Wednesday, November 4, 2020

Asia Times: Risk appetite surge ahead of the presidential elections; keep a close eye on swing states and the Senate

  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • RBA


Market Recap:  Risk appetite surge ahead of the presidential elections; keep a close eye on swing states and the Senate

Markets rallied ahead of the US presidential elections outcome, signalling the confidence from investors on its expectation for less uncertainty in the coming days. Movements in both the equity and bonds markets suggests that investors are more quickly pricing in a Joe Biden win - and possibly a Democrat sweep, with five-year and 30-year treasury spreads widening to levels last seen in 2016 and equities skewing towards value shares over the past two days. Interestingly, sentiment on tech shares may have switched during intraday trading after started the day lower before rebounding within the hour of trading to close the day higher than the S&P500. This in our view, could be a sign that there may be market participants that are still more bullish on tech and tech-related shares due to the surging Covid-19 cases across the world.

Indexes Daily Change (%) Net Change Closing Price
Dow +2.06% +554.98 27,480.03
S&P500 +1.78% +58.92 3,369.16
Nasdaq +1.85% +202.96 11,160.57
*Source: Bloomberg

Election day is here and most states has concluded voting, and have started to count their votes. As of Wednesday, 10.04am (GMT +8), Biden was leading Trump in overall electoral votes 119-92. However, with delays expected to come from several key states including Pennsylvania, there is likely to be at least some volatility if we don't see a clear margin of win from Biden in Democratic-leaning states. Current highlights include:

  • Florida currently looks to vote in favour of Trump, a win that he needs in order to remain competitive in the race.
  • In Georgia, the focus will be on the metro Atlanta area, which Joe Biden appears to be leading in early counting despite projections showing Trump in the overall lead.
  • The Democrats are currently lead Republicans 42-38 in the Senate.
  • Texas leans towards Biden in early voting but voting remains close
  • Senator Mitch McConnell projected to win Kentucky, but the question remains if the Senate will remain under Republican control


S&P500 sector analysis painted a clearer picture as cyclical sectors continued to lead gains over the rest of the market on Tuesday. Energy reversed gains from Monday, which in our view is a stronger sign of positioning for a Biden win due to his environmental policies. The overall US market also echoed sentiment for a Biden win, with volatility and value portfolios outperforming momentum and growth portfolios on Tuesday, in line with returns over the past month. A similar trajectory for stocks should be expected in the short-term, while the medium-term outlook will depend on the battle for the Senate. Clean energy in our view would be bullish sector in the medium-term with a Biden win regardless of the Senate. In contrast, a trump victory will likely favour oil producers and banking stocks. Financials may also get a boost from a Biden win in the short-term due to value plays from institutional investors.

In company news, Ant Financial Group's IPO that was scheduled to debut in the Shanghai and Hong Kong Stock Exchanges has been suspended, sending shares of Alibaba (owns about a third of Ant financial) list in the US down more than 8% on the day. Regulators said that the reason for the suspension was due to capital regulatory requirements, but did not elaborate much more. In addition, there was no comment from the company or investment bankers regarding the potential timeline of the delay. Aside from Ant Financial Group itself, that the damage is likely to impact investment banks in the short-term, since the Hong Kong listing was expected to reach as much as US$19.8 billion in underwriting fees if an overallotment option was exercised. Additionally, the 1% brokerage fee on the orders that underwriters handled, which was expected to generate a much larger proportion of total fees, would not be realised as well.


Safe haven currencies were at the bottom of the table in the G10 basket as risk-on sentiment dominates the foreign exchange market. A dip in US treasuries was also indicative of a growing appetite for riskier assets on the day. Commodity-linked currencies led gains, signalling that the market was more likely continuing to price in the positive impact of future fiscal stimulus.

The Reserve Bank of Australia (RBA) cut interest rates and announced that it plans to buy A$100 billion worth of government bonds with maturities of around five to 10 years over the next six months. While the decision from the central bank to ease policy as expected helped put some downward pressure on the Australian dollar in the immediate minutes following the announcement, growing risk appetite well outweighed the impacts of the RBA's move to allow AUD/USD to close 1.55% higher. RBA Philip Lowe also remarked that the central bank still has more tools in its arsenal that it can deploy during his speech, likely in a bid to quell concerns that negative rates and further expansion to its new quantitative easing program was not being considered.


Safe haven assets were strongly skewed to a broad reduction in overall risk aversion. Gold and silver both gained, but underperformed the broader commodities market, signalling gains was more due to the drop in the dollar. The Japanese yen's performance was similar as well, gaining against the greenback but falling against all other G10 currencies including the euro. US Treasuries retreated, with benchmark 10-year yields gaining 5.6bps to 0.90%. Also, important to note is that spreads between five-year and 10-year yields has reached its highest since 2016 reaching about 128 points on Tuesday.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.72% +13.69 1,909.17
Silver +0.57% +0.14 24.23
USD/JPY -0.22% -0.23 104.49
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.2bps 0.17%
10-Year +5.6bps 0.90%
30-Year +6.4bps 1.68%
*Source: Bloomberg

Oil futures advanced for the second day in a row, likely boosted by both the risk-on sentiment in the broad market and momentum from Monday on increasing expectations for a delay to scheduled OPEC+ production hikes in January. Gains were likely further fuelled by the American Petroleum Institute's weekly report showing a decline in US crude oil stockpiles and distillate inventories. The report did however show an increase in gasoline stockpiles last week. In our view, markets are more likely to focus on distillate inventories in the US Energy Information Administration’s (EIA) weekly report that will be released today due to its stronger correlation to a more robust economic recovery. That being said, while oil futures have been supported by positive news since the start of the week, demand should remain a key concern due to the current and expected lockdown restrictions across Europe and the US once volatility has calmed down over the next few days or week.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.90% +0.74 39.71
WTI +2.31% +0.85 37.66
*Source: Bloomberg

In Asia, stocks were trading mixed on Wednesday morning, tracking gains in the US and simultaneously pricing in the uncertainty in the market as election results continue to be reported. The Nikkei was trading upwards of 1% in the early hours of Wednesday's trading day, but was likely thanks to traders compensating for gains after being closed on Tuesday. The KOSPI was trading slightly higher as well, while the ASX200 fell on downward pressure from the surge in the Australian dollar. Futures tracking major US indices were volatile, shifting from positive to negative early in on Wednesday in Asia. Expect swings to continue through the day across financial markets thanks to delays to the presidential outcome and as markets adopt a more wait-and-see approach to the presidential elections in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.28% +302.97 23,598.45 9:05:10 AM
KOSPI +0.20% +4.81 2,348.12 9:25:10 AM
ASX200 -1.14% -68.46 5,997.90 9:24:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.25% -69.00 27,307.00 9:15:12 AM
US Futures -0.13% -4.50 3,357.00 9:15:12 AM
Nasdaq 100 Futures +0.22% +25.25 11,291.00 9:15:11 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • China Oct Service/Composite PMI (Caixin) (9.45am)
  • US Oct 30th Mortgage Applications (8pm)
  • US Oct Private Employment Change (ADP) (9.15pm)
  • US Oct Services PMI (ISM) (11pm)

Companies reporting earnings include (all timings in GMT +8):

  • Expedia Group (5.30am +1)
  • Qualcomm (5.45am +1)