Markets consolidate gains awaiting Biden presidency

Markets consolidate gains awaiting Biden presidency

US Treasuries steady as Federal Reserve turns watchful; China shares unchanged as direction of US-China relations hinge on new US president; Biden presidency seen as promoting rule-based international order, structural benefits for Emerging Markets.

The dollar steadied after weakening to two-year lows and US Treasuries were unchanged after the two-day rally as fiscal stresses eased and the Federal Reserve’s meeting outcome was as expected.

Gold saw a benefit from the uncertain environment with haven bids lifting it 0.3% higher to $1,951 per ounce.

Even though the US election trends indicate Democrat Joe Biden will beat President Donald Trump, the possibility of Republicans keeping control of the Senate means the US Federal Reserve would need to step in to support the economy.

Japan’s Nikkei 225 index advanced 0.91%, while Australia’s S&P ASX 200 added 0.82%,

Hong Kong’s Hang Seng index added 0.07% and China’s CSI300 edged up 0.01% with the two markets almost unchanged amid concerns about the fate of US-China relations, which hinge on the US Presidential election outcome.

Regionally, the MSCI Asia Pacific index climbed 0.59%.

“Biden is now in the leading position to win the US Presidential election, and hopes are stirred that US policy will reorient towards supporting a rule-based international order. This should keep a lid on policy uncertainty and also ease trade tensions somewhat, even if no immediate action is taken on the existing Trump tariffs,” DBS bank analysts said in a note.

Benefits for Emerging Markets

Barclays economists said a Biden presidency could bring structural benefits for Emerging Markets, although the prospect of a divided Congress has diminished the likelihood of a ‘reflationary’ bear-steepening of the UST curve.

US Treasuries were steady with the 10-year yield at 0.76% after its recent 20 basis point rally this week. The US Federal Reserve’s monetary policy meeting had little impact since the central bank reiterated its earlier message of support, without any new measures announced.

“Now is the time for the central bank to sit back and watch, as it waits for further data and for greater clarity on the fiscal front, in the wake of the close election results,” Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, said.

He said that the central bank always stays away from political events, especially when it is so contentious and uncertain as it is currently.

“In addition, the economy is clearly moving toward recovery across multiple fronts, including growth, employment, and albeit in an uneven way, inflation-expectations. Hence, this is a meeting in which the Fed will wait for more information on the economy, on Covid developments, on election outcomes and on evolving probabilities for further fiscal stimulus,” Rieder said.

Via: ATF

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