GLOBAL MARKETS-Shares fall, dollar firms as U.S. election looms

Mon Nov 5, 2012 7:59am EST

* European shares fall, caution dominates ahead of U.S. vote
    * Dollar index touches 2-month highs on safety bids
    * Wall Street futures point to lower open
    * Gold steadies post plunge, holds above key technicals

    By Marc Jones
    LONDON, Nov 5 (Reuters) - World stocks fell and the dollar
firmed on Monday as low-risk assets gained at the start of a
week in which the United States elects a new president, China
starts a leadership transition and Greece faces a fraught vote
to secure fresh rescue funds.
    Opinion polls show the race between President Barack Obama
and Republican challenger Mitt Romney remains neck-and-neck at
the start of the last day of campaigning, and the uncertainty
over the outcome left financial markets jittery.
    Safe-haven bids pushed the U.S. dollar to two-month highs
against a basket of major currencies and German two-year
government bond yields dropped below zero for the first time in
two months.
    "You don't want to have too much risk ahead of the U.S.
election tomorrow, so I think everyone is going to be very
cautious until we see the first indications of who will win,"
said Tobias Blattner, an economist at Daiwa Securities.
    U.S. stock futures pointed to a lower open on Wall
Street after a late sell off on Friday.   
    European shares were down 0.7 percent at 1230 GMT
having ended the previous week at a two-week high. World shares
 were 0.4 percent lower as falls in Asian equity
markets followed on from Friday's U.S. sell off.
    The euro fell to a new two-month low against the dollar of
$1.27710, extending recent losses ahead of a vote in Greece on
Wednesday on unpopular spending cuts and tax hikes the EU, IMF
and ECB "Troika" want passed before they offer more aid.
  
    "With the euro there is concern about what's going on in
Greece, that they might not might not get the austerity vote
through," said Arne Lohmann Rasmussen, head of currency research
at Danske Bank in Copenhagen.
   
    
    FISCAL CLIFF
    Whatever the outcome of Tuesday's presidential race,
financial markets are expected to remain fixated on U.S.
politics in the coming months.
    After the election, Congress must deal with a "fiscal
cliff", up to $600 billion in expiring tax cuts and spending
reductions that are set to kick in next year, which threatens
the country's economy.
    "With the dollar, the fiscal cliff is really getting some
attention before the elections," Rasmussen said, adding that
better-than-expected U.S. job data on Friday had boosted demand.
    Leaders at a G20 meeting in Mexico pressed the United States
on Sunday to act decisively. A key concern of investors is that
a narrow Obama victory combined with a convincing Republican win
in Congress could blunt policymaking.
    That "would make negotiations over fixing the fiscal cliff
(difficult)," said CMC markets analyst Ric Spooner. 
    As well as the U.S. and Greek uncertainty, the European
Central Bank and Bank of England also meet on Thursday, although
neither are expected to move rates. China's once-a-decade
leadership transition is also due to start that day. 
    German government bonds, a favourite of risk-shy investors,
rallied amid the caution, with two-year yields 
below zero for the first time since early September and Bund
futures at a two-month high. 
    "The situation is supportive for core markets. Not yet
sufficient to trigger a massive rally but the economic situation
is offering some support and also the risk element (in Greece)
is favouring a bid for safe havens," said BNP Paribas strategist
Patrick Jacq.
    
    OIL SLIPS, GOLD FIRMS
    Uncertainty over the Greek vote hit appetite for lower-rated
debt across the bloc and bonds issued by Spain, seen as the next
country to need a bailout, struggled, with 10-year yields
 rising 10 basis points on the day to 5.77 percent.
    Underscoring the damage the three-year long crisis is doing,
 Spanish unemployment rose another 2.7 percent in October new
figures showed.     
    In commodity markets, Brent crude oil slipped to $105 per
barrel weighed down by a strong dollar and demand destruction
after Superstorm Sandy. 
    In line with the broader market caution, gold steadied at
$1,677 after Friday's 2 percent plunge while economic
growth-attuned copper hit two-month lows.
    Analysts believe an election victory for Barack Obama could
be supportive for gold as Federal Reserve chairman Ben Bernanke,
the architect of the central bank's stimulus strategy, could
stay in his post. 
    "Obama is supporting Bernanke, and is supporting monetary
stimulus," Saxo Bank vice president Ole Hansen said. "With a
Romney win - he has been criticising the approach of the Fed -
Bernanke will not be renewing his contract."
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.