US election: European and American stocks remain high as Biden edges closer to win and Trump files lawsuits

·3 min read
A combination picture shows U.S. President Donald Trump pumping his fist during a campaign event at Capital Region International Airport in Lansing, Michigan, U.S. October 27, 2020, and Democratic U.S. presidential nominee and former Vice President Joe Biden making a fist during a drive-in campaign stop in Des Moines, Iowa, U.S., October 30, 2020. REUTERS/Jonathan Ernst/Brian Snyder/File Photos
Markets are welcoming news of a potential Joe Biden win against incumbent president Donald Trump. Photo: Jonathan Ernst/Brian Snyder/Reuters

Markets are welcoming news of a potential Democratic win in the US presidential election on Thursday with stocks in Europe and the US trading higher.

While Joe Biden could be on the brink of victory, incumbent president Donald Trump has launched a series of lawsuits in swing states.

US markets have been steadily gaining. The S&P 500 (^GSPC) is tilting higher by 2% at around 4:45pm in London. The Dow Jones (^DJI) is also headed higher by 1.9%, and the Nasdaq (^IXIC) leapt by 2.4%.

The gains in early trading in Europe were modest but have remained until market close. The FTSE (^FTSE) in London was 0.3% higher, Germany’s Dax (^GDAXI) was up 1.9%, while France’s CAC 40 (^FCHI) rose 1.2%.

Watch: Biden approaches 270 as Trump sues to stop count

“There has been so much hope about the blue wave, and the fact that the market is still moving higher is chiefly because traders are hopeful for Joe Biden to become the United States president,” said Naeem Aslam, chief market analyst at AvaTrade.

“Michigan is an important state which Trump took from Democrats back in 2016, but now, he is no longer in control of the state. However, to many people’s surprise, president Trump still has Florida, and this is despite the fact that the state has been massively impacted by coronavirus.”

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Markets traditionally welcome gridlock or uncertainty, especially when slimmer margins for either candidate means less dramatic policy moves in the future.

Investors are rallying “round the idea of a GOP Senate preventing tax rises and increased regulation and offsetting the reduced likelihood of near-term major stimulus,” said Deutsche Bank analysts in a note on Thursday. “Markets also started to price in more Fed action in the absence of more fiscal which gave the liquidity trade a boost.”

Markets will also be closely watching the Fed meeting later on Thursday when it comes to the dollar index and the stock market.

The Bank of England’s decision to leave interest rates unchanged on Thursday was predicted.

It increased its already massive bond-buying stimulus program to £895bn ($1.2tn) — £50bn more than expected as the UK economy continues to struggle from COVID-19.

The bank downgraded its forecasts for the UK economy in light of the second lockdown, warning that the economy would likely shrink again due to the restrictions. It now expects the economy to contract by 2% in the fourth quarter, compared to a forecast of 5.4% growth made in August.

WATCH: European markets rise amid US election uncertainty

“The BOE has acknowledged the weakness in consumer confidence and spending, and to restore this, the bank has increased its asset purchase program,” said Aslam. “The Bank of England has also given a clear message that it is set to do more if the economy needs any further help. The fact that the bank has used the most famous phrase ‘whatever it takes’ shows that it is committed to do anything to restore growth.”

The bank may need to resort to “extraordinary measures” in its next effort to revive the economy, said Laith Khalaf, financial analyst at AJ Bell.

“Negative interest rates are certainly on the table,” said Khalaf. “The Bank is seriously weighing this up and has written to bank chiefs to see if they can handle it. QE could also shift towards different assets, such as more corporate bonds, high yield bonds and even equities, as has happened in Japan.”

Asian markets closed in firm territory on Thursday.

The Hang Seng Index in Hong Kong (^HSI) was up 3.25%, China’s SSE Composite Index (000001.SS) gained 1.3% and Japan’s Nikkei 225 (^N225) leapt 1.7%.

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