Trump in the lead – House control still up in the air

In focus today

Today, the US election dominates the spotlight as investors eagerly anticipate the final outcomes. At the time of writing, Trump has secured a victory in North Carolina and Georgia, with attention fixed on the remaining five swing states. Republicans have been called majority winners in Senate, and the sweep now largely depends on the House elections. 

This morning, we are hosting two conference calls where we present our instant views on the election results and implications for markets and the economy: Conference call on the implications of the US election for Global and Scandi markets at 8:40 - 9:10 CET and US elections morning call - Macro need-to-knows at 9:15 - 9:30 CET. 

In the euro area, the final PMIs for October are released. Additionally in Germany, we will receive data on factory orders for September, providing a hint of what the industrial production data will show on Thursday. 

In Sweden, the monthly Swedish inflation expectations survey is published. We do not expect any surprises, but rather confirmation that the more important 5-year horizon remains stable around 2%. 

Economic and market news

What happened overnight 

In the US, swing state North Carolina and Georgia were called for Trump, boosting his electoral vote tally to 246. Onlookers are closely watching, as the results from the remaining six swing states continue to unfold. At the time of writing, initial tallies show Trump leading in all five, with Harris closely trailing.  

Current sentiment (stronger USD, higher yields) is likely to extend into European morning after Trump is expected to win Georgia and North Carolina with larger than anticipated margins. He is also in the lead in Pennsylvania, which is extremely important for both candidates, but finalizing the state's count might take until Wednesday afternoon (European time). Harris still has a path to victory, but she needs to have performed better-than-expected in the election day voting in Pennsylvania, Michigan and Wisconsin. Senate is likely to flip to Republican majority (as expected), but House race remains very uncertain as none of the most competitive seats have been called. 

In crypto markets, Bitcoin soared to a new record high just shy of the USD 75,000 mark as Trump draws ahead in the US presidential election. Crypto investors anticipate less regulation and potentially public financial backing in the event of a Trump win. 

What happened yesterday

In the US, the presidential election began as voters amassed at the polls to cast their votes in the race split 50-50 between Trump and Harris. The battleground states, Michigan, Wisconsin and Pennsylvania are the most likely tipping points of the election. We think a Republican sweep would provide support for broad USD and lift yields at both short and long ends of the USD curve on the back of rising inflation and debt sustainability concerns. A Harris win and/or a divided Congress could have the opposite effect if fiscal policy stance remains closer to status quo. Trump could hike tariffs even as a 'lame duck', complicating the outlook especially for USD FX. 

Coinciding with the election, US stocks climbed as the ISM report on US non-manufacturing sector showed PMI 56.9 in October (cons: 53.8, prior: 54.9). The headline index was driven higher by the employment index recovering sharply, while prices and new orders weakened. Overall, both PMIs and ISM showed gradually moderating business activity and inflation in services sector in October, which should allow the Fed to continue cutting rates a gradual pace over coming meetings. 

Equities: US futures are higher, led by small caps. The three major indices in the US, Dow, S&P500, and Nasdaq, are higher by approximately 1%. Please note, these are not outsized moves. The Russell 2000 is up 2.6%. Listening to commentators, the small cap outperformance is surprising given yields on the long end rising by 12bp. However, this aligns with our observations of small caps performing well as Trump gained in polls and yields increased; thus, this should not come as a surprise.

European futures are intriguing; the EURO STOXX 50 is down by approximately 0.5%, while earlier this morning it was marginally higher. The FTSE 100 future is marginally higher. This European underperformance, particularly in common currency, is likely due to heightened concerns about trade wars and tariffs. However, the movements are not outsized, suggesting that reactions to the election outcomes should be measured. Japanese stocks are significantly higher this morning as the yen weakens, with USDJPY at 153, entering what we call intervention territory. Japanese banks are performing exceptionally well, with the Topix bank index up almost 5% at the time of writing.

FI: US Treasury yields rose significantly as the markets expect a Trump victory and a possible Republican sweep as the Republicans have won the Senate. Hence, 10Y Treasury yields are up some 12-13bp this morning: However, several of the key swing states are yet to publish results at the time of writing, but it looks like a Trump victory. The US curve is steepening from the long end.

FX: On this election morning the USD has been the clear outperformer amid the outlook for a new Trump presidency and by extension tariffs and US-first policy. EUR/USD fell sharply below 1.08 but has rebounded over the last hour amid the potential for less expansionary fiscal policy should the Congress end up split. TRY stands out as a clear winner with markets pricing in a more Erdogan-friendly outlook while CAD and to some extent CHF and GBP are among the overperformers in G10 space. At this stage the CNY has kept up remarkably well. Unsurprisingly, the JPY has been a clear underperformer with the rise in yields sending USD/JPY above 153.50 whilst MXN has also come under pressure. Price action in the Scandies has so far been very muted which to some extent likely reflects poor overnight liquidity and bears watching when markets open.