US election day has arrived. As trading begins across Asian markets today (Wednesday) the outcome is unknown, and the polls are tight. If we try and ‘read the tea leaves,’ betting markets have Trump as the favourite. Also, the rise of the USD and treasury yields over the last month - which happened at the same time as Trump’s chances in the election increased, is not a coincidence. This move has reflected an element of the ‘Trump Trade’ occurring in financial markets, in response to policy stances of the Republican candidate. But while there is evidence of the Trump Trade occurring, markets have not significantly leaned one way or the other. Perhaps because actual voter turnout on election day is the big variable and unknown factor that could decide who resides in the White House come January 20th, 2025.
US Futures markets and Asian indices will be reactive once the Electoral College map starts getting filled in and we get an idea about who is likely to take the keys to the White House. Financial markets will be particularly sensitive to the vote tallies in key swing states like Pennsylvania which could act as a barometer for which way the election swings. Tariffs on China have been a big theme of the Trump campaign and as such, Chinese equities could be a good indicator of whether things are looking better for Trump or Harris throughout the trading session.
Financial markets have a dislike for uncertainty, but this is a possible scenario that investors could be left in this week if there are delays in getting the votes counted or if neither candidate has a decisive edge. If financial markets are left in a state of limbo on election uncertainty, levels of risk appetite, which have been strong throughout 2024, could be put to the test.
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If markets do get a bout of election anxiety because of a delayed or contested result, then assets like gold could stand to benefit from safe haven buying demand. Gold’s forward progress has been slowed over the last week with a strong USD and elevated bond yields somewhat standing in the way. Trump’s deregulatory, tax-cutting, and pro-tariff stance have been viewed as USD-friendly from both a growth and also potentially inflationary standpoint.
The election isn’t the only game in town this week, with meetings by the FOMC and China’s National People’s Congress (NPC) also each having market-moving potential. In the case of the FOMC, a 25bp rate cut is expected however investors will be more interested in what the Fed may signal about their intent for December and beyond. For the NPC meeting, the big question is how much fiscal stimulus they will sign-off on and will this leave financial markets feeling appeased or underwhelmed.
Between the US election and key meetings by the FOMC and the NPC, it’s far to say that this week shapes as one of significant consequence for risk assets in determining whether their stellar run thus far in 2024 will be sustained or stymied. Suffice to say, all eyes will be on the vote count. We will soon find out whether this election produces a smooth ride for markets or one which more resembles that of a rollercoaster.
