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November 4, 2020

Wall Street got the election night it feared the most

Investors hoped a clear outcome from the US election would quickly materialize Tuesday night, eliminating a key source of uncertainty in a tumultuous year. Their wish didn't come true.

What's happening: Key races that could determine who heads to the White House are still too close to call, including Arizona, Georgia, Pennsylvania, Wisconsin and Michigan. In some places, it could take days to count all the votes.

That's left markets hugely exposed to bouts of volatility. US futures swung dramatically Tuesday night and early Wednesday morning. The US dollar gained 0.4% against a basket of top currencies, while heightened demand for benchmark 10-year US Treasuries, a safe haven asset, weighed on yields.

Breaking it down: Wall Street bet that former Vice President Joe Biden would win the White House and that Democrats would take control of the Senate, paving the way for a generous fiscal relief package during a difficult winter.

Biden still has multiple paths to victory. But results so far have not produced the decisive "blue wave" many investors had been expecting.

Credit Suisse told clients early Wednesday that the races for both the presidency and control of the Senate were "much tighter than expected." It cautioned that the country may not have a definitive answer on whether President Donald Trump or Biden won until Friday.

"We expect volatility to remain elevated," the bank said. "Amid the lack of clarity, patience is required."

The biggest concern on Wall Street has been a contested election that takes days or weeks to resolve. That risk hasn't gone away.

Speaking at the White House early Wednesday morning, Trump attacked legitimate vote-counting efforts, suggesting attempts to tally all ballots amounted to disenfranchising his supporters. He also said he had been preparing to declare victory earlier in the evening, and baselessly claimed a fraud was being committed.

Such unsubstantiated claims only darken the market sentiment, according to ING chief international economist James Knightley.

"With Donald Trump clearly now pushing the case that this is going to be unfair, this is going to be challenged — that's just going to make markets anxious this could [take] weeks," Knightley told me.

The big picture: America is in the middle of a pandemic, and Covid-19 cases are rising again. Economists have warned that additional relief from the US government is crucial to keeping the economic recovery on track, and that more spending to help businesses and the unemployed is overdue.

But a drawn-out, divisive election makes passing such a package in the coming weeks unlikely, and could cause risky assets like stocks to pare back some of their recent gains.

"When you've got the animosity and arguments going on, it's not exactly going to give you confidence [that] you'll get politicians sitting around the table to hammer out a quick deal," Knightley said.

If Congress can't move towards an agreement, pressure will rise for the Federal Reserve to do more. The central bank, which meets Wednesday and Thursday, has assured the public it still has room to act after pushing interest rates near zero and snapping up trillions of dollars worth of bonds this year.

The Fed has made clear it doesn't want to be the only game in town. Depending on how the election plays out, it may not have a choice.

China halts Ant Group's historic IPO

Ant Group's highly anticipated IPO has been suspended following a meeting between the company's billionaire co-founder Jack Ma and regulators in China, an abrupt move that threatens what was due to be the largest share sale in history.

Details, details: The Shanghai Stock Exchange said in a statement on Tuesday that it had postponed the company's listing, less than two days before its shares were due to begin trading, because of "major issues" that might cause it "not to meet the listing conditions or disclosure requirements."

The IPO has also been suspended in Hong Kong, according to a statement from Ant Group, which referenced the meeting between Ma and Chinese officials as well as "recent changes" in regulations. In a statement on its official WeChat account, Ant Group apologized to investors for "any inconvenience caused by this development."

The dual listing of the Chinese financial tech giant was set to raise $37 billion, making it even bigger than Saudi Aramco's 2019 IPO.

Why it matters: Beijing just showed Ma and the rest of China's billionaire tycoons who's really in charge, my CNN Business colleague Sherisse Pham reports.

"There's a saying in China: 'The tallest nail gets hammered down,'" said Duncan Clark, author of "Alibaba: The House that Jack Ma Built" and founder of investment advisory firm BDA China.

The unprecedented intervention serves as a cautionary tale for Chinese entrepreneurs with lofty ambitions — even Communist Party members such as Ma. And even if Ant satisfies new regulatory requirements, its massive business will only move forward under the watchful eye of China's regulators, which could limit growth.

Up next

Hilton and Wendy's report results before US markets open. Expedia Group, Hyatt Hotels and Qualcomm follow after the close.

Also today: The ISM Non-Manufacturing Index, a read of the all-important US services sector, posts at 10 a.m. ET. But for markets, the US election results will be the big mover.

Coming tomorrow: The Federal Reserve makes its latest policy announcement ahead of the US jobs report for October.

Wall Street got the election night it feared the most.

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