Review of election results

Biden won the presidency by a large margin of electoral votes, which greatly reduces the likelihood that Trump will overturn it through litigation. But with the outcome of the Senate uncertain, there is some logic in the market that a closely divided Congress could block Biden's tax bill, which would be good for risky assets. On the other hand, if the Democrats do take control of the Senate to achieve a "Blue Wave," it will be negative for risk appetite.

What to trade after Biden wins?

1) Reflation

This is also the objective performance of the market itself, the body is very honest. On November 3 local time, the market showed a large swing in the probability of a Biden/Trump win, which worked like a test strip, detecting the market's "true knee jerk reaction" to both scenarios of a Biden/Trump win: a Biden win = trade reflation, Vice Versa.

Below we summarize some of the trends across markets:

Us stocks rise; Biden's multilateral trade policy plus tax increases is hampered by a divided Congress

Weaker dollar index: Reflation of trade, coinciding with rising cross-market risk appetite

Yuan appreciation: Weak dollar

Gold/Silver: Trade reflation + weak dollar

Us Treasury yields: UST short covering caused yields to fall sharply, but the fundamentals (fiscal deficit) and technical channels are intact

There is still a certain trend space for reflation. Right side trading is also the law of the market as a whole:

1) The market reduced positions before the election, and traders on the left side appeared;

2) Open positions/add positions after the dust settles after the election, which is the basis for the position with trend space for reflation at present.

2) Short volatility + eat spread = Carry Trade

The short-term impact of the election on financial markets can be roughly classified into the following four stages, and we are currently in the fourth stage.

The volatility Index (VIX/MOVE/JPM FX Vol Index) fell at the same time

At present, shorting USDCNH is a typical Carry Trade, which is compounded by the fact that Biden's attitude toward China has softened significantly compared with Trump's after taking office. Update target price to 6.50

Appendix:

Review the Biden/Trump policies and summarize two differences that have had a greater impact on financial markets:

1. Biden wants to raise taxes, which are currently blocked by a divided Congress.

2. Biden's "explicit" marginal softening of China policy and support for variable trade policy will boost risk appetite