Global stocks wavered and China’s currency weakened as a tight US election set investors on edge amid growing prospects of a protracted and fraught battle to decide the next American president.
Stock futures for the US blue-chip S&P 500 fell about 0.5 per cent in early European trading, with those following the tech-focused Nasdaq 100 down 0.8 per cent. European stocks were steady in early trade following a tame session across major Asian markets.
Joe Biden said on Thursday there was “no doubt” he would win the election, while Donald Trump claimed without evidence that Democrats were trying to “steal” the election by counting illegal ballots.
“The key implication for markets is . . . that this is likely to get bumpy, and drag on, and through the courts — a process already now under way in a few states, and possibly at the federal level in short order,” said Michael Every, a strategist at Rabobank.
The tight race for the US Senate, currently controlled by Republicans, is pivotal to the investment outlook, investors said. Fading expectations that Democrats will be able to take control of the upper house of Congress triggered a sharp rally in US government bonds this week but the outcome has become murkier in the days following Tuesday’s election. Democrats are projected to maintain control of the House of Representatives.
The Senate race “is of utmost importance for US bond markets because political gridlock may stand in the way of a powerful fiscal stimulus”, said analysts at UniCredit. Analysts had expected that a Democratic clean sweep would lead to the approval of a large stimulus package.
“There is the possibility that we will see two run-offs in Georgia on January 5, which would leave bond markets guessing and might dampen directional momentum for several weeks.”
Padhraic Garvey, regional head of research, Americas, at ING, said a situation in which Mr Biden becomes president but the Senate remains in Republican hands could be “the sweet spot” for markets. He said it would reduce the trade risks presented by Mr Trump but would at the same time make it difficult for Mr Biden to push through the corporate tax increases that have been an election pledge for the Democratic hopeful.
On Thursday, Wall Street’s Nasdaq gained 2.6 per cent while the S&P 500 rose 1.9 per cent, with both benchmarks on track for their best week since April.
The performance gap between the two indices has widened in favour of the tech-focused Nasdaq, as expectations that Democrats could take control of the Senate have faded. That could reduce the likelihood that any win for Mr Biden would translate into a tough new regulatory regime for groups such as Facebook and Google.
China’s onshore-traded renminbi dropped 0.5 per cent against the dollar to Rmb6.6319. The currency has been one of the most sensitive to the US election results and in recent weeks has been boosted by hopes of a victory for Mr Biden and a potential easing of tensions between Beijing and Washington.
Asia equity markets struggled for direction on Friday with Japan’s Topix index rising 0.5 per cent, mainland China’s CSI 300 virtually unchanged and Hong Kong’s Hang Seng dipping 0.1 per cent.
Europe’s Stoxx 600 index rose 0.3 per cent in early trade, with London’s FTSE 100 up by a similar margin.