Currencies jumpy, stocks stable with all eyes on US election
Dollar and bonds set to react to US vote
China blue chips jump 2% on stimulus expectations
USD/CNH implied volatility near record high
Recasts, updates prices at 0845 GMT
By Lawrence White
LONDON, Nov 5 (Reuters) -Stocks were steady on Tuesday but implied volatility ratcheted up in currency markets in an early indication of the market frenzy to come, as the world awaits the outcome of a knife-edge U.S. election.
Overnight implied volatility options for euro/dollar spiked to the highest since November 2016, as did those for the dollar-Mexican peso pair MXNONO=,in recognition that the latter could be hard hit by protectionist policies if Republican Donald Trump defeats Democrat candidate Kamala Harris.
Europe's benchmark STOXX index edged down 0.2% while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS inched 0.7% higher, as stock markets held their breath ahead of Wednesday's open.
Currencies, which unlike shares trade around the clock, saw more action albeit still offering only scattered and contradictory indications of which candidate investors were betting on.
The dollar, which had eased as traders made final tweaks to positions, bought 152.46 yen JPY=EBS and changed hands at $1.0879 per euro EUR=EBS.
"They've priced what they think is price-able and that's that," said Westpac strategist Imre Speizer, adding that a clear win for Trump would lift the dollar, while a win for Harris would push it a little lower.
Bitcoin BTC= added 2.7% to about $68,884, with Trump viewed by analysts as enacting more favourable policies for cryptocurrencies than Harris.
Election day ends an acrimonious campaign jolted by assassination attempts on Trump and the withdrawal of President Joe Biden in favour of Harris, with polls showing the candidates virtually tied.
Markets are on edge about how Trump's protectionist trade policies in particular could stoke inflation and hit exports in the world's biggest consumer market with bonds and the dollar expected to move on the outcome of the election.
"Ultimately the U.S. election comes down to this - whether the U.S. electorate wants to vote for economic policy continuity, institutional stability and liberal democracy (Harris) or radical trade policy, a further retreat for globalization and strongman democracy (Trump)," J.P. Morgan analysts said in a note. "In short, a vote for stability or change."
BRACED
China is seen on the front line of tariff risk and the currency in particular is trading on tenterhooks with implied volatility against the dollar CNHSWO= around record highs.
The yuan CNY=CFXS hovered at 7.1083 per dollar, while Chinese stock markets surged to almost one-month highs as investors expect a meeting of top policymakers in Beijing this week to approve local government debt refinancing and spending.
China's blue chip CSI300 .CSI300 jumped 2.5% and Hong Kong's Hang Seng .HSI rose 1.4%. .SS
The Australian dollar barely reacted after the central bank held rates, as expected, with all eyes on the election and the Aussie AUD=D3 was last marginally firmer at $0.6614.AUD/
"Simply, if Harris wins, we like selling dollar/yen and buying AUDUSD," said a currency strategists at Citi. "If Trump wins, we like buying USD against EUR, SEK, and NOK."
Treasury markets, which have priced in a U.S. interest rate cut for Thursday, held their ground in early European trading with 10-year U.S. yields US10YT=RR at 4.32%.
Euro zone bond yields edged up, with Germany's 10-year bond yield DE10YT=RR climbing nearly 2 basis points to 2.41%, a little below last week's three-month high of 2.447%.
Oil held sharp overnight gains on delays to producers' plans for increased output, leaving benchmark Brent crude futures LCOc1 at $75.24 a barrel after a 3% rise on Monday. O/R
When U.S. election results roll in after midnight GMT the focus will be on the battleground states of Georgia, North Carolina, Pennsylvania, Michigan, Arizona, Wisconsin and Nevada.
A winner may not be known for days and Trump has signalled that he will attempt to fight any defeat, as he did in 2020.
World FX rates YTD http://tmsnrt.rs/2egbfVh
Reporting by Lawrence White in London and Tom Westbrook in Singapore, Editing by Shri Navaratnam and Christina Fincher
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
