Asian Stocks Warn as Elections on a Knife’s Edge: Wrapping the Markets

sinaltik November 5, 2024

0 0 6 minutes read

Asian stocks are set for a mixed day amid growing risk-off sentiment, as the clock ticks down to tight US elections and the Federal Reserve’s rate decision.

Bloomberg News

Jason Scott

Published November 04, 2024 • 5 minutes read

Wall Street prepares for the election. Photo by Michael Nagle /Photographer: Michael Nagle/Bloo

(Bloomberg) — Asian stocks were set for a mixed day amid growing risk-off sentiment, as the clock ticked down to a tight U.S. presidential election and the Federal Reserve’s rate decision.

Futures indicated Sydney shares would ease on Tuesday, while the Tokyo benchmark could rise more than 1% after reopening following a public holiday. In New York, the Golden Dragon benchmark of US-listed Chinese stocks gained 1.1%. The moves came as U.S. companies failed to gain traction on Wall Street, Treasuries soared past the curve and the dollar fell the most in more than a month.

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Ahead of Tuesday’s vote, stock traders have decided to stay on the sidelines as most polls show Americans remain split between Donald Trump and Kamala Harris. The possibility of a disputed result could end up dragging down the polls for weeks or even months. For many, that means one thing – a potentially volatile rise.

Another challenge is to quantify the additional factors surrounding the vote that may move the market. Election Day will be quickly followed on Thursday by the Fed’s decision and Jerome Powell’s press conference, where he will provide details on the central bank’s interest rate path. And most US companies have yet to report their earnings.

“Normally, the Fed’s rate announcement will be the main focus of the week’s discussions, but this is not just any week,” said Chris Larkin at E*Trade from Morgan Stanley. “Traders and investors who have been waiting for the outcome of the election should be prepared for the possibility of a delayed outcome, and the possible impact of that uncertainty on the markets.”

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In terms of equity market performance, the S&P 500 tends to see positive gains to close the year following Election Day, according to Bespoke Investment Group. For every year since 1990, the average return has been 3.3% with positive returns 25 out of 34 times. In election years, performance tends to be modestly strong with an average return of 3.9% and gains six out of eight times.

The 10-year Treasury yield fell to 4.28%. The Bloomberg Dollar Spot Index was down 0.4%. Bitcoin is down 2.6%. Oil rose after OPEC+ agreed to roll back a December production hike and Iran hinted at a possible response to Israel’s recent bombings.

In Asia, the focus is on the second day of China’s four-day meeting of the Standing Committee of the National People’s Congress, where the government is expected to unveil its latest economic stimulus package. Beijing’s top legislature has already considered a proposal to transfer the debt of local governments to their official accounts, with the aim of reducing their financial burden.

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A potential chief executive in Japan’s fragile government, Yuichiro Tamaki, said the central bank should not raise interest rates again before March, and urged it to look closely at the results of next year’s wage deal before proceeding with policy again. The yen was steady in early trading on Tuesday.

Meanwhile, Australia’s central bank is poised to keep interest rates at a 13-year high, marking a year of unchanged policy as it faces low inflation and rising global risks offset by a tough US election.

Dead Heat

With both US presidential candidates “in the heat” heading into next week’s election, markets are looking for an outcome that could lead to many policy implications. However, it is worth noting that, since 1933, stock prices have almost always risen by double digits at the end of a president’s term, regardless of party affiliation, according to Seema Shah at Principal Asset Management.

“Investors should be careful. Those who allow their political views to cloud their investment decisions can miss out on the rewards that can come with staying invested in the market for the long term,” he noted.

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The sustainability of any increase in stocks if Trump wins the election may depend on the reaction of bond yields, according to JPMorgan strategists led by Mislav Matejka.

Trump’s win and a positive market reaction are widely expected at this point, and investors are already long equities “which could lead to some upside and downside at some point,” they said. If Harris wins, uncertainty about the nature of corporate taxes will soon increase. In the medium term, equities may see some support from reduced tax risks, strategists note.

US stock markets have performed remarkably well over the past month compared to sharp declines during the period immediately preceding previous presidential races. That suggests optimism about the economy and further Fed rate cuts outweigh worries about the US election, according to strategists at Citigroup Inc.

“Yes, the US election will play an important role in moving financial markets this week,” said Anthony Saglimbene at Ameriprise. “However, the Federal Reserve’s policy decision on Wednesday, some mild economic releases throughout the week, and the roughly 20% of the S&P 500 scheduled to report third-quarter results should also have their fair share of direction for the stock market.”

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Important events this week: