US election 2024: Harris vs Trump in tight race as markets brace for volatility

Article written by Juliette Saly (ausbiz)

In this week's edition of IG Macro Intelligence, we take a look at the US election and market impacts.

Vote for volatility

Polls are split on whether there'll be a Harris or Trump victory in the 2024 US election, while when it comes to financial markets, volatility is the clear winner.

This Bloomberg Bank of America chart shows cross-asset volatility has rarely been this high on the eve of a US presidential vote.

Cross-asset volatility peaks ahead of presidential vote

The latest polls

In an ABC News and Ipsos poll, Vice President Harris holds a three-point lead over former President Trump among likely voters. Conducted from 29 October to 1 November, the poll shows Harris at 49% and Trump at 46% just days before Election Day on Tuesday.

Meanwhile, a poll by The Guardian averaging early votes by both national and state metrics shows Harris with a slight lead of 48% versus Trump's 47% as election week gets underway.

US national poll numbers as of 31 October

Peter McGuire from XM told ausbiz forex volatility will be the clear winner this week, with the Aussie dollar expected to whipsaw as the results come in while onshore Chinese yuan volatility hit a record last week amid hedged bets that a Trump 2.0 presidency could hurt China.

AUD/USD daily chart

When it comes to trading equities, Bloomberg data show implied volatility on the S&P 500 is significantly higher than realised volatility, as investors prepare for potential fluctuations in the market even though the index has posted 29 sessions without a drop of more than 1%.

VIX-S&P 500 divergence signals market tension

"Trump trade" trepidation

Some trepidation regarding the so-called "Trump trade" is filtering through as polls show Trump and Harris neck and neck.

Trump won the state of Iowa, which is considered a "red" state in both the 2016 and 2020 elections. A gauge of the US dollar fell the most in six weeks as election week got underway, while Treasury futures rose.

Emerging markets and forex movements

The Mexican peso climbed nearly 1% during Monday's trade, leading the gains among emerging-market currencies. This shift highlights how some investors are reassessing the likelihood of a decisive win for Republican candidate Donald Trump.

At the same time, Asian assets and the Australian dollar gained, thanks to the view Harris would have a more favourable foreign policy stance towards Asia, particularly China.

But Chris Chen from American Century Investments told ausbiz investors should not let the elections dictate their investment decisions. And Morningstar's Lochlan Holloway says beware of black swan events that have nothing to do with either candidate's policies.

AUD/USD daily chart

The US-China trade war and Australia

Under Trump's last presidency, America's trade war with China impacted Australian exports of beef, wine, barley, and other commodities. The risk is that could be repeated again with Trump vowing to levy a 10–20% tariff on all imports to the US, and a 60% tariff on Chinese imports.

The impact on Australian markets and commodities

• Treasury Wine Estates (TWE)

IG's Tony Sycamore has warned that could be a "particularly bad situation" for the ASX 200, as tariffs slow global growth and increase inflation. Resource stocks and the Aussie would likely be hit hardest in such a scenario. The removal of Chinese tariffs on Australian exports has been seen as a positive for Australian wine producer Treasury Wine Estates (TWE).

Treasury Wine Estates weekly chart

Most analysts are now bullish on the stock, given trading conditions with China have returned to pre-pandemic conditions. The average target price on TWE is $14.14 according to Refinitiv data, suggesting the stock has a further 25% to run from current levels.

The average suggestion is a buy.

Analyst sentiment timeline

• The energy sector

When it comes to the energy sector, Trump has promised to boost domestic energy production, which could drive demand for crude oil and gas. Harris, meanwhile, is expected to focus on renewable energy, which could disrupt traditional energy plays and support stocks linked to cleaner energy initiatives.

ASX energy/XEJ index down 14% in six months

Morgans has a 'bullish' position on oil with expectations Chinese growth will recover and the US economy is robust enough to sustain improved growth post-election. On the flip side, Citi suggests shareholders sell Woodside Energy, with a target price of $23.

Mixed signals: brokers split on energy stock outlook

• Droneshield (DRO)

Defence is another area for Australian investors to gain exposure to election outcomes. Both candidates are likely to support defence spending due to ongoing geopolitical risks.

The average target price on DroneShield (DRO), which is an AI-based platform for protection against advanced threats such as drones, is $1.20 according to Refinitiv. That's a 26% upside from where DRO currently trades, and the average suggestion is a buy.

Analyst sentiment timeline

• ResMed

And the Australian healthcare sector could also benefit, with Trump expected to support a more free-market approach, while a Harris administration is expected to lower drug prices, which could help expand R&D in the space.

If the elected government prioritises healthcare access and support for chronic conditions, analysts see a boost in demand for ResMed (RMD) products, such as sleep apnoea devices and cloud-connected respiratory care solutions.

ResMed shares are a buy, according to Refinitiv and Macquarie has an outperform on the stock, with a price target of $41.10.

Analyst sentiment timeline