Election risks weigh

Equities 5 minutes to read

Eleanor Creagh

Australian Market Strategist, Saxo

Summary:  With the deadline for a stimulus deal ticking, Republicans are still opposed to a large package making it increasingly unlikely a deal will be reached before the election. Even if Pelosi and Mnuchin can reach an agreement, Republicans in the senate have limited appetite to approve a larger package.


Risk assets struggled overnight as the ongoing fiscal impasse weighed with the US election drawing close. This softer tone has carried through into the Asia trade with the added concerns surrounding election interference weighing.

E-minis and Asian indices are trading lower, alongside gold and silver whilst the USD has caught a mild risk-off bid, outperforming G10FX. Up next tonight, is weekly jobless claims and the final trump-Biden debate, which this time comes with a mute button!

As the US election draws closer, the warning that Russia and Iran have attempted to interfere with the US election serves as a reminder that there is still a range of scenarios that could play out come November 3.

Another potential complication in the offing is the rising COVID-19 case count, which continues to trend higher. According to Bloomberg, New Jersey recorded its highest case count since July, along with 10 other states, including Wisconsin, Iowa, Nebraska and Ohio. Hospitalisations and ICU cases have also risen, although the silver lining, deaths are yet to follow suit.

Meanwhile risk assets are on edge hanging out for news on the stimulus bill, remaining vulnerable to headline risk with the US election in close quarters. With markets this morning seeing no meaningful progress on fiscal 4 and reacting to the heightened political instability that comes with the confirmation of efforts to manipulate the presidential race. Specifically, the extent to which the confirmation of foreign interference tactics potentially plays into the probabilities of a contested election.

The ability for either candidate to seize upon accusations of foreign interference is heightened and raises the probability of a contested outcome and protracted period of uncertainty following, particularly as the race could be closer than polls currently indicate. A reminder that it is perhaps premature to become complacent on a clean sweep and price out the fears of a contested election at this stage. And confirmation once again of a choppy trading environment until such a precipitous event risk has passed. 

A contested outcome in the worst-case scenario, setting the stage for civil unrest across a nation already divided as factions of the population on either side believe the victory has been stolen. Particularly as voter intimidation or interference efforts undermine confidence in the election outcome. 

Foreign interference in the US election is not a new concept, but it is one that adds to the already diminishing trust in institutions, increasing stress on economic and political systems, as the fairness and reliability of the election is called into question.

In crises, the strengths and weaknesses of our existing operating models are laid bare. And the news will only add to the increasingly polarised environment in the US that has been worsened by the pandemic, with more than 210,000 deaths from the coronavirus, large scale unemployment and ever-increasing income and wealth disparities. COVID-19 started as a health crisis but has quickly morphed into an economic and social one. 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.