By Ritvik Carvalho
LONDON (Reuters) – Financial markets have been thrown a curve ball by a closer-than-expected U.S. presidential election result, raising the prospect of a disputed outcome and diminished fiscal stimulus to contain the COVID-19 shock.
While Democrat challenger Joe Biden had been a strong favourite to defeat incumbent President Donald Trump, the latter’s unexpectedly strong showing whacked some investment bets such as in green shares and short dollar positions.
The following charts show changes in betting odds and various asset classes as the vote count progressed:
1/DON’T BET ON IT
Betting markets swung from Biden towards Trump as counting started and then back towards the Democrat challenger, according to Britain-based Smarkets Exchange which now gives him a 60% chance of winning. That’s a massive flip from 29% in early counting.
Online prediction market PredictIt saw a similar reversal, giving Biden a 73% chance of winning, from as low as 30% earlier.
Graphic: PredictIt odds – https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqabgapx/Pasted%20image%201604494071156.png
2/BONDS: LOWER AND FLATTER
Ten- and 30-year U.S. Treasury borrowing costs posted their biggest one-day drop since June as investors pared bets on a big Democrat-led fiscal stimulus package and expectations grew the Federal Reserve would have to step in again to support the economy.
Yields inched off lows as betting odds swung [GVD/EUR].
The gap between 2- and 10-year yields saw its biggest one-day narrowing move since end-March as chances faded of a Democrat sweep of the White House and both houses of Congress. [US/]
Graphic: US election uncertainty sparks slide in US bond yields – https://fingfx.thomsonreuters.com/gfx/mkt/yzdvxazeepx/USA1104.PNG
3/DOLLAR RISE AND EBB
Investors initially rushed to the greenback, seeking safety amid the uncertainty as well as trading the view that a Trump win was dollar positive. But after rising as much as 1.2% versus a currency basket and around 1% to the yuan its gains ebbed. [FRX/]
Deutsche Bank said the uncertain outcome meant it no longer saw a “compelling narrative” for dollar weakness.
Graphic: Dollar climbs, then steadies as U.S. elections results come in – https://fingfx.thomsonreuters.com/gfx/mkt/xlbvgwadgvq/dxy1.png
4/THE FUTURE
The prospect of a prolonged fight over the election outcome whipsawed equities, especially U.S. stock futures throughout the session. They rose when voting seemed to favour Trump, dropped when he vowed to make a Supreme Court challenge and then steadied to await the outcome.
Graphic: S&P 500 futures take a wild ride – https://graphics.reuters.com/GLOBAL-MARKETS/dgkvljokkvb/chart.png
5/ IS IT GREEN?
Big swings were seen on green assets which enjoyed a bumper rally in recent months, thanks to Biden’s pledge to invest big in environmentally friendly projects. Solar and wind energy shares and ETFs lost as much as 6%-7% initially but clawed back most losses as Biden’s chances appeared to improve.
Graphic: Wind turbine makers sell off, then recover after Biden reversal on betting markets – https://fingfx.thomsonreuters.com/gfx/mkt/xlbpgwaxgpq/Pasted%20image%201604499607690.png
(For the latest results and news on U.S. election:
https://www.reuters.com/world/us-election2020 )
(Reporting by Ritvik Carvalho; Additional reporting by Dhara Ranasinghe; Editing by Sujata Rao and Andrea Ricci)
