US Elections - How markets are reacting to the likely outcomes

Electoral Votes update

As the dust starts to settle on the US elections, indications are now that Joe Biden has a firm enough lead to win the presidency. Mr Biden currently has 264 electoral seats of the 270 needed to confirm the win. Mr Biden also has a lead in the state of Nevada which would account for the remaining 6 seats. In this state, 75% of the vote has been counted, with the remaining ballot largely postal votes, which are expected to reflect mostly democratic support.

There are some indications that current president, Donald Trump, will be contesting postal ballots in a number of states by addressing the Supreme Court. In this situation, the final outcome to the presidency could be delayed by as much as another month.

Congress

Congress will be divided once again, with a Democratic majority in the House of Representatives and a Republican majority in the Senate. A split Congress suggests the slow passage of future legislature which has been problematic in the past, exampled by delay to the passing of a second round of Covid related aid for Americans.

Markets

The Dollar

The USD dollar has been weakening significantly into the likely outcome of a Biden victory. Some of the currency weakness may be attributed to the expectation of increased government spend under democratic rule as well as the bi partisan make up of congress.

The Rand

The softer dollar has supported gains in emerging market currencies such as the rand which now trades at its best levels against the greenback since before lockdown (March 2020).

Metal prices

Precious metal prices have gained into the election supported by the softer dollar. Gold has continued its recent trend of rising along with broader equity prices although not to the same extent.

Industrial metals while firming yesterday are starting to temper gains today, perhaps cautioning news of a record number in new daily Covid infections across the US, as well as more lockdown restrictions across Europe.

Oil

Oil prices have held onto gains realized from their recent rebound, although this is perhaps not as much election related as is a function of suggestions from the Organization of Petroleum Exporting Countries (OPEC). OPEC appear more likely to delay an increase in output, in the wake of a deteriorated global growth outlook and in turn a waning demand expectation.

Equity markets

US equity markets have rallied on the expected election outcome, suggesting that the benefit of increased government spend would outweigh the prospect of Biden unwinding (in part) Trump era tax cuts.

Nasdaq futures are outperforming major US index benchmarks, which is somewhat surprising. The gains in US tech were originally not associated with a Biden victory due to his suggestions of increasing (in some cases more than doubling) taxes on foreign income for a number of these companies. Some of the gains in US tech could be associated with the split in congress as well as the renewed surge in US Covid cases, under which conditions these companies have previously thrived.

Global equity markets (including our own) have followed the lead of the US, producing firm gains as the Biden election win has become more probable.