Happy US election day

The week started on a cautious note in Europe and the US as today’s US presidential election looks very close to call and could eventually result in a tight – and even a contested outcome. As such, the major risk today is not a Harris or a Trump win, but it’s the reality that a Harris win could be heavily contested by Mr, Trump and lead to violence and chaos, and more uncertainty than necessary and hit sentiment.

But apart from that, the fact that Trump and Harris have different economic and political agendas, different priorities and the fact that there are sectors that could see a better lift under one or the other presidency may not change the overall performance of the long-term stock market, and not even the concerned sectors...

Did you know that clean energy outperformed traditional energies by 43% under Trump’s presidency? And, wait, traditional energies outpaced clean energies by 53% per year under the Biden presidency.

And zooming out, a quick glance to the S&P500’s performance a year following a US election has always been positive since 1984, no matter if the US was led by a Republican or a Democrat, except in 2000’s tech bubble.

Nvidia in, Intel out, Apple sold

Yesterday saw Nvidia briefly dethrone Apple as the world’s most valuable company, as the world’s AI darling rose on celebration of its inclusion into the Dow Jones index effective from Nov 8th – as a replacement to Intel that was sitting there for the past 25 years. The switch was clearly perceived as AI’s progress within the tech industry, and its increasingly dominant position. As per Apple, the news that Warren Buffet’s Berkshire Hathaway reduces its holding by another 25% didn’t help boost appetite. But hey, Apple remains the firm’s biggest holding, still, as Buffet’s team prefers to sit on a colossal amount of cash – apparently put off by high market valuations of the moment.

Speaking of valuations, the S&P500 kicked off the week on a slightly negative note, as I said, but near an ATH level, as it is the case for Nasdaq 100 and Dow Jones. The US yields, on the other hand, fell and the dollar was hit by a wave of realism that the gap between Harris and Trump was much tighter than what the prediction and broader markets had been pricing in over the past few weeks. The latter gives an idea about the type of a relief rally that we could see in case Harris wins and Trump accepts.

As such, the EURUSD – which is seen as one of the most vulnerable major currencies to a potential Trump victory due to a tariff threat on the EU – is consolidating a touch above the 1.09 level. A Harris win could send the pair above the 1.10 psychological mark, but a Trump win or a contested outcome could move capital to the US dollar.

And in case of a chaotic election day and a contested outcome, gold and Swiss franc would be my go-to places to let the dust settle.

Australia and China

The Reserve Bank of Australia (RBA) maintained its policy rate unchanged at a 13-year high, citing that headline inflation has declined but that the underlying inflation – near 3.5% - remains too high to make a decision to cut the rates. The AUDUSD rebounded on the back of the divergent Federal Reserve (Fed) and RBA policy outlook. The Aussie probably got a boost from some good news from China as well – its biggest trading partner – as the Caixin’s PMI index showed a stronger-than-expected rebound in activity in October, also supported by a rebound in factory output. To top it all off, news that China is now considering a plan to lift the local governments’ debt ceiling and to shift some of their hidden debt onto their formal, official financial statements to reduce financial burden of the local governments and give more transparency to the picture, also helped. The CSI 300 is up by more than 2% this morning and copper futures are gaining momentum to the upside.

Is this time the charm? Maybe, but enthusiasm over China was not enough to further boost oil prices this morning. The barrel of US crude is slightly lower at the time of writing, near $71.50 level, after having jumped more than 3% on Monday, on news that OPEC is considering to delay their output increase by a month – or more. Rumours that the tensions between Iran and Israel could rise again should also provide some support to the short-term tactical bulls above the 50-DMA, near $71.30, and above the critical $70pb level, but oil bulls need a robust Chinese recovery, and perhaps a longer restriction output from OPEC to win over the medium-term bears. The key resistance to the actual bearish trend, supported by Chinese weakness and ample global supply, stands at $72.85pb, the major 38.2% Fibonacci retracement to the July – September selloff.