The U.S. dollar sank and stock markets slammed into reverse in wild trading in Asia on Wednesday as every new exit poll in the U.S. presidential election showed the race to be a nail-biter, sending investors stampeding to safe-haven assets.
Much of the action was in currencies where the Mexican peso has become a touchstone for sentiment on the election as Republican Donald Trump’s trade policies are seen as damaging to its export-heavy economy.
U.S. stock index futures tumbled, spooking investors who have been counting on a victory by Democrat Hillary Clinton.
Financial markets reacted violently to the preliminary results, with S&P futures rising as much as 0.8 per cent and falling more than three per cent at one point. Gold and Treasuries prices rose.
“Donald Trump has stunned the consensus thinking thus far,” said Peter Kenny, senior market strategist at Global Markets Advisory Group in New York.
“Too early to call, obviously, but clearly markets were tentative today and seem to being growing increasingly concerned,” he added.
Just before 10 p.m. ET, S&P 500 e-minis were down 65 points, or 3.04 per cent, with 719,267 contracts changing hands. Nasdaq 100 e-minis were down 139.5 points, or 2.9 per cent, on volume of 92,108 contracts, and Dow e-minis were down 458 points, or 2.5 per cent, with 127,944 contracts changing hands.
The neck-and-neck race caused the peso to gyrate wildly as results came in, especially from the key battleground state of Florida, where Trump was holding a slim lead.
“It’s Florida so far that’s been the big drama of the morning in Asia. It’s been swinging back and forth in projections at least four, five times,” said Christopher Moltke-Leth, head of institutional client trading at Saxo Capital Markets.
“We’ve seen one of the most sensitive currencies, the MXN, has been extremely volatile this morning.”
The dollar surged over six per cent on the peso, though traders cautioned that it could turn on a dime. But the story was very different against the safe-haven yen, with the dollar shedding 2.4 per cent, to 102.72 yen. The euro gained one per cent to $1.1130.
Fed Reserve hike uncertainty
Asian stocks first rose, only to retreat more than one per cent as the session wore on and more election results flooded in, while U.S. stock futures surrendered modest gains and recoiled more than three per cent.
With voting completed in more than two-thirds of the 50 U.S. states, the race was too close to call in North Carolina, Pennsylvania, Michigan and New Hampshire, states that could be vital to deciding who wins the presidency.
The dollar turned down in part because analysts suspect the economic uncertainty caused by a Trump win would lessen the chance of the Federal Reserve hiking interest rates in December.
“A Trump victory would trigger massive uncertainty that would likely undermine risk assets at least initially, which in turn could preclude a Fed rate hike this year,” warned Michelle Girard, chief U.S. economist at RBS. Sovereign bonds flew ahead, pushing yields on 10-year U.S. Treasury notes down sharply to 1.759 per cent, having briefly touched a six-month high around 1.8960 per cent.
In share markets, MSCI’s broadest index of Asia-Pacific stocks outside Japan swung to a loss of 1.5 per cent, while the Nikkei sank 2.2 per cent.
In commodity markets, gold climbed to $1,308.00 an ounce as the dollar slid. Oil turned tail with U.S. crude shedding $1.34 to $43.63, while Brent fell $1.24 to $44.80.