US Election Daily Update: Early-indicator states to spark market volatility

NYC Mayor Michael Bloomberg will have caused significant damage to Mitt Romney’s campaign by listing the Republican candidate’s various flip-flops

A series of blows to Romney's campaign have seen the odds on Obama's re-election shorten dramatically, but Jack Houghton thinks that those states whose votes are called early might re-ignite the belief that Romney could win, and cause an explosion in the Betfair market.

Michael Bloomberg's recent endorsement of President Obama is the latest blow in an ever-widening torrent of bad news for Republican hopeful Mitt Romney. It comes on the back of Obama receiving a positive reaction to his handling of Hurricane Sandy, which even resulted in Republican Governor Chris Christie praising his efforts.

In terms of the market, Obama's unscathed emergence from the other side of the storm has seen his price tighten into an unbeatable looking 1.3130/100, with thousands of pounds queued up waiting to back him, suggesting that those odds will be further suppressed in the coming hours.

Although Romney's campaign would not have been overly worried at Bloomberg's focus on Obama's better record with regards to addressing climate change - after all, among likely Romney voters, the environment is not a pivotal issue - the unambiguous listing of his various flip-flops ("...immigration, illegal guns, abortion rights and health care") will have made Romney wince.

Despite this, and realising that I seem to be one of a rapidly diminishing group of people in this camp, I think this election might yet be much closer than the market suggests. Obama may hold a polling lead in most of the key swing states, but in almost every instance, that lead is well within the margin-of-error.

With that in mind, I certainly wouldn't want to be taking 1.3130/100 at the moment. If you do think Obama is a shoo-in for a second term, a better strategy may be to wait until the polls open on November 6th, as there is a fair chance that early reports will favour Romney.

Of the nine states that tend to be called first - South Carolina, Georgia, Virginia, Kentucky, Indiana, Vermont, West Virginia, Ohio and North Carolina - Romney is certain of victory in six of them, has a fair chance of winning two, with Obama only left with a guaranteed win in Vermont.

The two most significant states in that list - in terms of how they will affect the national election - are Ohio and Virginia, where Republican gains would indicate that it is Romney, and not Obama, who will be sitting in the Oval Office for the next four years. However, even if Romney were not to win both of those states, close results would demonstrate that Romney might have a chance of another Electoral College route to the White House, and his odds would fall.

It's worth remembering that the outcome of Presidential races often become less certain the closer we get to a final result (think back to 2000), and although Betfair has only been around long enough to demonstrate that last-minute volatility for two US Presidential elections, Bush's victory in 2004 provides us with ample evidence of that fact.

Going into that election, Bush was the prohibitively short-priced favourite, but amidst rumours of high voter turnout - which was supposed to favour Democrat John Kerry - by midnight on the day of the election the odds had completely flipped, with Bush out to 5.004/1 and Kerry as short as 1.251/4.

Those nine early-indicator states may tell us, unequivocally, that Obama is heading towards another comfortable Electoral College victory, but I think they are more likely to tell us that this election is close. That will lead to volatile markets, which will be a boon for those betting in-play.