As the US elections edge closer, investors wait in anticipation to find out who will be the US President for the next term, amid a backdrop of uncertainty caused by the global pandemic. Heading into the final week of campaigning, Democratic candidate Joe Biden heads the nationwide polls on 52%, with Trump trailing behind on 42%.
However, this doesn’t necessarily mean we are in for a Biden win. With the electoral college system at play, we could see a repeat of the US election in 2016, when Trump won the electoral college and therefore the Whitehouse despite polling 3.5million less votes than Clinton nationally.
Below the map showcases the US states and the leading candidate in those areas, indicating a closer presidential race than might appear based on national polls, with some key states still sitting on the fence. With a total of 538 electoral college votes up for grabs, the winner requires 270 votes to take the White House. Most recent data suggest Biden will be a solid winner in states giving him 232 votes whilst Trump can rely on at least 123. A further 183 votes in the so-called swing states could go either way. Pre-election postal votes passed 70 million with a week still to go, already over half of the total ballot cast in 2016, suggesting significant voter turnout this time around. However, this will also come with its own shortcomings, as postal ballots taking longer to count in some states, mean that determining a final outcome may take longer than usual.
The key question is what a win for either candidate would mean for the wider US economy and financial markets. One impact we have already witnessed is the increased volatility and that will be here to stay for the coming weeks, with growing concerns regarding a contested result. The key issues investors are looking for clarity on are the US economy beyond the global pandemic, inflation, the dollar’s strength, fiscal stimulus, and scope on ongoing trade tensions with China. Markets have priced in a Biden win at 66% and a possible Trump win at 35%. A potential negative backlash from a Biden win due to his proposed corporation tax increase to 28% from today’s 21%, has been accounted for, with investors warming to a Biden win.
Potential risk asset concerns will not be down to the US elections itself, but more so the containment of the global coronavirus pandemic and timing of an effective vaccine, which will hopefully curb further disruptions to the global economy as well as the US.
Overall, a Trump or Biden win will not heavily impact market movements, although we will see some volatility. In either case, the initial focus will be inwards on domestic policy for at least 12 months, to aid the US economy. With expectations, we may see a ‘V’ shaped recovery and not a ‘U’ shaped with recovery in certain sectors lagging. Overall, we remain neutral on the US. Short-term, volatility is expected for either a Biden or Trump win, however, a split congress and a Biden white house over the medium term may be the best outcome for financial markets. This will allow for monetary and fiscal policies to remain relatively loose and avoid major swings in a quasi-socialist agenda which the markets are avoiding the most, but simultaneously Biden’s more sensible approach to foreign policy, diminishing geopolitical tensions and the uncertainty surrounding non-US markets.
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