US Election – financial markets cautious as results too close to call

Futures had showed New York’s Dow Jones, S&P 500 and Nasdaq indices all set to climb sharply at Wednesday’s open – building on gains seen on both Monday and Tuesday – but sentiment started to slip as early results showed Donald Trump had performed better than polls had expected.

Europe was first to fully reflect the nail-biting conclusion to the presidential contest, with the FTSE 100 in London falling 1% at the open in volatile trading. It later turned tentatively positive.

Financial analysts said that despite the deep uncertainty over the result, the prospect of a protracted count had been largely factored in beforehand given the potential threat of legal challenges and record numbers of postal ballots.

Investors have been focused this week on expectations that the end of the bitter contest between Donald Trump and Joe Biden will result in further economic stimulus for the coronavirus-hit economy.

The implications of the race for the White House are the main focus globally as the winner will take control of the world’s largest economy.

Japan’s Nikkei advanced by 1.7% – taking its lead from Wall St on Tuesday – while the Hang Seng in Hong Kong erased gains late in the day to close in negative territory as it reflected the tight US race.

Back in Europe, Italy’s MIB was 2% down in early deals while the DAX in Frankfurt was 1% down though, like in London, the declines later eased.

US futures showed a negative picture for the Dow Jones Industrial Average though the tech-heavy Nasdaq was on course to maintain its recent run of gains by opening more than 2% up.

There was a rush towards the dollar – a safe haven in uncertain times – with the pound losing almost 1% to trade at $1.2946. US government bonds were also in high demand.

The rally for shares this week comes after a grim end to October which saw the FTSE record its worst monthly decline since March.

Fears over the economic impact of a second wave of coronavirus infections and fresh lockdown measures have unsettled traders recently.

A market slump earlier in the year was stemmed when central banks and governments – led by the US – unleashed unprecedented stimulus measures.

As voters went to the polls, some traders appeared to be betting on Biden leading a Democratic sweep of the White House and the Senate, allowing him to deliver a further big package of spending measures.

Investors and economists say fresh stimulus is needed, but progress has been held up by squabbling between Democrats and Republicans in Washington.

As the counting continued, market experts suggested the prospect of a possible Trump win – in defiance of pre-vote polls – was not cooling steam behind the equity rally.

They said it reflected fears of a contested result in the days and weeks ahead and likelihood of a delay in more financial aid for US consumers and businesses.

In London, investors are also eyeing prospects for a Brexit deal and speculation that the Bank of England will trigger a further round of money printing or quantitative easing later in the week.

Chris Beauchamp, chief market analyst at IG, said: “As the night grinds on Donald Trump appears to have staged a remarkable comeback, as polling across the US suggests he has had a good night.

“The market reaction has so far avoided the volatility of 2016, at least on the downside, with yet more gains for stock futures.