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Markets see the bright side to US election frenzy

Markets can act strangely sometimes. They have surged even when presidential candidate Joe Biden, considered to be less business-friendly, is leading in the US elections. One reason for this could be that investors don’t like uncertainty. Mint explores

Markets can act strangely sometimes. They have surged even when presidential candidate Joe Biden, considered to be less business-friendly, is leading in the US elections. One reason for this could be that investors don’t like uncertainty. Mint explores.

How have EM stocks reacted to US polls?

Emerging-market stocks climbed to the highest level in more than two years and most currencies strengthened as Democrat Joe Biden moved closer to victory. The MSCI gauge of developing-nation equities rose past a January peak as investors cheered the prospect of a Democratic president and a Republican-controlled Senate. Eastern European currencies, including the Russian ruble, paced gains in forex markets. Investors are betting a Biden presidency with a Republican-controlled Senate make a multitrillion-dollar stimulus package less likely, forcing the Federal Reserve to keep rates lower for longer.

How has it impacted commodity trade?

Gold and copper experienced wild rides in response to movement in the dollar, with bullion fluctuating after trading between a gain of 0.4% and a loss of 1.4%. Oil surged 4.2% to over $39 a barrel after fluctuating in $2-a-barrel range for much of the session. A victory by Biden could pave the way for the roll-out of more stimulus that could lift equity and commodity markets—particularly gold, which benefits from a weaker dollar due to money printing—in the near term. It could also lead to stricter regulation of shale drillers and also signal a detente with Iran, which would unleash millions of barrels a day in fresh crude exports

Best case scenario
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Best case scenario

Why has the dollar dipped to its lowest since 2018?

The Bloomberg Dollar Spot Index fell as much as 0.9% to the lowest since May 2018. “The dollar has been declining as a result of the increasing likelihood of a Biden win," said Sonja Marten, a strategist at DZ Bank. “For now, dollar is trading as a safe haven and the prospect that we are going to get a clear result sooner than some had feared is currently reflected in rising risk appetite."

Which stock category in US saw big gains?

While the S&P 500 jumped over 1% for a fourth straight day and is headed for the best week since April, the tech-heavy Nasdaq 100 surged 2%, pushing its advance this week toward 9%. Increases in tech shares and some strong corporate results buoyed the Stoxx Europe 600 index. Chipmakers including Dialog Semiconductor Plc were among the biggest gainers. Investors are banking on a split Congress to leave Trump’s corporate tax policy unchanged while pursuing lighter-touch regulation of the tech sector.

What is the Federal Reserve’s next move?

The US Fed is likely to hold off from any major policy changes with the US election still in the balance. With no shift expected, officials could still open the door to adjusting their asset purchase programme in either the statement issued by the Federal Open Market Committee or during Jerome Powell’s press conference. If Powell wants to do more to support the recovery, bond buying is the obvious place to look because Fed has already signalled interest rates will be held near zero at least through 2023


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