Less than 24 hours before the official voting in the US presidential election, the anxious election situation has made investors' emotions tense.
The Chicago Board Options Exchange Panic Index (VIX), which measures market volatility, approached the 23 mark on Monday, setting a new high since the non farm upset in August this year. Investors weigh the policy proposals of the two candidates and the possibility of a delay in confirming the election results. At the same time, the economic and fiscal stance of the next federal government may also have an impact on the Fed's future policy path, bringing new uncertainties.
The election situation is intense and tense
The 60th US presidential election is entering its final sprint stage. According to data from the Election Lab at the University of Florida cited by CCTV News, as of the afternoon of November 3 local time, over 76.46 million voters in the United States have cast early ballots for the 2024 presidential election.
The election situation is still difficult to determine, and Harris and Trump continue to hold rallies in major swing states in an effort to campaign. According to the results of the last public opinion survey conducted by NBC before the US election, the support rates of the two candidates are currently tied, both at 49%. 2% of voters indicate that they are still uncertain about their choice. In addition, two-thirds of voters believe that the United States is moving in the wrong direction.
The financial market has shown signs of volatility. Affected by the recent decline in multiple polling advantages, the "Trump trade" continues to cool down, and Bitcoin futures fell below $70000 again on Monday. The US dollar index and small cap stock index Russell 2000 continue to be under pressure.
The two candidates have significant differences in their economic proposals. For example, Trump's expectation of seeking lower regulation will benefit banks and the cryptocurrency industry, while higher tariffs may benefit small cap companies focused on domestic markets, while increasing the likelihood of broader market volatility. The expectation that Harris will be more supportive of clean energy initiatives means that if she wins, the solar and other renewable energy sectors may rise.
Many market participants have expressed concerns about Trump's tariff plan, which will push US import tariffs back to the levels of the 1930s, trigger inflation, and once again trigger supply chain restructuring. Maurice Obstfeld, former Chief Economist of the International Monetary Fund (IMF) and Honorary Professor of Economics at the University of California, Berkeley, said that other countries will respond with their own tariff increases, "which can be said to seriously impact the free trade system
In a report sent to First Financial Journalist, Oxford Economics wrote that the tariff environment will not narrow the overall trade deficit of the United States, but will trigger a "huge reordering of trade flows" with other countries, which may be costly in the short term.
In addition, the delayed release of election results may also trigger market volatility. The final outcome of the showdown between George W. Bush and Gore at the beginning of this century was decided by the United States Supreme Court. The competition between Harris and Trump in the seven swing states may bring more attention to the vote counting work. Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, a wealth management company, said, "Regardless of who wins, the market may stabilize and rise. We just need to clarify this as soon as possible
How should the Federal Reserve respond
Due to the US presidential election, the Federal Reserve's interest rate meeting will be postponed by one day compared to traditional times, and the final interest rate decision will be announced on Thursday (3am Beijing time on Friday).
Considering the current anxious election situation, the candidate for the next US president may not be clear until the results of this Federal Reserve meeting are announced. Andrew Husby, Senior Economist at BNP Paribas in the United States, said, "It may be too early for Powell to comment on the impact of monetary policy on the US election
Montreal Bank's Deputy Chief Economist for Capital Markets, Michael Gregory, stated in a report to clients that import tariffs and other policies may have an impact on the economy and inflation. Based on the impact of the economy or inflation, the Federal Reserve may need to adjust its policy stance accordingly
It is worth mentioning that recent fluctuations in price and employment indicators have posed greater challenges for the Federal Reserve's next actions. Excluding volatile food and energy components, the core PCE increased by 2.7% year-on-year for the third consecutive month in September, with a month on month rate of 0.3%, both slightly higher than market expectations. In October, non farm payroll only added 12000 job positions, and the demand for proactive recruitment by enterprises has cooled down.
The pricing of the federal funds rate shows that the market expects the Federal Reserve to cut interest rates by 25 basis points at the remaining two meetings this year.
David Kelly, Chief Global Strategist at JPMorgan Asset Management, believes that if Trump wins the US election this week, the Federal Reserve may pause its easing cycle as early as December. If Trump wins the election, he will adopt a more expansionary fiscal policy, the deficit will widen, and interest rates will rise
Kelly said that if Harris wins, the US economy may continue on a soft landing trajectory. If you have a divided government, the United States will continue this slow, long-term soft landing economy. In this case, the Federal Reserve may stick to its expected path of loose policy. "I think they will stick to what the" dot matrix "suggests until the economy tells them not to do so. He said.