Early-November 2012 Market Snapshot: On the Eve of the US Election, the World Holds Its Breath

This article is a rewrite of a market report from November 2012.

On the eve of the 6 November 2012 US presidential election, global markets held their breath: US stocks edged up pre-election on thin volume, European shares fell on weak corporate earnings, Asian equities mostly declined. This same-day market snapshot records the uncertainties global investors shared during “semi-portability’s” first week.

North America: what were markets watching before the election?

The “fiscal cliff”. Whoever won would face the fiscal cliff from 2013 — huge tax increases with automatic spending cuts kicking in — plus the need for a credible long-term deficit plan. Republicans favoured spending cuts, Democrats tax rises; markets expected a bit of both in the end.

Europe: why was the Greek vote so critical?

A €13.5 billion austerity package was up for vote. Greece’s parliament voted Wednesday on austerity including €13.5 billion in cost cuts and tax rises plus labour-market reforms; fearing a surprise, money fled to German bunds — the two-year yield slid to –0.01%, the first negative reading since 6 September. Spain’s ten-year yield rose to 5.74%, its highest since 16 October.

Asia-Pacific: beyond the US election, what else mattered?

The 18th Party Congress. China’s once-a-decade leadership transition — the 18th National Congress opened Thursday, electing new leaders and setting policy for five to ten years; the Shanghai Composite edged down pre-election. Indian equities also slid on pre-election caution.

What is the lesson for MPF members?

When markets are uncertain, sit tight. Early November 2012’s panorama is a reminder: US election, fiscal cliff, Greek vote, Party Congress — stacked uncertainties made the worst possible backdrop for a “semi-portability” transfer vacuum. When markets hold their breath, MPF should hold its positions.