[ad_1]
Fading expectations of a decisive victory in the US presidential election for Joe Biden have boosted bonds and raised the dollar as a set of operations based on a Democratic “blue wave” sweep in the White House and Congress stumbled.
Investors had raised the stakes in recent days that the decisive wins by Democrats in line with opinion polls leading up to the vote would spark another round of stimulus for the pandemic-ravaged US economy.
Biden can still clinch the presidency in this unexpectedly tight race. But Donald Trump’s victories in Florida and Ohio have undermined investors’ expectations of a major victory for Democrats. Instead, strong performance by Republicans in various battle states, and seemingly tight Senate control, have led money managers to brace for the prospect that the outcome will remain unclear for days and that the United States could stick around. with a divided government, which complicates the situation. investment prospects.
“The ‘blue wave’ trading has been going on since the summer and has accumulated more recently, and I hope it will unravel now. But beyond that, trading the result in this environment doesn’t make sense, ”said Fabiana Fedeli, global director of fundamental equities at Robeco.
“In the short term, I think we are left out,” he added, arguing that the economic stimulus and the path of the pandemic were much more important drivers for the markets than the outcome of the elections alone.
The 10-year Treasury yield briefly eclipsed 0.9 percent Tuesday night, hitting the highest level since June, in anticipation that a big Democratic win could skyrocket government spending and potentially inflation. In turn, this was expected to put more downward pressure on longer-term bond prices and yields to rise.
Live updates
Follow the latest news on the US elections here.
But yields fell to 0.8 percent Wednesday morning, reflecting how some fund managers had been caught. “Markets need to take a serious look at their systems,” said Didier Saint-Georges, head of portfolio advisers at French investment house Carmignac. “We are now back to where we were before the ‘blue wave’ trade. We go back to the basics. “
The dollar also strengthened along with gains on Treasuries, rising 0.3% against the euro and 0.4% against the Japanese yen.
Jim Leaviss, M & G’s director of public bond investments, noted that the slim chance of Democrats taking the Senate meant that additional high-impact fiscal stimulus was less likely to emerge. “[That] It means that in the event that the US economy slows again, and a winter Covid wave is likely, it will be up to monetary policy to provide support once again. ”
More bond purchases, more rate cuts, possibly in negative territory, and so-called yield curve control to keep bonds in check “could come into play,” he added. “The markets got what they really didn’t want, with a lot of uncertainty.”
Futures for US stocks were volatile. Those who followed the top-tier S&P 500 Index were up 0.5 percent in early New York trading on Wednesday, after having been about 2 percent higher overnight.
Futures that track the Nasdaq 100 index, which is heavily skewed toward large U.S. tech groups, rose 2.4 percent, after pausing briefly after a rapid rise at one point Tuesday night. . There were mixed trades in European stocks, with the regional Stoxx 600 gaining 0.3%.
“Futures markets are pricing in a Trump win, which I think is a bit premature,” said David Bailin, chief investment officer at Citi Private Bank.
Trump injected more uncertainty early Wednesday after he vowed to go to the Supreme Court to stop the vote counting while falsely claiming victory in the White House race.
“In the next few days there will be a very complicated news flow,” Saint-Georges said in Carmignac.
That kind of rhetoric can also help boost government bonds. “Some people are using bonds as a safe haven, reflecting the risk of a poorly contested election,” said Toby Nangle, Columbia Threadneedle’s global head of asset allocation. “But right now, I see it as a reduction in the probability of a very substantial stimulus.”
Additional reporting by Laurence Fletcher in London and Leo Lewis in Tokyo
