a two-month closing low. The broader Topix gained even more, rising 1.81% to 1,607.95 from Friday’s near-three-month trough.
· China blue-chips end higher on rising factory activity
China blue-chip shares finished higher on Monday after a private survey showed the fastest acceleration in Chinese factory activity in nearly a decade, the latest indication of the country’s robust economic recovery from lockdowns.
The blue-chip CSI300 index closed up 0.54%, with the consumer staples sector up 0.24% and the real estate index up 0.47%. ** The Shanghai Composite index was little changed, closing 0.02% higher at 3,225.12.
Activity in China’s factory sector accelerated at the fastest pace in nearly a decade in October as domestic demand surged, a private business survey showed on Monday, adding further momentum to the recovery of the world’s second-largest economy.
· European markets muted amid U.S. election uncertainty
European stocks made a mixed start on Monday as investors brace themselves for the U.S. presidential election on Tuesday, and digest the latest coronavirus news.
The FTSEurofirst 300 index fluctuated either side of the flatline in early trade.
Market focus is widely centered on the U.S. election uncertainty and the latest coronavirus developments. U.S. stock futures were flat in overnight trading Sunday amid rising concerns over the coronavirus pandemic’s effect on the global economy.
Reference: Reuters, CNBC
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