US election outcome: At the time of writing, the result remains unclear and prudence is needed as the race is close Biden 238 - Trump 213 (270 to win).We expect an 85% likelihood of knowing the winner within ten days. The winner of the election is likely to be determined sometimes during the next few days as three battleground states, Michigan, Pennsylvania (6 November: deadline for mail-in ballots to be received in Pennsylvania) and Wisconsin, complete the long process of counting large numbers of ballots that were sent by mail as a result of Covid-19. There are possible paths to victory for both Trump and Biden. So far, the electoral college map is looking much like the 2016 race. Trump's deft use of nationalism appears to have resonated with white voters as well as some minority working-class voters. His message during the closing days of the campaign warned of rising socialism and higher taxes, and he touted his efforts to bring jobs back to the United States. Trade tariffs were an important part of his agenda. A very high turnout did not favour largely the Democrats. The Democrats are likely to maintain control over the House of Representatives but it is too soon to determine the make-up of the Senate. Initial market reaction: Over the last few days, given high market expectations for a Biden sweep, the reflation trade gathered momentum ahead of the election results, with global equities rallying strongly, sovereign yields rising, and the dollar selling off sharply. Against the uncertain outcome of the results, the market reaction has given rise to volatility and a flight to quality with ten-year US Treasury yields plunging to around 0.8%, and the dollar is up. This morning the market has started to change the narrative from a blue wave to a possible Trump trade. Therefore, some winners over the past few weeks such as green deal and infrastructure related stocks are now trading more weakly, while more Trump-related sectors such as healthcare and tech are recovering. We anticipate that uncertainty over the timing of an election decision and the resulting short-term political instability will keep markets under heightened volatility and could weigh on equity markets. What to look out for next: After the elections, we would expect markets to refocus soon on the healthcare situation and we expect more volatility in the coming months, as this is a key topic on Biden’s agenda (should he win). The ability to quickly implement a fiscal stimulus is the single most important factor with implications for the economy and financial markets, especially on cyclicals, commodities and energy. If Biden wins in the context of a divided congress, it will be difficult for the incoming democratic administration to pass any major reforms. If Trump wins, there will be continuity and likely faster fiscal support in implementation. In a divided-power scenario or a contested outcome, the rising volatility should push appetite for the US dollar higher in the short term, while expectations for higher deficit should recede sharply. Investors’ focus should shift back to the Covid-19 situation in Europe and its impact on growth. On EM the dollar trend is key: a weaker dollar is supportive for EM assets. On China, the tough rhetoric will likely remain, whatever the scenario. The great rotation towards the Biden trade (including the value cyclical equity rotation and the steepening of the US curve) is now on hold. Overall we remain cautious and balanced.