Global Stocks Sweat On US Election Race, Safe-Haven Bonds Gain

Share markets were whipsawed, while bonds and the dollar gained on Wednesday as results from the U.S. presidential election proved far closer than polls had predicted, potentially leaving the outcome in doubt for days or weeks.

Democratic contender Joe Biden took to the air to declare he was optimistic about winning and called for all votes to be counted, no matter how long it took.

President Donald Trump responded by saying he had won, that "they" were trying to steal the election, and that he would go the U.S. Supreme Court to fight for victory if necessary.

Investors had initially wagered that a possible Democratic sweep by Biden could ease political risk and provide a boost to fiscal stimulus.

But the mood quickly changed as Trump snatched Florida and Ohio and ran much closer in other battleground states than polls predicted.

U.S. equity futures went on a wild ride, rising and falling, climbing again as the voting seemed to favour Trump, dropping when he vowed to make a Supreme Court challenge, before steadying and clawing higher once more. [.N]

The prospect of a long and bitter fight left Europe's main bourses in London, Paris and Frankfurt choppy too. The FTSE and CAC 40 were last marginally positive after early wobbles while the DAX remained in the red.

"It means possibly quite a lot of volatility," said AXA Group's Chief Economist Gilles Moec in London.

"As it is not clear, markets are going to overreact to every tiny piece of news," such as any further talk from Trump or Biden about legal fights.

(For the latest results and news on U.S. election, click: https://www.reuters.com/world/us-election2020 )

Dealers said investors may consider a status quo result would lessen political uncertainty and remove the risk a Biden administration would roll back corporate tax cuts.

The technology sector saw reason for gains, with NASDAQ futures jumping 2.4%. E-Mini futures for the S&P 500 dropped 1% after Trump signalled his intention to go to the Supreme Court but had managed to recover to stand 0.2% higher again.

Andrew Brenner, head of international fixed income at NatAlliance Securities, said the move in techs appeared to be a play on the Senate potentially staying Republican.

Brenner said that under a Biden win tech stocks were seen faring worse, as Democrats would be expected to tackle the sector in hearings and because a potential rise in capital gains tax would hit tech stocks harder.

Stéphane Monier, CIO at Lombard Odier said a divided Congress would have "far-reaching implications for markets, mostly because it means that any kind of pandemic recovery package is still tough to approve".

TOO CLOSE TO CALL

Asia had seen Japan's Nikkei finish 1.7% higher, while MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.4%.

Chinese blue chips rose 0.7%, with markets uncertain how Sino-U.S. relations would develop.

Some investors hedged against the risk of a contested election or at least a drawn-out process as mail-in ballots were counted.

"It's a wait-and-see," said Matt Sherwood, head of investment strategy at Perpetual in Sydney.

"I think the odds of a clean (Democrat) sweep are diminishing, almost by the minute. That reduces the possibility, or the likelihood at least of a large stimulus programme being agreed to in the first days of a Biden administration."

That saw 10-year Treasury yields fall back to 0.79%. Having been at a five-month top of 0.93% before the vote, it was the biggest drop since June.

The U.S. dollar also had a roller coaster session, reversing early losses to be last up 0.7% on a basket of currencies at 93.902. The euro fell back hard to as low as $1.1602 from a top of $1.1768, before grinding back up 1.1680.

The chance of a Trump victory saw the dollar jump 2% against the Mexican peso on the assumption U.S. trade policies would continue to favour tariffs. Norway's crown, Australia's risk-sensitive dollar and Britain's pound all tumbled too.

Going the other way, the dollar eased nearly 1% at one point to the Russian rouble, which had been one of the hardest fallers in the election run up as Biden, seen as taking a tougher stance on Moscow, had opened up a lead in the polls.

STILL TO COME

Investors await the outcome of U.S. Federal Reserve and Bank of England meetings this week, which are expected to at least give a nod to further stimulus following the latest accelaration of coronavirus infections in Europe and the U.S.

The Reserve Bank of Australia on Tuesday cut interest rates to near zero and boosted its bond-buying programme, adding to the tidal wave of cheap money flooding the global financial system.

Gold had been buoyed by the extensive liquidity but ran into profit-taking on Wednesday, losing 1% to $1,887 an ounce.

Oil prices held gains made after industry data showed crude inventories in the United States dropped sharply. [O/R]

Dealers said a returned Republican administration would likely be more positive for the oil industry than the Democrats that favour renewable technology.

U.S. crude futures were up 61 cents at $38.28 a barrel, Brent crude futures gained 90 cents to $40.58, while U.S.-listed solar shares of Enphase, Sunpower, Sunrun and First Solar and Invesco's solar ETF were all down 5-7% in pre-market trade.

(Reuters)