The US election is all up in the air and the future is written in the markets. Let’s examine their entrails and see what we find.
The Aussie dollar is the best entry point. It was up and down today like a 10 year old on a trampoline. But there is logic in its gyrations.
First it fell as a Biden landslide failed to materialise. Valued at over 72 cents at the start of the day, it plunged to around 70.5. That’s a big fall in the currency markets.
The prospect of an uncertain election outcome had traders worried about riskier assets like the Aussie dollar, and more eager to prop up safe haven assets like the USD. Then the Aussie dollar rose as a Trump victory came into prospect, before finally modulating as the reality dawned: America faces a long slog of vote counting.
The Australian stock market followed a similar trajectory. From despair to triumph and then retracing its steps to finish the day where it began.
What we learned here is markets crave certainty. The warm embrace of Joe Biden’s fiscal stimulus is just as attractive as the shiny allure of Donald Trump’s tax cuts.
The narrative about the merits of a “blue wave” (Democrats winning the presidency and both houses of Congress) worked for markets when Joe Biden looked sure to sweep America. But without it, another narrative will do.
What markets don’t want is doubt and fear and uncertainty. A protracted period of vote-counting is not going to help. But that’s what the world is looking at.
Bond yields fell as investors from around the world piled into US bonds seeking certainty. The Nikkei index rose too, (Japan is a safe haven) while as you might expect, Chinese markets fell. A Trump victory is no good for China.
Inside the US it was a different story. Stock futures rose. We only have futures markets to look at as the markets themselves were closed, it being evening in the US. There was a fascinating bifurcation. Old stocks did OK to fine, new stocks did very well indeed. While the S&P 500 rose 1%, futures prices for the technology-heavy Nasdaq index soared by 2.5%.
Why? Well, Amazon’s stock price is up fourfold between 2016 and 2020. Four more years of Trump? Yes please, say tech investors. Trump’s light-on approach to fiscal spending may mean there’s more work to do for monetary policy. And of course lower interest rates stimulate stock markets.
However the biggest winner of the day may be a little social network named Twitter. Twitter is President Trump’s favourite medium, because it lets him appear unfiltered (and un-spellchecked). His presence attracts millions of others, keen to read his latest meditations.
The value of the site had fallen as much as 20% in the lead up to the election — Biden is no Twitter fiend. But with Trump back in the hunt for the White House, Twitter is back too. It can be expected to bounce hard when markets open in the US.