The Global Equity markets are on the move and the bet is for a Blue Wave to deliver unprecedented fiscal support to drive the economic recovery.
However unlikely, the global financial markets could learn who will become the 46th U.S President as early as tomorrow.
In spite of plenty of uncertainty ahead of the likely outcome, the markets remained upbeat after last week’s sell-off.
Conditions may deteriorate rapidly, however.
There are a number of possible outcomes that will influence the equity markets in different ways.
This in itself will make the markets somewhat edgy this week, with volatility likely to pick up over the coming days.
All of this is assuming, of course, that there is no clear winner ahead of the NYSE opening bell tomorrow.
To make things even more complicated this time around is the widespread use of postal votes. Postal votes have reportedly accounted for more than two-thirds of 2016’s total vote count.
With different states having different policies on when to begin counting, the markets will also need to be wary of skewed results.
The good news for Biden, and seemingly the global equity markets, is that the Republicans have failed to block mail-in ballots.
These pre-election judicial decisions should ease some degree of uncertainty should the election be a close call.
Not all judicial decisions have been made, however. More importantly, not all states have even begun to count postal ballots.
These reportedly include Pennsylvania, Michigan, and Wisconsin. All three were leaning in favor of Biden and each is considered a swing state.
So, removing all the uncertainty that could plague the global financial markets for weeks if not longer, it is a two-horse race. One will become the oldest U.S President in history.
Since the COVID-19 pandemic hit U.S shores, incumbent Trump has continued to trail Biden in the polls.
In spite of this, the U.S equity markets have continued to find support and even hit fresh record highs.
This suggests that the markets are predicting a Trump victory that would go against the grain for a 2nd consecutive election.
One other factor that should support demand for the U.S equity markets, in the event of a Trump victory, is policy continuity. There would likely be some market relief that corporate America would avoid the repeal of Trump’s tax bills. Then there is healthcare and foreign policy to also consider. Trump’s foreign policies are vastly different from Biden’s. On paper at least…
It could be bad news for the European and the Asian markets, however. 4 more years of Donald Trump would undoubtedly lead to greater protectionism and more aggressive trade wars.
That means that the EU could well be next on Trump’s hit list, once a phase 2 agreement is ironed out with China.
So, while the U.S equity markets would likely find support, there could be some decoupling from the EU and Asia.
There is one connotation, however, where Biden could deliver initial support to the U.S equity markets and beyond.
A “Blue Wave” should deliver support to the U.S equity markets and beyond. Control of both houses would deliver the markets with the assurance of increased government spending in support of the economic recovery.
While repeals of tax bills are an immediate U.S equity market negative, investors may be able to stomach it on the assumption that Biden opens the war chest.
That makes the Senate Elections all the more important this time around, particularly if Biden looks set to win the keys to the Oval Office.
The Day’s Ahead
While there are some possible market responses to the outcome, there are a number of other factors that will also influence.
In Summary, these may include:
A false start claim of victory: Trump has reportedly stated that he will claim victory if he leads overnight.
Judicial uncertainty is almost certain. Trump is not going to hand over the keys to the Oval Office too easily. The U.S President will target postal votes for obvious reasons.
Court decisions to throw out postal ballots could swing the balance in Trump’s favor.
Finally, counting rules could result in sizeable swings… Investors and the markets will need to be cognizant of this.
All of this will deliver market volatility, as the global financial markets respond to the Electoral Vote count and the political gamesmanship.
At the time of writing, the European majors were on the move, with the Dow futures up 429 points.
If the combined moves are an indication of what lies ahead, the markets are expecting a Blue Wave… It would need to be a rout, however, for any political wrangling to be avoided.