Welcome to our latest US political update with 22 days until the presidential election.
Each week we will take a look at the likes of policy changes, polling shifts, the continued impact of Covid-19, the geopolitical stances that the candidates are taking and of course, the economic impact on the US, the dollar and global trade. The US presidential election remains the most important political event globally and markets are starting to pay attention to the run-in to November’s polling day.
Polling shows a strong Biden lead
There is a saying in markets that “the price is not news” i.e. just because an asset may be trading at a certain price doesn’t make it news, it is the underlying reasons why the price has got to that level that may be newsworthy.
There is not the same concept when it comes to political polling however, with the headlines rarely digressing from who is up and who is down. Friday’s news cycle was a case in point with the news machine focusing in on polls that suggest that former Vice President Joe Biden has opened up an average lead in national polls of around 10 percentage points. With three weeks to go, there is little opportunity for President Trump to be able to overcome such a deficit.
Going back to the 1940s, no candidate has had such a large lead coming into the last month of campaigning and no candidate has managed to overcome a double-digit deficit with this little time to go.
So, absent an unforeseeable event, we think that it’s pretty certain that we will see President Trump’s presidency come to an end on January 20th next year.
Size does matter
While there is always an element of hubris that needs to be acknowledged within polling and elections, we think that it is telling that the conversation in political circles has shifted from “Who will win?” to “How much will Biden win by?”.
Within the change in language, wider shifts in voter behaviour are now expected with some analysts now expecting the so-called “blue wave”. This would see Democrats winning the White House but also majorities in the Senate and the House of Representatives – something that has not occurred since the first 2 years of Obama’s first term.
Similarly, the larger the Biden win, the more chance that any legal challenge to the veracity of the election by the Trump campaign will be dealt with quickly and forgotten about by both markets and the wider electorate. We expect Trump to launch a court battle if he loses, regardless of the size of the defeat, but a swift refusal to play along will limit the chances of a constitutional problem.
The outlook for the USD
Markets are happy to move the USD weaker as they become more and more comfortable in pricing in a Biden presidency with hopes being that a fully blue Congress will be able to pass a large and broad stimulus plan to help the US economy through the winter.
Similarly, we would expect a broad rally in riskier currencies in the event of a “blue wave” as American investors keep funds abroad and choose to not repatriate money back to the US given the expectation that a Biden presidency will see the average American’s marginal tax bill increase.
The week ahead
This Thursday’s town-hall style debate has been cancelled after President Trump refused to take part in a virtual debate following his Covid diagnosis. The next is set to take place on Thursday 22nd October.
Have a great week.
