US election day

In focus this week

Today, the US election takes place and is the major highlight of the week. Over the weekend, Harris' odds in prediction markets have risen sharply, but swing state polls continue to signal a very close race. Michigan, Wisconsin and Pennsylvania are the most likely tipping points of the election.

Tomorrow morning, when we - hopefully - know the results of the US election, we will be hosting two conference calls where we present our instant views on the 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. 

Economic and market news

What happened overnight

In Australia, the Reserve Bank of Australia opted to maintain steady interest rates at 4.35% (cons: 4.35%, prior: 4.35%), aligning with both analyst consensus and market expectations. This decision comes as underlying inflation continues to be too high.

What happened yesterday

In the US, investors reined in bets on a win for Donald Trump causing EUR/USD to rise by 0.4%. This comes as a poll by J Ann Selzer released this weekend showed support for Kamala Harris in Iowa.  

In the euro area, the Sentix investor confidence indicator came in below market expectations at -12.8 (cons: -12.5), providing a negative first assessment of sentiment in November. On the upside, manufacturing PMI data for October surprised slightly to the upside at 46.0 (cons: 45.9, prior: 45.9). Overall manufacturing continues to stagnate, despite diminishing headwinds from falling interest rates. 

In Oil markets, prices continued to gain following OPEC+ announcing Sunday a delay in December output increases until January next year. Brent futures increased by 2.90% to USD 75.22 per barrel and WTI crude climbed 3.02% to USD 71.48. 

Equities: Global equities were flat yesterday. Only minor movements across sectors and styles, which is understandable given the US presidential election today. Bond markets will play a crucial role for equities after the election, but we can end up in a situation where the removal of uncertainty will have the biggest impact. The VIX index closed at 22 yesterday. Without the election, we argue it should have been closer to 15, considering the current phase of the business cycle and the recent macroeconomic and earnings data. In the US yesterday, Dow -0.6%, S&P 500 -0.3%, Nasdaq -0.3%, and Russell 2000 +0.4%. Chinese markets are boosting Asia this morning, following a strong Caixin service PMI and further announcements from the central government about potential fiscal support. US futures are marginally higher this morning, while European futures are marginally lower.

FI: The rising probability of a Harris presidential win sent US yields 10bp lower in the longer end of the curve on reduced probability of a republican sweep, and thus less fiscal easing. Like much of the move on late Friday, this move was largely a UST move and markets did not record a beta to EUR rates. In fact, euro rates traded mostly sideways with no appetite among investors to add risk to existing positions.

FX: The FX market is in consolidation mode ahead of today's US election. After a slight pull-back to the Trump trades at the onset of the week, broad USD is modestly stronger overnight. EUR/USD is at the high end of the 1.08-1.09 range, USD/JPY back above 152 and cable just shy of 1.30. RBA left its policy rate unchanged at 4.35% this morning, which was as expected. The AUD barely budged. At 11.66, EUR/SEK has one eye on the US election and one on the Riksbank rate decision, with two-sided risks depending on the outcomes. As for EUR/NOK, just below 12.00, the topside is vulnerable to a Trump win.