Global stock markets witnessed positive momentum, and the US dollar experienced a decline as investors prepared for a pivotal week marked by a tightly contested US presidential election, a critical interest rate decision, and potential economic stimulus measures from China. Oil prices saw a significant increase of approximately 2.5% following a decision by eight OPEC+ producers to extend supply cuts until the end of the upcoming month. This strategic move by OPEC+ was driven by concerns regarding waning demand levels in key markets like China and the United States, which had already led to previous output hikes being postponed.
The upward trend in major European and Asian markets was bolstered by a buoyant lead from Wall Street, where traders displayed heightened anticipation for what is being described as one of the most consequential weeks of the year. Joshua Mahony, chief market analyst at Scope Markets, emphasized the critical nature of the upcoming events as investors closely monitored the competitive landscape between Democratic Vice President Kamala Harris and her Republican rival, Donald Trump, both of whom are neck and neck ahead of the Tuesday election. A recent poll out of Iowa, a state Trump won in both 2016 and 2020, revealed Harris leading, which contributed to the dollar’s retreat against its main rivals.
Market analysts are particularly focused on the implications of the election results on the financial landscape, including their potential influence on the US dollar and Treasury yields. A Trump victory is anticipated to positively impact the dollar, likely resulting in higher Treasury yields as his administration has pledged to implement tax cuts and impose substantial tariffs on imports. Furthermore, the outcomes of elections for the Senate and House of Representatives are also being scrutinized, as there is speculation that Republicans could gain control of both chambers, which could lead to significant fiscal changes negatively affecting bondholders and resulting in increased yields in the aftermath of the election.
In parallel with the election, the Federal Reserve is set to announce its latest monetary policy decision, with investors widely expecting a 25-basis-point reduction following a more substantial 50-point cut from their previous meeting. The timing of the election coincides with crucial deliberations happening in China, where the government is expected to introduce an economic stimulus package. Nomura’s chief China economist, Ting Lu, noted in a research report that the outcome of the US elections would likely influence the size of the anticipated stimulus package from Beijing.
The political strategy of both presidential candidates concerning China has been a critical theme, with both pledging to adopt a tougher stance against the country. Trump’s campaign includes bold promises of imposing a 60% tariff on all Chinese imports, while economists predict that legislation may approve around one trillion yuan (approximately $140 billion) in additional budget measures, primarily targeting support for local governments, as well as a one-time payment of the same amount to banks to enhance liquidity.
On the market front, positive gains were reflected in Asian indices, with Hong Kong and Shanghai registering notable increases of over 1%. Tokyo’s markets were closed for a holiday, while European markets, including Paris and Frankfurt, also saw upward trends. With London’s financial indices up by 0.6%, expectations were growing that the Bank of England would also lower its main interest rate in response to inflation dipping below the target range. Meanwhile, oil prices found additional support from geopolitical tensions, particularly following Iranian Supreme Leader Ayatollah Ali Khamenei’s warning regarding potential repercussions for Israeli and US strikes, thereby bolstering market sentiments and oil prices.
