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Analysts' View: Markets hold breath as final votes tallied in U.S. battleground states

(Reuters) - U.S. stock futures extended gains in after-hours trade on Wednesday, as ballots were tallied in several states that should decide whether Democratic challenger Joe Biden unseats President Donald Trump in an election that remains too close to call.

A person holds a sign as people rally the day after the 2020 U.S. presidential election while votes continue to be counted, outside the TCF Center in Detroit, Michigan, U.S., November 4, 2020. REUTERS/Shannon Stapleton

S&P e-mini futures EScv1 were up 0.9% on the heels of a 2.3% rally in the S&P 500 .SPX on Wednesday, driven by the prospect of gridlock in Congress after Democrats appeared to have failed to take control of the U.S. Senate.

That raised optimism that disruptive policy changes would be hard to implement, regardless of the winner in the presidential contest.

Click here for Election 2020 coverage: here

By early Asian trade, the dollar index =USD had ceded its gains and was at 93.31, after touching a one-month high of 94.308 during the U.S. day.

U.S. 10-year Treasury note futures TYc1 extended gains after Treasury yields fell hard Wednesday. [MKTS/GLOB] [US/] [USD/]

COMMENTS

ANDREW GILLAN, HEAD OF ASIA-EX-JAPAN EQUITIES, JANUS HENDERSON INVESTORS, SINGAPORE

“A Biden victory is unlikely to result in a major change in U.S. foreign policy short-term so more important is the direction of the dollar with a weaker dollar more supportive of Asia & Emerging Market equities.

“Asian investors have been anticipating a shift in flows away from the outperforming and relatively expensive U.S. market towards international equities but that has not yet happened to a significant degree. The relative valuations and the economic recovery in Asia would certainly justify that shift in the medium term and perhaps optimistically, as a Asia fund manager, the U.S. elections might mark a turning point and a chance for investors to reassess these fundamentals.”

PHILIP BLANCATO, CEO, LADENBURG THALMANN ASSET MANAGEMENT, NEW YORK

“Assuming that things stay somewhat as they are – that Republicans will retain control of the Senate - this is best of both worlds. The market will protect its capital gains, and we are going to get a stimulus package either way.

“The worst possible outcome is a ‘blue sweep’ and a contested election. I think we are going to get a decent rally for the rest of the year.”

FABIANA FEDELI, GLOBAL HEAD OF FUNDAMENTAL EQUITIES, ROBECO, ROTTERDAM

“From the point of view of equity markets a divided Congress at this point is the least desirable scenario, independently from which side wins, as this could mean delays in policy execution and in what we believe is a much needed stimulus package in the near term.

“There are two equity trades here: in the short term, until uncertainty on the outcome continues, we can expect investors to turn more defensive and some of those ‘blue sweep’ trades that we have seen arising since the summer and even more so over the last few days are likely to unravel: EM equities and FX, including China, the renewables theme and cyclicals over big tech. We are also likely to see some relief in ‘red tide’ trade, such as oil, or Russia which is a country that is expected to incur sanctions under a Biden administration. This however, could be a very short term trade and just in place until we have some clarity on the win.

“In the end, which side wins will not determine equity market direction but rather sectors and – at an international level - country selection. What will really count are the type of policies implemented and the impact on the economy from the developments of a COVID-19 outbreak.”

JEFFREY HALLEY, SENIOR MARKET ANALYST, ASIA-PAC, OANDA

“For financial markets, though, the result is a boon. Gone will be a multi-trillion-dollar fiscal stimulus. In will come more monetary policy stimulus as the Federal Reserve takes the burden on its shoulders.

“Even if President Trump were to make a miraculous comeback, that status quo would be unchanged. It is, therefore, little surprise that U.S. equity markets powered higher and the U.S. dollar quickly unwound all of its gains yesterday.

“Of course, economic inequality and the ability to overcome that gap will increase, ironically impacting on many Republican voters the most.

“The world is undoubtedly storing up problems for another day in this respect. It will matter not though to the FOMO gnomes, however, with the buy everything global recovery trade back in full swing overnight. If you are not long equities, property, precious metals and emerging markets, you probably should be. If you are pandemically unemployed or can’t afford it, sorry, you’ll just have to wait for the revolution.”

JIM WILDING, WEALTH MANAGER, PARTNER, CONFLUENCE FINANCIAL PARTNERS IN PITTSBURGH, PA

“A Biden Presidency with divided government (REP Senate, DEM House) would very likely result in more gridlock, and a more neutral impact on markets. We could see increased spending for infrastructure and economic recovery, but limited legislation changes and limited support for tax increases.

“If Trump is reelected, and the Senate remains Republican, we are unlikely to see tax increase, which would be viewed as a positive by the market. Trade battles with China would likely intensify and regulatory changes may pick up even more. An infrastructure bill could also be possible.

“Hopefully, we have election results before Thanksgiving!”

BRAD KARP, CHAIRMAN AT LAW FIRM PAUL, WEISS, NEW YORK

“As the mail-in ballots continue to be counted in several key Midwestern states, it now appears clear that Vice President Biden will secure the required 270 electoral votes to become the 46th President of the United States. Nearly as important as the ultimate electoral outcome is the need for that result to be respected as legitimate across the county.

“The efforts by Mr. Trump and his lawyers to try to disrupt and discredit the vote count are disheartening and run counter to the bedrock principle of our democracy that every legitimate vote be counted. Calls to disrupt the lawful counting of legitimate ballots, or, even worse, baseless rhetoric casting doubt on the results, should be shut down by Republican leaders. These cynical efforts both to ignore valid ballots and to undermine the results of a legitimate election have no place in our democracy.”

Compiled by the Global Finance & Markets Breaking News team

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