- With a little over one month to go until the presidential election, polls continue to suggest a close race, but Biden has a stronger edge over Trump than Clinton did in all battleground states. Demographic changes mean there is even a chance that some traditional Republican stronghold states could flip Democrat.
- Mass voting by post means delays to the result – and potentially disputes – are much more likely than in recent elections. Disputes raise the possibility of unrest, and polling suggests Democrat voters are more likely to react with anger to a Trump win than Republican voters to a Biden win. Disputes and unrest would be a negative for markets.
- Congressional elections also take place on 3 November, and could be just as crucial as the presidential election itself. Polls suggest Democrats will retain control of the House, and could gain control of the Senate. This raises the prospect of dramatic policy changes under an ‘all blue’ executive.
- However, we see the most likely scenario to be Biden winning the presidency, Democrats retaining control of the House, and Republicans retaining control of the Senate. This means Democrats would have to compromise with Republicans to get legislation passed.
- In any election scenario, ‘lower for longer’ interest rates means the path of least resistance is a continued dramatic rise in government debt. A Biden-led government would spend much more, while a Trump-led government would cut income taxes.
- We also expect US-China trade decoupling to continue in all scenarios, though a Biden presidency would repair relations with traditional allies and take a more multilateral approach to trade disputes.
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