US stock futures flat as global rally loses momentum

Global stocks swung between modest gains and losses on Friday, threatening to end a five-session winning streak, as the closely fought battle to decide the next US president left investors on edge.

Stock futures pointed to Wall Street opening flat, with the blue-chip S&P 500 little-changed and tech-focused Nasdaq 100 slipping 0.2 per cent. The release of upbeat US employment data appeared to lift futures trades that had indicated steeper falls earlier in session.

European bourses were mixed at lunchtime. The region-wide Stoxx Europe 600 climbed 0.1 per cent, London’s FTSE 100 rose 0.3 per cent but Frankfurt’s Xetra Dax fell 0.2 per cent.

An uptick in market jitters was reflected in the Vix index, a measure of expected volatility in the US stock market over the next month, which edged back up to 28 on Friday, above its long-run average of 20.

Emmanuel Cau, head of European equity strategy at Barclays, said Friday’s reversal in equity markets was unsurprising: “Markets are back to the top of the range. To move beyond those levels, you need to get confirmation that we can move on and we have a president.”

Investors had temporarily put aside issues surrounding the coronavirus pandemic this week even as infections continued to rise, he added.

Joe Biden, the Democratic US presidential contender, said on Thursday that there was “no doubt” he would win the election, while Republican incumbent Donald Trump claimed without evidence that Democrats were trying to “steal” the election by counting illegal ballots.

“The key implication for markets is . . . that this is likely to get bumpy, and drag on, and through the courts — a process already now under way in a few states, and possibly at the federal level in short order,” said Michael Every, a strategist at Rabobank.

The tight race for the US Senate, which is controlled by Republicans, was pivotal to the investment outlook, investors said.

Fading expectations that Democrats would be able to take control of the upper house of Congress triggered a sharp rally in US government bonds this week but the outcome has become murkier in the days following Tuesday’s election.

The Senate race “is of utmost importance for US bond markets because political gridlock may stand in the way of a powerful fiscal stimulus”, said analysts at UniCredit, who said a Democratic clean sweep would have led to the approval of a large stimulus package.

“There is the possibility that we will see two run-offs in Georgia on January 5, which would leave bond markets guessing and might dampen directional momentum for several weeks,” the analysts added.

However, Padhraic Garvey, regional head of research, Americas, at ING, said a situation in which Mr Biden became president but the Senate remained in Republican hands could be “the sweet spot” for markets. Such a scenario, he said, would reduce the trade risks presented by Mr Trump but would at the same time make it difficult for Mr Biden to push through the corporate tax increases that he had made an election pledge.

China’s onshore-traded renminbi dropped 0.1 per cent against the dollar to Rmb6.6075. The currency has been one of the most sensitive to the US election results and in recent weeks has been boosted by hopes of a victory for Mr Biden and a potential easing of tensions between Beijing and Washington.

Asia equity markets struggled for direction on Friday, with Japan’s Topix index closing 0.5 per cent higher, mainland China’s CSI 300 flat and Hong Kong’s Hang Seng dipping 0.1 per cent.