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2020 Elections: Uncertainty to weigh on markets


4 November 2020

It looks like the US election is heading into the protracted uncertainty scenario. The FX market has remained fairly well-behaved overnight with the G10 complex holding to familiar ranges against the USD. The tightening of the race saw EUR/USD mark a fresh marginal three-month low just above 1.1600, but spot has retraced higher since, economists at TD Securities brief.

Both Joe Biden and Donald Trump have now provided statements. Both suggested they are winning but Donald Trump's remarks made clear that he intends to challenge the ongoing vote counts, which are showing narrowing margins in favor of Trump as more of the absentee and more urban centers are counted. So far, this has been the trigger for risk to start to sell off and the more contentious the challenges and closer the election appears, the more this is likely to weigh on risk.

Six states remain up for grabs, with NC likely for Trump and NV (and Maine-2) likely for Biden. Of the remaining four (PA/GA/MI/WI) Biden needs to win two of the four, and while all four currently show a decent Trump lead, we expect margins to narrow in all (GA and MI likely within 0.5pp). Moreover, PA, NC, and MI can all accept ballots received later (3, 10, and 14 days respectively). It is not clear there will be more certainty on these trackings on Wednesday.

The presidential race remains extremely close. Assuming NC remains a win for Trump and Nevada and the single ME-2 district remain for Biden, it comes down to GA, PA, MI, WI. All currently show a Republican lead, but all are tightening as more ballots are counted. Biden needs to win two of four of those to win. MI and GA seem like they are on track to narrow to a +/- 1pp race, making them difficult to call now. PA and WI are suggesting slightly more bias towards Trump, however, WI does not report mail-in counts separate from in-person so it is difficult to handicap, while PA has counted only 32% of early ballots, leaving a wide margin of error of how big that margin is for Biden.

Biden is currently leading the electoral vote count 238 to 216 for Trump. Remaining to be counted are NC (15 votes leaning Trump), NV and ME2 (7 votes leaning Biden), and GA, MI, PA, and WI still counting (62 votes in total).

We think currency investors will remain in watch-and-wait mode overall until more clarity emerges. Accordingly, we think market conditions will stay choppy as lingering uncertainty makes it difficult to make a strong directional commitment. Ahead of that, we expect the USD to track investor sentiment from here. We note that while the S&P 500 e-mini futures remain elevated, the European equivalents have turned lower ahead of the cash open. If continued, this could see the USD remain firm during the early hours of the London trading session.

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