Analysts say the lack of a clear victor could not just put investors on the sidelines – it could send them scurrying away, triggering an equities sell-off

The equity, debt and currency markets face days of volitality as investors’ expectations for a decisive victory in the U.S. election all but vanished early Wednesday. The expected Blue Wave that was to propel Democratic presidential candidate Joe Biden into the White House did not happen.
Reading the polls, which suggested a Democratic sweep of the White House and Congress, investors bet that a Democratic victory would trigger another round of stimulus for the U.S. economy, repairing some of the damage inflected by the pandemics second wave.
A decisive Democratic victory would have been bullish for equities, but the likelihood of a contested outcome saw investors pulling back their trades. Futures on the S&P 500 sank 0.5 per cent on Wednesday morning, ahead of the U.S. market opening, reversing an earlier advance. Yields on U.S. 10-year Treasuries dropped (yields and prices go in opposite directions) as investors took refuge in debt, and the dollar rose.
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In a note, RBC Capital markets said The fear of a contested outcome has not really materialized in risk off yet [selling pressure], but it does unfortunately seem more likely in the days ahead.
The Republicans’ victory in several battleground states, including Ohio and Florida, dashed investors hopes for a decisive outcome. The prospect of extended election-outcome uncertainty means that investors are not prepared to price in a victory for either Mr. Biden or Mr. Trump, even though Mr. Biden had a narrow lead in the electoral college votes overnight.
In the early morning, Mr. Trump falsely declared victory even though millions of votes had yet to be counted in Pennsylvania, Michigan, Wisconsin and a few other states. He alleged voter fraud and said he would go to the U.S. Supreme Court to try to get vote counting stopped.
Market analysts said the lack of a clear victor could not just put investors on the sidelines it could send them scurrying away, triggering an equities sell-off.
Given that the risk of a contested election is higher than priced by the market and that U.S. equities sold off 8 per cent while the Supreme Court decided what to do with the Florida recount in 2000 our overall bias is that risk assets and risk-sensitive currencies will remain vulnerable this week, said Christ Turner, global head of markets for the Dutch bank ING.
Mr. Turner said that lack of election clarity should ensure volatility in the currency markets until the end of the week.
European stocks were broadly lower. Futures tracking the tech-heavy Nasdaq 100 index surged at one point on Tuesday night, when a Democratic victory seemed likely, before falling back to a 2-per-cent gain. In London, the FTSE-100 index fell sharply at the opening of trading but quickly reversed course.
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In a note, Andrew Lowcock, head of personal investing at British investment platform Willis Owen, said the uncertain election outcome was bad news for for investors.
Its the worst outcome for markets, with futures jumping around as traders switch their trades to try and reflect the shifting sentiment towards the candidates, and we expect volatility to be high today, he said. Investors may have to endure some vicious swings in the next few days if this drags on, and it has echoes of 2000 about it, when the result of the George Bush Jr. versus Al Gore was too close to call.
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