A Democratic sweep looks likely and the market is viewing that as better prospects for more stimulus to follow
At least that is the reaction that is being told in the bond market, with 10-year Treasury yields keeping higher - up by 6.2 bps to 1.017% currently. Adding to that, S&P 500 futures have also pared its earlier losses to unchanged levels now:
As mentioned previously, there are two ways in which the market could have viewed this outcome and reacted:
In any case, even a Democratic sweep doesn't do much to change the overall narrative in the market if you really want to drill down into the nitty gritty. However, the market could still use all of that as an excuse to put on some early positioning to start the year.A risk rally after a 'blue wave'? It must be to do with better stimulus prospects and more spending set to follow. A risk selloff after a 'blue wave'? It must be to do with concerns about corporate taxes that could follow (even if it is extremely unlikely to pass).
Either way, the risk remains rather asymmetric for the dollar. Even a risk selloff is likely to be one that is short-lived and with the Fed still going BRRRR!!!, there is little reason to really suggest a major change in the dollar narrative for now.
That said, with 10-year Treasury yields breaking 1%, there was some consideration that it could have lend itself to some dollar bids in the near-term i.e. kneejerk reaction.
It could still be early in the day and we may have to wait for Wall Street and US traders to confirm the current moves. However, if the dollar can't find any reprieve from a sharp and higher move in yields, the long-term outlook this year sure looks bleak.