European markets start the day on Tuesday with heightened caution as the focus turns to the United States and the final verdict in a tight run race to the White House, and more importantly to the economy!
Cautious and volatile trading will dominate the markets today as Americans head to the ballots to elect the president for the coming four years, and the race is neck-and-neck with incumbent president Obama fighting to keep his White House post for another four-year term against Republican candidate Governor Mitt Romney.
Markets are jittery with the close call to the White House. Even if the expectations are slightly tilted toward Obama, the odds are still not confirmed with the opinion polls suggesting a narrow spread and independents hold the keys.
European markets are set to start a choppy session on Tuesday ahead of the final results. The market is keen that Obama might secure another term, but still worried if there was a surprise change in Romney’s direction.
Surely a Romney win will be positive on stocks and the oil industry, and with Romney standing behind the big oil in the campaign we surely expect more supportive energy policies to the sector. The Republicans are not fan of taxes and that likely will also be reiterated with Romney if he secured the job.
The money market though might be in the pinch, where Romney is not a fan of Fed President Ben Bernanke and that will keep the uncertainty dominant in the market.
The focus will turn automatically after the election to the ticking fiscal bomb, which will push the markets into a state of chaos once again as the debt problems resurface, especially with Europe back again center stage with no clear concrete solution or stable outlook.
The European debt crisis remains the predominant threat to global growth outlook, but the fiscal cliff is also a pending fear and inability of the new U.S. government to dismantle the fiscal bomb will set us back into recession and demolish any recovery hopes.
Stocks are expected to remain volatile today and choppy trading to dominate with swings between gains and losses in Europe with investors focusing on the presidential election in the United States more than data or conditions in Europe for now.
The dollar is still holding grounds against majors ahead of the election and we expect more volatility at the time of the results. The Obama win for now is the less concern and the clearer, especially if we assure that Bernanke will continue his lose policy. The Obama win will have the less severe impact on the dollar but we still expect pro-dollar reaction.
A Republican win will have its direct surprise effect and might actually weaken the dollar, especially if we focus on the same area and Romney’s rejection to the extensive monetary easing from the Fed which might accordingly have adverse weak impact on the dollar immediately as investors discount the support initially and not think in pro-dollar means!