- Global Markets Roiled as Trump Takes Lead in Election Vote Count
Global markets were thrown into disarray as results from the U.S. election indicated that Donald Trump may prevail over Hillary Clinton in the race for the presidency, shocking traders who had focused on polls in recent days showing the opposite.
Panicked investors rushed to unwind bets they’d piled on amid predictions Clinton would sweep to victory, fueling demand for haven assets. Futures on the S&P 500 Index plunged by a 5 percent limit that triggers trading curbs and Asian shares sank by the most since the aftermath of Britain’s shock vote to leave the European Union. Mexico’s peso had its steepest plunge since 2008 on concern a Trump win would lead to more protectionist U.S. trade policies. Gold jumped by the most since Brexit, surging with the yen and sovereign bonds.
Based on the states that have been called, Trump had 244 of the 270 Electoral College votes needed to claim the White House and Clinton had collected 215, while the Republicans were also on track to retain control of Congress. A Trump victory, buttressed by electoral gains from Florida to Ohio, had been portrayed by analysts as having the potential to unhinge markets that were banking on a continuation of policies that coincided with the second-longest bull market in S&P 500 history. Brexit was the last major political shock and led to the S&P 500 sliding 5.3 percent in two days.
Most polls showed Democratic candidate Hillary Clinton ahead of Trump going into the vote and websites that took bets on the victor had put the Democrat’s odds of winning at 80 percent or more. Trump pledged to clamp down on immigration to the U.S. and renegotiate free-trade agreements with countries including Mexico.
Among key moves in financial markets:
- S&P 500 Index futures slide as much as 5 percent
- FTSE 100 Index futures drop 3.4 percent
- MSCI Asia Pacific Index drops 2.6 percent
- Mexican peso tumbles as much as 12 percent, breaching 20 per dollar for first time
- Japanese yen climbs versus all major currencies
- Euro, Swiss franc rise at least 1.7 percent
- Gold jumps 3.1 percent, most since Brexit
- Crude oil slides 2.5 percent
- 10-year U.S. Treasury yield drops five basis points to 1.80 percent
The MSCI Asia Pacific Index was down more than 2 percent, with benchmarks in India, Japan and New Zealand posting the biggest declines in the region.
“If Trump becomes president and both the House and Senate are Republican, he can do whatever he likes,” said Norihiro Fujito, a Tokyo-based senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “We’re in the midst of a violent unwinding of positions globally as investors deal with an unexpected, risk-off situation.”
Mexico’s peso plunged to a record low of 20.7818 per dollar, and was the worst performer among currencies worldwide. Other higher-yielding currencies sank, with South Africa’s rand weakening 3.1 percent and South Korea’s won down 1.1 percent.
“This would be the biggest political upset in living memory,” said Jeremy Cook, chief economist at London-based World First U.K. Ltd. “The significance is almost unquantifiable.”
Currencies viewed as havens strengthened, with the yen climbing 2.6 percent and the Swiss franc gaining 1.6 percent.
Treasuries rallied as traders saw the likelihood of the Federal Reserve interest-rate increase in December dwindling to less than 50 percent, based on overnight indexed swaps. The yield on the 10-year note declined four basis points to 1.82 percent. Its daily trading range — 0.18 percentage point — was the largest since June 24, the day after the Brexit vote.
“It’s looking increasingly likely that he’s got this,” said Robert Tipp, chief investment strategist in Newark, New Jersey, for the fixed-income division of Prudential Financial Inc. “We’re seeing the market scramble, we’re seeing fear of trade war seeping into Treasury prices.”
Oil Prices Drop on Stronger U.S Dollar
The strong U.S Dollar pressured global crude oil prices on Thursday despite the big drop in U.S crude oil inventories.
The Brent crude oil, against which Nigerian oil is priced, dropped by 74 cents or 1 percent to settle at $73.65 a barrel at 4.03 am Nigerian time on Thursday.
The U.S West Texas Intermediate crude oil depreciated by 69 cents or 1 percent to $71.46 a barrel after reaching its highest since October 2018 on Wednesday.
“Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.
“The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.”
The U.S. dollar boasted its strongest single day gain in 15 months after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.
A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.
Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.
Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.
“This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.
Oil Rises as Threat of Immediate Iran Supply Recedes
Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.
Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.
A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.
It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.
Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.
“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.
To meet rising demand, U.S. drillers are also increasing output.
U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.
Oil Prices Rise as Demand Improves, Supplies Tighten
Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.
Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.
U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.
“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.
“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”
Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.
The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.
“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.
The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.
IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.
The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.
On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.
U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.
It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.
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