Wall Street gearing up for election. Chinese equity benchmarks rose more than 1%, among the best performers in the region. Japan’s Nikkei 225 jumped following a public holiday, while shares in Australia and South Korea slipped. The Bloomberg Dollar Spot Index was flat and the 10-year Treasury yield advanced one basis point.
After a cautious start to the day, stocks turned higher upon data that showed China’s service activity expanded at the fastest pace since July, and comments from the premier that the country has ample policy room. Sentiment also got a lift after the nation’s top legislative body reviewed a proposal that aims to reduce the financial burden of local officials.
The US presidential vote looms large for financial markets this week, as polls show Americans narrowly split between Donald Trump and Kamala Harris. The likelihood of a disputed result may drag the vote count out for weeks, spurring a potential rise in volatility.
The specific scale of China’s fiscal stimulus may be determined based on the results of the US election, said Shen Meng, a director at Chanson & Co. “If Trump is elected, the negative impact on the Chinese economy will be greater, and central fiscal expenditures may be greater. On the contrary, maybe there’s no need to add too much debt if Harris wins”
There are additional catalysts likely to move the market this week. Election Day will quickly be followed on Thursday by the Federal Reserve’s decision and Jerome Powell’s press conference, where he’ll give details on the central bank’s interest-rate path. A big chunk of US firms are due to report earnings.
“The US dollar is probably the cleanest expression, the most obvious expression for this week,” Chris Weston, Pepperstone Group’s head of research, told Bloomberg TV. A Harris victory coupled with a split Congress warrants selling of the US currency, while “if we get a Trump win you’ll probably see a little bit of a pop in the dollar, 1% or 2% or so over a day or two.”
In Japan, a key potential ally for the weakened government, Yuichiro Tamaki, said the central bank shouldn’t raise interest rates again before March, urging it to closely examine the results of next year’s wage deal results before moving on policy again. Japanese stocks will get an additional 30 minutes of trading.
Elsewhere in Asia, Australia’s central bank is poised to keep interest rates at a 13-year high, marking a year of unchanged policy as it grapples with a slow pace of disinflation and mounting global risks capped by a tight US election.
South Korea’s inflation decelerated to the slowest pace since early 2021, prompting the central bank to welcome the cooling as a sign of firming price stability.
In commodities, gold was little changed as the market braced for a tight US election. Oil steadied after jumping almost 3% on Monday on heightened tensions in the Middle East and OPEC+’s move to extend supply curbs.