Equities Soar Dollar Dives as Markets Anticipate a Clean Win in US Election

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Equities strongly bid as markets anticipate Biden Win
Dollar down on risk-on flows
Nikkei 1.73% Dax 1.16%
UST 10Y 0.73
Oil $39.07
Gold $1918/oz.
BTCUSD $14497/oz.

Asia and the EU
BOE expands QE to 875 Billion

North America Open
USD Fed Rate Decision 14:00

Equity markets soared, and the dollar dove on very strong risk-on flows as investors became convinced that Joe Biden has a clear path towards winning the Presidency which would avoid months of litigation and uncertainty.

Vice President Biden had between 253 and 264 of 270 electoral votes need to win the US election and was making strong gains in Georgia and Pennsylvania. If he is able to catch up in Pennsylvania where more than 500,000 ballots from heavily blue Philadelphia and Pittsburgh regions are yet to be counted then Mr. Biden would effectively ensure his win with an insurmountable lead. Although the Trump campaign has sued across the Midwest states few legal analysts believe their lawsuits have merit and Mr. Biden’s lead in both Wisconsin and Michigan is now big enough to survive any recount attempt.

The election is far from over and Mr. Trump could stage a late comeback by holding on to his lead in Pennsylvania and winning Georgia and flipping the count in Nevada and Arizona but at this point, investors discount this possibility and have essentially priced in a Biden victory and a Republican Senate which would ensure that taxes will remain low while regulation would be curtailed.

All of this has led to a massive risk on move today with stock index futures up by nearly 2% while both EURUSD and GBPUSD were up by more than 80 pips. In the UK the BOE expanded its QE facility to 875 Billion pounds but cable held steady despite the news as the action was expected.

There has been some speculation that the UK was slowing down its trade negotiations as it awaited the results of the US election and while both sides have denied the claim it may very well be true. Although PM Johnson may prefer a much more UK friendly Trump win, a Biden win would actually be more positive for sterling as it would ensure much greater flexibility from the British. Vice President Biden is almost certain to turn trade policy towards EU and offer the UK no special concessions in any bilateral deal that could risk the UK floundering all by itself on the global trade networks and force the country to come to terms on a post-Brexit trade deal with the EU.

In North America today the markets will focus on further vote-counting news out of Pennsylvania and the Fed rate announcement due at 1800 GMT. The Fed is expected to remain fully supportive on the monetary front and if the Chairman sounds upbeat about the recovery both the dollar and equities might get a boost into the New York close, although the equities already up on the day the rally may be much more pronounced in the dollar if the Chairman suggests that the US recovery remains on pace even without any additional stimulus.

Boris Schlossberg
Managing Director

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