US President Trump is not doing well in the polls going into the November 2020 US Presidential election.
Since the Covid-19 pandemic went global back in February of this year, opposition President candidate Joe Biden has expanded his lead in the polls over incumbent President Trump from below 5% to above 10%. Over the same time period, Trump's disapproval rating has risen to its highest levels since early 2019 of over 55%.
Based on the Financial Times’ election calculator, which utilises the latest polling data from Real Clear Politics, Biden is the firm favourite to win the presidency. This is largely as a result of the fact that a number of important states typically seen as “swing states” (i.e. are normally seen as a tossup between the Democrats and Republicans) are leaning heavily in favour of Biden. The most important of these, Florida and Michigan are leaning in favour of Biden by around 7%.
Based on current polling, the FT’s election calculator suggests that Biden is near-guaranteed at least 198 seats in the electoral college, and is highly likely to win a further 89, which would give him 287 electoral college votes (note, 280 wins the Presidency). Trump is seen as near guaranteed to win only 115 seats, while seats seen as highly likely to be won by the Republicans are only a further 27.
109 seats are considered a tossup – polling data essentially is too close to call, or within the margin of error. Importantly, even if Trump does win all of these tossup seats, he would still lose the Presidency. The fact that states such as Texas, normally a Republican stronghold, are considered a tossup pretty much sums up the President’s problems.
What this means for markets
Given his dire position heading into the election, Trump may get “desperate”. What that means is, he might try to play up hard to the areas of his Presidency which poll well amongst voters;
What does that mean? Here is an example; Biden polls well amongst American’s in terms of their trust in him to handle the Covid-19 outbreak (and public health in general). Notice that his campaigning has focused heavily on criticising the Trump Administration's failures in containing the pandemic (on which topic Trump polls very badly now – this will likely only get worse as the second wave grows larger).
Trump may try similar tactics. He polls well on issues such as international trade and his foreign policy towards China (polling reveals Americans have high distrust towards China and are protectionist). Some analysts have been arguing for months now that heading into the election, Trump will want to further escalate trade tensions with the likes of China and the EU to appeal to these sensibilities.
Clearly, if he does choose to drastically escalate trade tensions further, this will be a negative for risk assets such as global equities, crude oil, AUD, NZD, CAD etc, that as we head into November, may already be feeling the pressure from rising Covid-19 cases in key markets (amid the “second wave).
Most analysts, however, Trump’s rhetoric on this would likely be more bark than bite; he may want to look tough on these issues to the voters, but will not want to further hurt the US economy amid its “recovery” from the Covid-19 pandemic (if it is indeed still recovering at that point and hasn’t been sent back into recession due to a second wave).
What about the election outcome?
Trump’s protectionist (bad for global GDP growth) and fiscal simulative policies (good for US growth) have been seen in the past as a USD positive. Indeed, USD has moved higher throughout most of Trump’s Presidency.
Biden is therefore seen as a USD negative. However, Biden is also seen as a negative for stocks, given his higher tax policies, which may weigh on risk sensitive FX given the correlation. Maybe this would lead to USD haven bid.
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