Stocks steady, currencies jittery as US votes
By Lawrence White
LONDON (Reuters) -Stocks and bond markets were calm on Tuesday and an index of market volatility was subdued as markets awaited early indications of the outcome of a knife-edge U.S. election, with only currency markets showing some jitters.
Overnight implied volatility options for euro/dollar spiked to the highest since November 2016, as did those for the dollar-Mexican peso pair, in recognition that the latter could be hard hit by protectionist policies if Republican Donald Trump defeats Democrat candidate Kamala Harris.
The VIX index of U.S. stock volatility, known as Wall Street's fear gauge, hovered at 22, up from 15 in September but still half the level seen in the previous 2020 election in a sign that markets remained relatively sanguine.
Europe's benchmark STOXX index edged down 0.04% while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.87% higher, as stock markets held their breath ahead of Wednesday's open.
U.S. markets looked set for a similarly steady open, with S&P futures up 0.21% and NASDAQ futures up 0.37%.
Currencies, which unlike shares trade around the clock, saw more action albeit still offering only scattered and contradictory indications of which candidate investors were betting on.
The dollar, which had eased as traders made final tweaks to positions, bought 152.13 yen and changed hands at $1.0879 per euro.
"They've priced what they think is price-able and that's that," said Westpac strategist Imre Speizer, adding that a clear win for Trump would lift the dollar, while a win for Harris would push it a little lower.
Bitcoin added 2.6% to about $68,825, with Trump viewed by analysts as enacting more favourable policies for cryptocurrencies than Harris.
Election Day ends an acrimonious campaign jolted by assassination attempts on Trump and the withdrawal of President Joe Biden in favour of Harris, with polls showing the candidates virtually tied.
Markets are on edge about how Trump's protectionist trade policies in particular could stoke inflation and hit exports in the world's biggest consumer market, with bonds and the dollar expected to move on the outcome of the election.
"Ultimately the U.S. election comes down to this - whether the U.S. electorate wants to vote for economic policy continuity, institutional stability and liberal democracy (Harris) or radical trade policy, a further retreat for globalization and strongman democracy (Trump)," J.P. Morgan analysts said in a note. "In short, a vote for stability or change."
BRACED
China is seen on the front line of tariff risk and its currency in particular is trading on tenterhooks with implied volatility against the dollar around record highs.
The yuan hovered at 7.1034 per dollar, while Chinese stock markets surged to almost one-month highs as investors expect a meeting of top policymakers in Beijing this week to approve local government debt refinancing and spending.
China's blue chip CSI300 jumped 2.5% and Hong Kong's Hang Seng rose 1.4%. [.SS]
The Australian dollar barely reacted after the central bank held rates, as expected, with all eyes on the U.S. election, and the Aussie was last marginally firmer at $0.6614.[AUD/]
Treasury markets, which have priced in a U.S. interest rate cut for Thursday, held their ground in early European trading with 10-year U.S. yields at 4.31%.
Euro zone bond yields edged up, with Germany's 10-year bond yield climbing 4 basis points to 2.43%, a little below last week's three-month high of 2.447%.
Oil held sharp overnight gains on delays to producers' plans for increased output, leaving benchmark Brent crude futures at $75.29 a barrel after a 3% rise on Monday (NASDAQ:MNDY ). [O/R]
When U.S. election results roll in after midnight GMT, the focus will be on the battleground states of Georgia, North Carolina, Pennsylvania, Michigan, Arizona, Wisconsin and Nevada.
A winner may not be known for days and Trump has signalled that he will attempt to fight any defeat, as he did in 2020.
Source: Investing.com
