U.S. Presidential Election and Economic Implications

(Reuters) – Voters in the United States are heading to the polls on Tuesday to pick their next president in a too-close-to-call election pitching Republican Donald Trump against Democrat Kamala Harris.

Economic Consequences

Who will be at the helm of the world's biggest economy will have wide-ranging consequences for financial markets, global trade, with China and Europe in focus, and monetary policy. Interest-rate setting meetings at the Fed, as well as in Britain, Australia, and Brazil, are scheduled for the coming week.

1. TO THE BALLOT BOXES

The U.S. election cycle, which has already rattled asset prices, finally culminates today. Recent gains in Treasury yields and the dollar signal that the market may be anticipating a Trump win. However, polls suggest a very close race with Harris. A win for the Democrat could induce significant market trading unwinds. Investors are hoping for a clear result to avoid a contested election that could introduce uncertainty into the markets. Meanwhile, bitcoin, dubbed the ultimate Trump trade, nears an all-time high again.

2. THE DAY AFTER

Following the U.S. election, the Fed will commence a meeting on interest rates. The pressing question is how the decisions made by the new U.S. president will impact growth and inflation. Strong economic data has led some to question whether the Fed miscalculated its initial easing cycle. A modest 25-basis point cut is expected on Thursday. Investors are keen to see if the Fed might cut rates less than anticipated.

3. US BULL IN A CHINA SHOP?

China will announce October trade figures on Thursday. Depending on the election outcome, this may be among the last opportunities for investors to see positive export numbers. Trump's threat of 60% tariffs on China has destabilized the nation's industrial complex, which exports over $400 billion annually to the U.S. Upcoming inflation data on November 9 could provide insights into the effectiveness of China's recent stimulus measures.

4. FOLLOW THE LEADER, OR NOT

The outcome of the U.S. election could disrupt the usual pattern where central banks follow the Fed. A Trump victory and ensuing trade tensions could disproportionately affect export-driven economies and lead to slower rate cuts from the Fed. Meanwhile, the Bank of England is expected to cut rates by 25 basis points on Thursday, and Australia's Reserve Bank is unlikely to lower rates until next year.

5. WOBBLY EMERGING GIANTS

Mexico, alongside China, reflects U.S.-emerging market dynamics and has seen the peso drop to a two-year low as election concerns rise. Outflows from emerging markets have surged, driven by a strong dollar and high U.S. yields. Brazil's central bank, expecting a 50-basis point rate hike on Wednesday, continues to adjust to inflation pressures. Other emerging European economies might also face challenges, with potential rate cuts expected in the Czech Republic.

(Graphics by Kripa Jayaram, Pasit Kongkunakornkul, Prinz Magtulis, and Sumanta Sen; Compiled by Karin Strohecker; Editing by Kirsten Donovan)