The Short Squeeze: How the US election is dominating world markets

If you want to know what to expect from the financial markets this week, but don’t have time to sift through the news to set yourself up for the trading week ahead, plug in to The Short Squeeze podcast. Hosted by The Age’s Lucy Battersby, who is joined by IG market analyst, Kyle Rodda, it fills you in on everything you need to know about the latest in the world of financial markets.

The US election has been dominating the news cycle, with the results finally being announced over the weekend.

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This week, Kyle and Lucy look at the economic effects of the most hotly contested election in years. Here is what a Biden win means for financial markets across the globe:

Markets get their appetite back

For the past few weeks, market participants have been worried about a contested election result. Although Trump is still trying to challenge Biden’s win, risk appetite has returned to global markets as they position for a Biden presidency. This revived appetite for risk is perhaps reflective of the expected success of Trump’s challenges to the election results, suggests Kyle.

However, there are still some unknowns to come. Because the predicted ‘blue wave’ didn’t happen and Republicans potentially still hold the Senate, it means the large fiscal stimulus package Biden is hoping for, may not be passed. This could slow markets down again.

The pandemic was postponed

The US election has meant for the first time in months, the pandemic flew under the radar for market participants last week. But as the election noise dies down, the economic impacts of COVID are expected to rear their head again. As the crisis spirals in both the US and Europe, with recent election parties and protests across the US being touted as being super-spreader events,

there’s once again talk of a double-dip recession. Markets will be wary until they discover how Biden will control the daily infection numbers when he officially takes office in January.

Global equities surge and currencies rally

As the potential unpredictability of the US election wanes, stocks are surging around the world. At home, the ASX200 climbed by a considerable 7.87 per cent, and in the US the S&P500 recorded its best week since April, climbing 7.32 per cent. The Australian dollar surged by three per cent after the election results. However, Kyle points out that the RBA won’t be happy with this. Last week they launched their quantitative easing program, so they remain in line with other central banks, but the rise of the dollar may mean they have to further increase their program.

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