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U.S. Elections in Spotlight as Polls Open

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What You Need to Know Today

U.S. Markets Mostly Gain After Elections
Historically, U.S. stock markets have generally experienced gains following presidential elections, despite some potential short-term volatility. According to data, the three major U.S. indices have consistently recorded average gains between Election Day and year-end since 1980.

Markets Slip Ahead of Election Day
On Monday, stock markets declined as investors braced for the U.S. presidential election and the Federal Reserve’s interest rate decision later this week. The Dow Jones Industrial Average fell by 0.61%, while the S&P 500 decreased by 0.28%. The Nasdaq Composite dropped 0.33%, closing at 18,179.98. In the Asia-Pacific region, markets exhibited mixed performances on Tuesday, with China’s CSI 300 index leading gains, rising by 2.28%.

China Reviews Plan to Raise Local Government Debt
China’s parliament standing committee reviewed a proposal on Monday to increase the local government debt limit, according to state media reports. Local authorities in China have historically managed significant public service spending but are facing challenges due to declining revenue from land sales to developers.

Poor China Takings Weigh on U.S. Firms
Weak revenue from China has negatively impacted the earnings of several U.S. companies, primarily due to low consumer confidence and rising competition from domestic brands. Among those affected are Apple, Starbucks, Nike, and LVMH, though some companies, such as Tesla and athleisure brands Adidas and Lululemon, have shown more resilience.

[PRO] Investors Bullish on Equities
Despite the heightened volatility in the market surrounding the U.S. presidential election, consumer confidence in equities has reached an all-time high, according to the latest Consumer Confidence survey from The Conference Board.

The Bottom Line
As America prepares to chart its course for the next four years in the presidential election, the global community is closely watching the proceedings. Candidates from both the Republican and Democratic parties have spent months campaigning across the nation. Polls in the Eastern states are set to open for Election Day shortly.

The contrasting views of the candidates regarding the future of America are likely to inject uncertainty into the markets. However, historical trends indicate that stocks typically rise after elections, regardless of the outcome. Analysis shows that the three major U.S. indices have experienced gains between Election Day and the end of the year in every presidential election year since 1980.

Nonetheless, investors hoping for immediate gains on Wednesday might be disappointed. The three indices have seen declines in the session and the week following Election Day in the past, though they typically recover within a month.

Lines from Frank Sinatra’s song “My Way” resonate with investors who are prepared to endure market uncertainty following the election:
“The record shows I took the blows
And did it my way.”

Global Markets Steady Amid High Volatility in Currencies as US Election Approaches

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Stocks remained stable on Tuesday, while currency market volatility surged in anticipation of the tightly contested U.S. election outcome. Overnight, implied volatility for euro/dollar options climbed to the highest levels since November 2016, alongside a similar spike for dollar-Mexican peso options. This increase reflects concerns that a Trump victory could renew protectionist policies, affecting economies like Mexico’s more severely than a Harris administration would.

European stocks saw modest declines, with the STOXX index down 0.2%. Meanwhile, MSCI’s Asia-Pacific index (excluding Japan) rose by 0.7%, as global stock markets braced for potential fluctuations once U.S. markets open on Wednesday. Currency markets, which operate around the clock, showed more movement. The U.S. dollar traded at 152.46 yen and $1.0879 per euro, but market sentiment remains divided, as analysts continue to weigh the potential impacts of each candidate’s policies.

Analysts predict a Trump win could boost the dollar, while a Harris victory may lead to a mild decline. “They’ve priced what they think is price-able and that’s that,” noted Westpac strategist Imre Speizer. Bitcoin also surged 2.7% to around $68,884, with Trump perceived as more favorable to cryptocurrencies than Harris.

The election concludes a highly polarized campaign season, including the withdrawal of President Joe Biden in support of Kamala Harris and even assassination attempts targeting Trump. Market focus now rests on Trump’s trade policies and their possible inflationary impacts, particularly regarding U.S. exports, with expected reactions in the bond and currency markets.

According to analysts at J.P. Morgan, “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). In short, a vote for stability or change.”

Global Markets on Edge

Concerns are mounting in China, which is vulnerable to potential tariff escalations. The yuan traded at 7.1083 per dollar, with high implied volatility against the dollar. Chinese stocks, however, surged to near one-month highs as investors anticipated Beijing’s approval of measures aimed at debt refinancing and local government spending. The CSI300 index rose 2.5%, and Hong Kong’s Hang Seng index gained 1.4%.

Meanwhile, the Reserve Bank of Australia held rates steady, as expected, and the Australian dollar showed only minor gains, trading at $0.6614. Citi currency strategists expressed a preference for selling dollar/yen and buying AUDUSD in a Harris victory scenario, while a Trump win would favor the U.S. dollar against the euro, SEK, and NOK.

In bond markets, the U.S. 10-year Treasury yield held steady at 4.32%, with expectations of a rate cut on Thursday. In Europe, German bond yields rose, with the 10-year yield at 2.41%, just below last week’s three-month high.

Oil prices also remained firm after producers delayed output increases, with Brent crude trading at $75.24 a barrel, following a 3% increase on Monday. As election results roll in after midnight GMT, key battleground states such as Georgia, Pennsylvania, and Arizona will be closely monitored. A clear result may take days, with Trump signaling intentions to contest any unfavorable outcome, as he did in 2020.

 

Nvidia to Replace Intel in Dow Jones Industrial Average Amid AI Boom

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In a significant change to the Dow Jones Industrial Average, Nvidia will replace longtime rival Intel in the prestigious index, reflecting the rapid growth in artificial intelligence and shifting dynamics within the semiconductor sector. The switch will take effect on November 8. Additionally, Sherwin Williams will replace Dow Inc. in the index, according to S&P Dow Jones.

This change comes as Nvidia continues to see record-breaking gains in 2024, with its stock surging by over 170% following a 240% increase last year. The AI chipmaker’s market valuation has reached a staggering $3.3 trillion, trailing only Apple in terms of publicly traded company value. Nvidia’s advanced graphics processing units (GPUs) like the H100 have become essential components for tech giants including Microsoft, Meta, Google, and Amazon, which are purchasing these GPUs in bulk for AI and machine learning projects. Demand for Nvidia’s forthcoming AI GPU, Blackwell, has been described as “insane,” further emphasizing its dominance in the field.

Nvidia’s ascent brings four of the six trillion-dollar technology firms into the Dow, with Alphabet and Meta being the only exceptions. The company’s impressive stock rally was helped by a 10-for-1 stock split announced in May, which reduced its share price by 90%, facilitating its addition to the Dow without disproportionately influencing the index’s price-weighted structure.

In contrast, Intel has faced significant setbacks, with its stock declining over 50% this year. Once a leader in PC chip production, Intel has lost considerable ground to competitors like AMD and struggled to penetrate the AI sector. These challenges have been compounded by manufacturing issues and increased competition. Intel recently revealed plans to cut 16,500 jobs and reduce its real estate holdings, a part of cost-saving measures approved by the board’s audit and finance committee.

This change marks the Dow’s first adjustment since Amazon replaced Walgreens Boots Alliance in February. Historically, the index has lagged in adding the largest technology firms, but the inclusion of Nvidia underscores its commitment to capturing the growing influence of the tech industry.