Dollar slips, Treasuries gain on US election
Tokyo, November 7, 2012
US stock futures and the dollar fell on Wednesday and benchmark Treasuries rose as television networks projected President Barack Obama had won re-election, signalling no dramatic shift in US economic policy.
Markets had generally expected Obama to shade a close-fought election, with the general view that a second term under the Democrat would favour bonds, as he is perceived to favour low interest rates, while Republican challenger Mitt Romney was perceived as more business-friendly and supportive for equities.
S&P 500 Index futures were down 0.6 percent, having dropped as much as 1 percent earlier, pointing to a reversal of most of Wall Street's election day gains when trading resumes, but Asian shares rose amid relief that the result was clear-cut.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent and hit a three-week high, after spending much of the session in and out of negative territory. Japan's Nikkei average was flat.
"The signal we are getting from all markets ... is suggesting that the outcome of the US election has met market expectations and any precautionary positioning in the U.S. dollar has been unwound," said Richard Yetsenga, Head of Global Markets at ANZ Research.
Australian shares rose 0.5 percent, supported by an overnight rise in commodities that boosted mining stocks. But Hong Kong shares were down 0.3 percent.
The euro touched a session high of $1.2876 and the Australian dollar hit a five-week high at $1.0461.
The dollar slipped 0.3 percent against a basket of major currencies, retreating from a two-month high scaled on Monday.
OBAMA BOND BOOST
"Obama's win means the quantitative easing will continue and pressure the dollar while boosting bonds," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
Ten-year Treasuries climbed 21/32 in price to yield 1.677 percent, down about 7 basis points from late U.S. trade on Tuesday.
Congress will remain split between the two parties, keeping the possibility intact of messy negotiations to avert the looming "fiscal cliff" - nearly $600 billion worth of spending cuts and tax increases that risk pushing the economy into deep recession.
Any sharp downturn in the world's largest economy would raise concerns about demand for industrial metals, analysts say.
But prospects for a continuation of Federal Reserve Chairman Ben Bernanke's aggressive quantitative easing, may help offset such worries to some extent as such a policy has propped up risk-favourable market sentiment. Gold has also been supported by concerns that easing could boost the prospects for inflation.
"If Obama wins, which is looking likely, the fiscal cliff is on the table, hard money is off the table, and net-net, I think the market will say, 'Well, we never were that scared about the fiscal cliff anyway, and isn't it going to be great to have Bernanke at the Fed for the foreseeable future.'," said Michael Jones, CIO of Riverfront Investment Group.
Under Obama, whoever succeeds Bernanke when his term expires in 2014 will be as committed to monetary accommodation as Bernanke is, Jones said.
Spot gold rose 0.5 percent to a one-week high of $1,724.21 an ounce, reversing from a 0.6 percent drop earlier in the day.
US crude futures fell 0.2 percent to $88.56 a barrel and Brent fell 0.3 percent to $110.71. - Reuters