Market Drivers Nov. 3, 2020
- Equities remain bid
- High beta FX rises as well
- UST 10Y 0.87
- Oil $37.07
- Gold $1898/oz.
Asia and the EU
- AUD RBA lowers the rate to 0.1%
North America Open
- USD Consumer Optimism 10:00
On day the markets were far more sanguine than the general population with stock index futures up and the down as risk-on flows dominated in Asian and early European sessions.
Stock index futures were up by more than 1% as markets continued to price in a definitive result with futures also signaling that traders expected little volatility ahead. Just as with Brexit and the US elections in 2016 such nonchalance may prove costly if the actual results show a much less clear outcome that may have to be litigated in courts.
For now, all focus remains on Pennsylvania which is crucial to both campaigns but much more to Trump’s chances for re-election as the loss of Michigan, Wisconsin, and Pennsylvania would assure him of loss of the Presidency. The races in Wisconsin and Michigan appear to be outside of the margin of error and favor Biden, but of course, anything can happen on election day and political pundits are far less certain than investors that we could see a clear winner tonight.
One key factor that is impossible to model is turnout. By all measures, turnout has been massive this election cycle with pollsters predicting that fully up 65% of the populace may vote – the highest percentage since the start of the last century. If the turnout projection proves true the outcome should favor Biden as the larger voting pool would more closely resemble the general polls which favor the Vice President by 7%-9%. One possible surprise could be a strong showing in American South with Texas and Georgia possibly shifting to vote blue. In fact, one of the most intriguing electoral map projections suggests that Pennsylvania may remain red but North Carolina, Georgia, and possibly Texas shift blue which would be a tectonic realignment of regional voting preferences.
At present, it appears that markets are modeling clear party lines wins with either Trump and Senate winning for the GOP or Biden completing the full Blue Wave sweep. Few are considering the very unpleasant implications of a split government with Biden winning the Presidency and the Senate remaining red. Under such conditions, there is very little chance that any meaningful legislation will pass, and the prospect of stimulus will be far less pronounced which likely to lead to lower equity prices as investors begin to realize that fiscal support won’t be coming.
For now, however, markets remain well bid awaiting the results of the most important election in recent memory.
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