Georgia on the mind of betting markets
|The eyes of the financial world will be on Georgia tonight as voters determine who controls the US Senate. According to PredictIt betting markets, there's a 60% chance of Republicans keeping the Senate (More on what it means below). Polls close at 0000 GMT. Will the Senate race involve a delayed outcome? Was Tuesday's rally an opportunity for markets to lift the markets for one last hurray before gridlock provides an excuse for deep profit-taking?
The combination of the Georgia race and the UK lockdown on Monday upended markets. The covid variants present a formidable threat to the reopening narrative in the months ahead and potentially for much longer in emerging markets where vaccine rollouts will extend deep into 2022. Sterling made a broad recovery from Monday's selloff, which was triggered by the UK's announcing a new shutdown of schools.
Early voting data looks promising for Democrats and much of that shift occurred over the holidays, leaving little opportunity for market participants to place hedges so that may have been what kicked off the big reversal.
Looking beyond the results, the consensus view is that a Republican hold on the Senate is good for markets but that's highly debatable. Biden promised $2000 stimulus checks at a final rally Tuesday and a Democratic sweep would open the way to a highly stimulative agenda. The most straight-forward trade in that scenario may be precious metals along with broader commodities. Look for CAD and MXN to be the top FX beneficiaries on commodities and the spillovers from US spending.
How the vote plays out is an important consideration as well. It took nearly a week before the result of the Georgia general election was clear and the timeline in this vote will also extend well-beyond the close of polls. As in the November vote, the early tally will favor Republicans but mail-in voting will favor Democrats.
What's different this time is that market participants can use data from the general election to model and compare this vote. If Democrats look to be outperforming the November vote by 3-4 percentage points, it would indicate a sweep.
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