Below are five flash points in focus for world markets.
1/ TRADE TANTRUM
Any ratcheting up in trade tensions between the U.S. and other big economies could shake up world equity markets, now trading near record highs.
EU policymakers are concerned Trump could re-impose tariffs on imports of European steel and aluminum suspended by Biden or turn his attention to cars or EU curbs on U.S. big tech.
Trump says he would consider 60% tariffs on Chinese goods, a move Capital Economics estimates - together with stricter tariff enforcement - could lop as much as 0.7% off China's GDP.
During his last presidency, Trump imposed tariffs on $200 billion of Chinese goods. They remained in place under Biden.
Bilateral trade initially declined, but picked up during the COVID-19 pandemic surge in U.S. demand for electronics, hitting a record high in 2022 of $690.6 billion. It has since slowed due to the impact of tariffs and tensions ratcheted up by the Ukraine war.
"There is a lot of bad news discounted in China but nothing like that," said State Street's head of macro strategy Michael Metcalfe, referring to 60% tariffs on China.
China's yuan and equities, hurt by its stuttering economy, could suffer.
2/ HISTORY LESSON
History predicts U.S. stocks will most likely end the year positive, whoever wins.
That's not to say U.S. markets won't have a bumpy ride. After all, a divided Congress could blunt both candidates' policy plans. Biden is expected to continue focusing on renewable energy, Trump is more likely to scrap subsidies for electric vehicles and focus on extending tax cuts. "If Trump embarks on a revenge tour, that could weaken the dollar, increase inflation, and result in higher bond yields and lower investment," said Joseph Kalish, chief macro strategist at Ned Davis Research.
Currency markets appear to already expect higher volatility, with euro/dollar options volume expiring on the day after an election at almost four times higher than usual, says Societe Generale.
3/ BETTING ON DEFENSE
A potential Trump return may add to urgency in Europe to build stronger military capabilities, adding fuel to a rally that has seen defense stocks double in value over the past three years.
Russia's invasion of Ukraine in February 2022 has transformed defense from a no-go-zone over ESG concerns into a popular trade.
For the first time since the end of the Cold War, Germany has met the NATO target of defense spending at 2% of GDP. Others are also set to meet the goal. Yet that might not be enough.
Trump has suggested he won't defend allies who fail to spend enough on defense - and would even encourage Russia to attack them.
"To a great extent, the damage has been done, and the assumption of U.S. assistance is no longer safe," said Nick Cunningham, analyst at equity research firm Agency Partners.
Aerospace and defense is the most popular European sector for global funds, Morgan Stanley says, with allocations at four times the benchmark weight, lifting the sector to record highs. Talk of joint bond issuance to fund defense spending is also growing.
4/ UKRAINE'S DEBT
Ukraine's precarious financial future is at the sharp end of the U.S. election. Aid from Washington hangs in the balance after a bill that could deliver billions of dollars became mired in divisive politics.
Trump has called for de-escalation in the Russia-Ukraine war and complained about the billions spent so far.
This comes as Ukraine has to hammer out a debt arrangement with holders of international bonds who agreed to a payment moratorium that runs out in August.
Ukraine's international debt has underperformed its peers over the past two years, and analysts said U.S. election uncertainty is adding extra pressure.
5/ PESO BAROMETER
Mexico's peso has long been a weathervane for the impact of U.S. politics on emerging economies.
Trump's 2016 victory saw the peso drop 8% in a week, his defeat in 2020 fueled a 4% rally.
However, so far investors have not yet made their bets on how the currency will fare following a likely November rematch.
To add a layer of complexity, Mexico has its own election on June 2. The ruling leftist MORENA party is leading in the polls, pointing to continuity.
For U.S. voters, immigration and border control are pressing issues, some polls show. Analysts note that Trump has so far not made the trade relationship with its southern neighbor a key campaign issue.
"As we approach elections on both sides of the border, expectations of policy continuity in Mexico and low uncertainty regarding U.S.-Mexico trade relations may mitigate foreign exchange volatility," said Pedro Quintanilla-Dieck, senior emerging markets strategist, UBS Global Wealth Management.
(Reporting by Karin Strohecker, Dhara Ranasinghe, Phil Blenkinsop, Danilo Masoni and David Randall, Graphics by Sumanta Sen and Riddhima Talwani, Editing by Hugh Lawson)
