Wednesday, 25 Nov 2020

US election 2020: Financial markets cautious as result too close to call

Stock markets are retreating from recent rallies – with caution setting in as the result of the US election is too close to call.

Futures had showed New York’s Dow Jones, S&P 500 and Nasdaq indices all set to climb sharply at Wednesday’s open – building on gains seen on both Monday and Tuesday – but sentiment started to slip as early results showed Donald Trump had performed better than polls had expected.

Live updates as US election results unfold

Europe was first to reflect the nail-biting conclusion to the presidential contest, with the FTSE 100 in London falling 1% at the open in volatile trading.

Financial analysts said that despite deep uncertainty over the result, the prospect of a protracted count had been largely factored in.

Investors have been focused this week on expectations that the end of the bitter contest between Donald Trump and Joe Biden will result in further economic stimulus for the coronavirus-hit economy.

The implications of the race for the White House are the main focus globally as the winner will take control of the world’s largest economy.

Japan’s Nikkei advanced by 1.7% – taking its lead from Wall St on Tuesday – while the Hang Seng in Hong Kong was just 0.6% up as its trading began to reflect the tight US race.

Back in Europe, Italy’s MIB was 2% down in early deals.

US futures showed a negative picture for the Dow Jones Industrial Average though the tech-heavy Nasdaq was on course to maintain its recent run of gains by opening more than 1.7% up.

The rally for shares this week comes after a grim end to October which saw the FTSE record its worst monthly decline since March.

Fears over the economic impact of a second wave of coronavirus infections and fresh lockdown measures have unsettled traders recently.

A market slump earlier in the year was stemmed when central banks and governments – led by the US – unleashed unprecedented stimulus measures.

As voters went to the polls, some traders appeared to be betting on Biden leading a Democratic sweep of the White House and the Senate, allowing him to deliver a further big package of spending measures.

Investors and economists say fresh stimulus is needed, but progress has been held up by squabbling between Democrats and Republicans in Washington.

As the counting continued, market experts suggested the prospect of a possible Trump win – in defiance of pre-vote polls – was not cooling steam behind the equity rally, saying it reflected fears of a contested result in the days and weeks ahead.

In London, investors are also eyeing prospects for a Brexit deal and speculation that the Bank of England will trigger a further round of money printing or quantitative easing later in the week.

Chris Beauchamp, chief market analyst at IG, said: “As the night grinds on Donald Trump appears to have staged a remarkable comeback, as polling across the US suggests he has had a good night.

“The market reaction has so far avoided the volatility of 2016, at least on the downside, with yet more gains for stock futures.

“This impressive recovery by the party viewed as pro-business has been taken in a positive vein by markets, although there is still a lot of counting to be done.”

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