Analysts' View: Stocks rally, Treasuries gain as Biden edges towards U.S. election win

(Reuters) – Global stocks and U.S. Treasuries rallied on Thursday while the dollar took a back seat as Joe Biden inched towards taking the White House following victories in Michigan and Wisconsin, although the Democrats looked unlikely to secure a Senate majority.

The statue of former U.S. President George Washington stands across the New York Stock Exchange (NYSE) following Election Day in Manhattan, New York City, U.S., November 4, 2020. REUTERS/Andrew Kelly

Markets were trying to gauge the fallout from a split government, and expectations rose that a policy gridlock that would prevent greater regulation and limit fiscal stimulus could also force the hand of the U.S. Federal Reserve.

S&P E-mini futures were up more than 1.5% on the heels of a 2.3% jump in the S&P 500 on Wednesday while stocks in Europe followed Asian bourses to clock up healthy gains. Meanwhile, longer-dated U.S. Treasuries extended Wednesday’s huge gains, sending yields lower once more.

By midday Europe, the dollar index had ceded earlier gains and slipped 0.6% to 92.965. [MKTS/GLOB] [US/] [USD/]

COMMENTS:

JUSTIN ONUEKWUSI, PORTFOLIO MANAGER, LEGAL & GENERAL INVESTMENT MANAGERS, LONDON

“The Fed today is a bit of a sideshow, but there is a chance it may strengthen forward guidance around potential QE, and that would be dollar-negative as you may also have less fiscal stimulus coming. Another thing that makes us medium-term negative on the dollar is whether you see a weaker United states from a political perspective going forward. If (post-election wrangling) goes on for weeks or months, with Republicans refusing to accept the results, that’s not positive from a political perspective.”

DIDIER SAINT-GEORGES, MANAGING DIRECTOR, CARMIGNAC, PARIS

“There is a lot of position-squaring going on and we should not fall into the mistake of reasoning out moves every hour. Things like green energy are long-term trends which will continue.”

“Compared to what was anticipated, some (Treasury yield) curve flattening may make sense, but even if some rates positions were unwound, we should not get carried away trying to see a reversal. One takeaway is that regulatory risk to the pharma sector has reduced. Pharma has been a laggard this year, so we may see some catch-up.”

MICHELE PEDRONI, FUND MANAGER, DECALIA ASSET MANAGEMENT, GENEVA

“The scenario of a ‘blue tsunami’ is almost certainly off the table. In the short term … healthcare looks compelling given recent underperformance, strong resilience to current health crisis and attractive valuations, with lower risks from a healthcare reform by Democrat (administration). Tech also looks advantaged.”

“The big bad wolf of regulation and taxes is further away from the door and many who have de-risked into the event will be forced to re-risk.”

JONATHAN BELL, CHIEF INVESTMENT OFFICER, STANHOPE CAPITAL, LONDON

“The outcome of the election in terms of the potential for a Democratic president and a Republican Senate is many ways the best news for markets because it prevents more extreme policies.”

“Biden being elected increases the chances of a fiscal stimulus deal, but (with a Republican Senate) it also reduces the ability for him to push through significant tax rises or policies that might constrain the likes of Amazon and Apple in terms of competition authority. The push for him to increase anti-trust measures is limited and that’s perhaps why we’re seeing the Nasdaq rise.”

SIMON CARLTON, CHIEF EXECUTIVE OFFICER, CARLTON JAMES GROUP, LONDON

“If you look at the numbers, trends, previous cycles, unemployment numbers — a double-dip recession is coming, and I don’t think either president, whoever gets in, is going to stop that. Because I think a correction is not only likely, but is a requirement of these economic cycles. And the COVID dip was short-lived and there are so many different factors to take into account that I don’t think we’ve seen the actual correction as of yet.”

PAUL SANDHU, HEAD OF MULTI-ASSET QUANT SOLUTIONS, APAC, BNP PARIBAS ASSET MANAGEMENT, HONG KONG

“U.S. markets have zig-zagged to a moderate positive advance to end yesterday. The main reason is that the assumption is that a stimulus deal will be reached, but may not be as expansive as it would have been with a completely Democrat-controlled government.”

“Given the dynamics of the market, any uncertainty to a Biden victory has come through as volatility. I expect that this volatility will continue as the Republicans issue lawsuits over the coming weeks, but hopefully this component of volatility becomes muted as challenges to the voting process hit obstacles. As always, it’s prudent to have some tail hedges online for the next few weeks. If those are on, there will be opportunities to buy into volatility.”

JOHN VAIL, CHIEF GLOBAL STRATEGIST, NIKKO ASSET MANAGEMENT, TOKYO

“It’s going to be interesting to see how much the market actually thinks stimulus will get done. It’s quite possible that even a moderate stimulus plan does not happen, for various reasons: they can’t agree, just like they couldn’t agree before, on how much goes to what.”

“The sectoral movements in markets are indicating that they don’t see a big stimulus ahead, especially in infrastructure, steel stocks, construction machinery equipment, construction machinery equipment rental companies … a lot of those were sold off quite aggressively last night. As long as there’s no civil unrest, a stalemated government is OK for equity markets, with the proviso that there’s continued monetary stimulation and that nothing is required for the government to do.”

CHRIS BAILEY, EUROPEAN STRATEGIST, RAYMOND JAMES, LONDON

“We had a big rotation trade before the election, and now we have something more akin to what we’d seen in previous months, which is technology leading. It’s an interesting interpretation of the election results.”

“It’s a combination of the election and COVID-19 trade coming together. The election trade is that there isn’t a ‘blue sweep’. Those conditions where you would’ve perhaps favoured reflation – rising bond yields which would’ve supported value stocks – switched away a bit. We’re now back to favouring COVID-19 trade, which is obviously beneficiaries of work-from-home and lower bond yields.”

“What people are underestimating is the role of central banks. It’s very clear that central banks are continuing to be helpful with the current economic conditions.”

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