US election jitters leaves market nervous

With the US presidential election result still unclear, markets in Switzerland have been left in a jittery mood. The Swiss franc, which has been languishing at 14 year lows against the dollar, was trading in a tight range on Wednesday.

Traders said there was unlikely to be much change on the markets until the outcome of a vote recount in the state of Florida, which will determine who wins the US election.

“During the night we saw the dollar go down when news came out that Al Gore would make it,” said Marcus Allenspach, economist and Cantrade Private Bank. “Then this morning when reports claimed that Bush had won, the dollar went up to SFr1.78.”

“You can expect a volatile session with the dollar-Swiss franc hovering around this two cents range.”

HansPeter Hausheer, senior economist at Warburg Dillon Reed told swissinfo: “I think this uncertainty will result in investors remaining on hold.”

A victory for George W. Bush is expected to move US stock markets higher and also edge the dollar ahead against the Swiss franc and the euro.

“Bush is believed to be dollar positive as he doesn’t support dollar intervention in defence of the euro,” explained Marcus Allenspach.

“Bush is also expected to cut taxes, putting pressure on the US Federal Reserve Bank to increase interest rates and improve the economic outlook, this would be good for the dollar in both the medium and longer term.”

A victory for Democrat candidate, Al Gore, could have a negative impact on certain sectors of the economy in which he plans to increase regulation.

Among those, Swiss firms working in the pharmaceutical sector could move lower on stock markets as Gore plans tighter control over drug price increases in this sector.

A Gore victory could also unsettle the dollar in the short-term to the benefit of the Swiss franc, and also have some negative impact on US equity markets.

The business community sees Al Gore’s plans to increase public spending from the US government surplus as less financially prudent than the broader tax cutting plans of his republican opposite number.

“A win for Gore with a Republican controlled House of Representatives will not be good for American equity markets as he will be seen as something of a lame duck,” Allenspach said.

Warburg’s Hausheer thinks the impact will be limited, either way: “The overall programmes are rather similar as both candidates want to give money back to the people, and that should be positive for financial markets in the mid-term.”

by Tom O’Brien