Morning Bid: Election and Fed jitters grip markets

10/23/2024

2 minutes read

2024.10.23 00:56

A look at the day ahead in European and global markets from Ankur Banerjee

The rising odds of a Trump presidency in a still-too-tight-to-call U.S. election and shifting expectations of the Federal Reserve being less aggressive in its easing has left investors nervous, leading to safe assets dollar and gold soaring.

The European markets on Wednesday will wake up to gold setting yet another record, Treasury yields at a three-month top and the greenback at its highest since Aug. 2, pushing yen to near 152 per dollar.

Whisper it quietly but while intervention chatter is not fully back yet, verbal jawboning from Japanese officials could start ramping up soon.

The yen’s rapid weakening from around 140 per dollar in just over a month has come as Treasury yields steadily climbed back above 4% after a slew of strong U.S. economic data led traders to temper their wagers of swift and deep Fed interest rate cuts.

Markets are currently pricing in 41 basis points of cuts for the year, meaning traders are having to guess whether the Fed will deliver consecutive 25 bps cuts in November and December. The Fed started its easing cycle with a cut of 50 bps in September.

With less than two weeks to go for the U.S. presidential election, investors are also increasingly positioning ahead of the Nov. 5 polling day.

While markets are reacting to rising odds of Republican candidate Donald Trump beating Vice President Kamala Harris, the Democratic candidate, according to betting websites, opinion polls show the race to the White House remains too tight to call.

In a new Reuters/Ipsos poll, Harris held a marginal 46% to 43% lead over Trump. Expect markets to be volatile in the run up, investors said.

For now, markets are choosing to believe a Trump presidency is on the way, boosting the dollar and Treasury yields as Trump’s policies including tariffs and restrictions on undocumented immigration are likely to fan inflation, keeping interest rates higher for longer.

Meanwhile, it was a tale of contrasting fortune for newly minted stocks from two of the biggest initial public offerings in the region this year.

Tokyo Metro’s shares soared 44% in their market debut on Wednesday after Japan’s largest IPO in six years bagged the firm $2.3 billion.

Hyundai Motor (OTC:) India shares, on the other hand, slid 7% on their market debut on Tuesday after retail investors gave a lukewarm reception to India’s biggest-ever IPO.

And we end with some corporate earnings, where French cosmetics giant L’Oreal’s third-quarter sales missed expectations after low consumer confidence in China sapped demand for beauty products.

Also keep an eye on fast food and consumer stocks across Europe and U.S. after one person died and dozens fell ill from E. coli infections in the U.S. linked to hamburgers from McDonald’s (NYSE:).