Market sentiment rebounded overnight. The US dollar weakened, shares surged and bonds fell as pro-growth moves drove the action. The turnaround indicates a higher degree of confidence that there will be a decisive and uncontested result in the US election.
US president Trump played down earlier claims of potential electoral fraud in a television interview as America went to the polls. The higher level of voting by mail led to speculation that the Republicans may declare themselves the winners on election day, well before all of the vote is counted. When asked when he would claim the election, Mr Trump responded “when there’s victory, if there’s victory”. The comments eased market concerns of a heavily contested result.
European investors piled back into shares, lifting continental indices by 2.5% to 3%. US ten year bond prices hit 4 month lows, potentially pointing to a Democrat clean sweep. Markets expect a larger stimulus program if the Democrat party takes both the White House and the Senate. This program will require substantial bond issuance, and the steepening of the bond yield curve appears to anticipate this result.
Commodity currencies dominated forex trading, receiving a double boost from the weakening US dollar and rapidly rising oil and metals prices. Lower demand for alternative investments saw Bitcoin hold ground, but emerging cryptos drop.
Asia Pacific markets will have the first opportunity to react to early voting results. The east coast polls are the first to close. Results from automated voting will appear from noon in Auckland, 10 am in Sydney and 7 am in Singapore, and continue throughout the trading day.