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US elections: Biden sweep looking more likely

The latest US election polls are pointing towards a win for President Donald Trump’s opponent Joe Biden. The risk of the result being challenged is receding as the chances of Biden winning and the Democrats securing a majority in both the House of Representatives and the Senate grow.

Although US President Donald Trump appears to have recovered from his coronavirus infection and is hitting the campaign trail hard again, current polling suggests he will not be re-elected on 3 November. Forecasts produced by polling organisation FiveThirtyEight at the beginning of the week put the chances of a win for the Democrat challenger, Joe Biden, at 87 per cent, and the likelihood of a Trump victory at just 12 per cent. Although Donald Trump is now pulling out all the stops again, many voters seem to have turned their backs on him of late. The main reason appears to be his handling of the coronavirus pandemic, considered by many observers to have been inept. And Trump’s divisive manner, witnessed recently in the TV debates and interviews, does not appear to have gone down well with some potential Republic voters.

The final TV debate before the election was held on 22 October and was far more civilised than the first Trump-Biden encounter in September, primarily because the rules were stricter. There was no clear winner, but at least Trump and Biden did manage to discuss policy issues – and not before time, as many commentators noted.

Economic plans reveal differences – and some similarities

There are substantial differences between the economic plans of the two candidates, but there are also some surprising similarities. Both believe in strengthening the American economy through greater protectionism. On China, too, the two camps differ more in tone than in substance. But in other areas there is clear blue water between the two opponents. Biden wants to modernise the US economy and make it greener. Trump is more focused on preserving the status quo. This difference was made clear in the TV debate when the subject of oil came up. Biden said he wanted to ‘transition’ away from the oil industry and is aiming for a future where no energy is produced from fossil fuels. Trump was quick to seize on this point, not least because some of the key battleground states such as Texas, Pennsylvania and Oklahoma are big oil producers. Because the American president is elected indirectly via an electoral college in which each state is assigned a set number of votes, elections tend to be won or lost in a small number of these battleground states and so winning their approval is crucial.

Less uncertainty

Despite Donald Trump’s frequent attacks on his challenger, Joe Biden has been pulling ahead in the polls and has now opened up a clear lead. From the capital markets’ perspective, this reduces uncertainty on two levels. Firstly, investors have a clearer idea of who will be setting economic policy in the Oval Office following the inauguration on 20 January 2021. Secondly, the more emphatic a Democrat victory, the more unlikely it becomes that Trump would be able to successfully challenge the election result – something he has repeatedly refused to rule out. Election watchers believe that everything will hinge on which way Florida decides to vote. Here too, the likelihood of a Biden victory has increased recently. If a clear result emerges quickly here, then, according to the current polls, this could put an end to any chance of a Trump win. With the Democrats ahead in most states, the risk of the election ending in a draw is also decreasing.

Odds of a Biden sweep are shortening

Odds of a Biden sweep are shortening
Date: 25th October 2020

Biden sweep and possible consequences

On 3 November, more than 200 million Americans will be electing a new House of Representatives and a third of the 100 senate seats, as well as a new president. In the US system of checks and balances, a Congress majority can be vital in determining whether or not a president is able to get their legislative programme through. We believe the most likely outcome is a Biden sweep where Biden wins and the Democrats secure a majority in both the House of Representatives and the Senate. This is the only outcome that would ensure Biden could get the majority of his agenda passed into law. It would open up the prospect of a comprehensive fiscal stimulus package that could boost the economy as well as raising inflation expectations. In this scenario, a certain reflation of the US economy would be conceivable, which would probably lead to steeper yield curves in the medium term. A steeper interest-rate curve would have a positive impact on the profitability of the US banking sector while other sectors would be saddled with tax increases. The Democrats have also announced their intention to invest more heavily in innovative technologies, particularly green technologies, which could lead to a leap forward in innovation in many areas. A Biden presidency would continue to stand up for US interests in dealings with China, but the tone would be more diplomatic. This could help ease tensions in the trade dispute, which would be good news for global trade. 

The race isn't won yet

The next couple of weeks will be exciting. The big question right now is whether the representatives of both camps will be able to agree on a new stimulus package before the election. This would also send a positive signal to the stock markets. However, experience from 2016 tells us that even though Biden currently has a clear lead in the polls, the race for the White House is not over yet.

Date: 26th October 2020

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