Ladies and gentlemen, please welcome the United States general elections! After months of polls, speculations, emails, rallies, demonstrations, and polemic stories, November 3rd has arrived, and Americans are heading to the polls.
The battle is between those who believe in keeping America great and the others who consider that the White House should build it back better. Special consideration for the great states of Florida, Pennsylvania, North Carolina, and Arizona because they can trigger the contested election scenario.
Markets are also considering that we will not have a stable president by Wednesday morning, but a long battle in courts and state by state recounts. Recently, Donald Trump said he would send his lawyers to some states where he considers it may be a fraud in the election and the votes counted.
Others consider that a blue wave is possible with Joe Biden winning the presidential race, and the Democratic party turning the whole Congress, including the House and the Senate, into blue.
Americans will decide; their vote, our fate
That being said, traders know that the US elections are the riskiest event this week, but other fundamental developments will indeed move the markets.
Keep in mind that the Bank of England and the Federal Reserve will host its monetary policy meeting this week. The US employment report and the nonfarm payrolls number for October will be released on Friday.
Finally, markets are in risk aversion mode, and it looks like any outcome will trigger the sell button. Also, COVID-19 cases are mounting globally, with over 46.8 million cases and more than 1.2 million deaths in 190 countries. Markets are concerned about the second wave of cases in Europe, leading to more lockdowns in the United Kingdom, France, and Spain, among other countries.
In the United States, Americans are experiencing not the second, but the third wave after the two seen in April and July. With around 80 thousand new cases and a thousand deaths every day, the US is the most affected country in the world, with 9.2 million patients and 231 thousand people killed by the virus.
That would influence the US election, but also the days after, as lockdown measures will be flying above the heads of officials and politics.
Biden leads, but Trump can still win
According to FiveThirtyEight, Biden is favored to win the election. Odds say that 89 in 100 possibilities say that the Democratic nominee will take the White House from the Republican incumbent.
However, Nate Silver, editor in chief of FiveThirtyEight, remembers in a recent article that "Trump can still win." He highlights that Trump's chances are 10%, not zero.
"Joe Biden's lead in Pennsylvania — the most likely tipping-point state, according to our forecast — is solid but not spectacular: about 5 points in our polling average," Silver says. "Without Pennsylvania, Biden does have some paths to victory, but there's no one alternative state he can feel especially secure about."
As for more conventional polls, Real Clear Politics have an average that counts all surveys in the country. According to the RCP Poll Average, Biden is leading the race by 6.8 points. Joe has 50.7 percent, while Donald scores 43.9 percent. Still, too close to call.
Talking about the battleground states, Pennsylvania is mixed, with both candidates winning the state depending on the poll. Perhaps, the margins in Biden's victory are more significant than a close Trump lead.
Florida leans to Biden. However, recent rallies in the sunshine state where Trump talked with Hispanic communities about how Biden has ties with Castro's Cuba and Maduro's Venezuela can make Hispanics move to Trump strong.
Finally, North Carolina looks like a tie.
All roads lead to a contested election
Understand US history. In case the 2020 race results in a contested election, it wouldn't be the first time it happens. Neither would it be a historical event.
Yes, it would be the first time that a president says it wouldn't accept results if he doesn't like it, but there are several cases of US contested elections.
Starting in the elections of 1800 when Thomas Jefferson was designated president after a tie with Aaron Burr, until the one the second president Bush won in 2000 against former Vice-President Al Gore and with the help of his brother, Jeb Bush.
In any case, it would be the worst nightmare for investment markets. As you may know it, investors don't like uncertainty, and a contested election would provide that to them. Also, stimulus talks, among other needed measures to recover the country in the COVID-19 pandemic, would be frozen too.
Some rumors say President Trump would declare victory if he sees early projection going in his favor, no matter if the race in crucial states is still open. In that case, the only way Trump would accept defeat would be a landslide victory for Biden. In other words, a blue wave.
In any case, a contested election would be a risk aversion event with strong dollar and gold and weak stock markets. Euros, pounds and cryptocurrencies would be also under pressure in case of a contested election.
As for now analysts at TD Securities positioned themselves in a scenario with a Biden victory and the democratic party winning a slim majority in the Senate.
"Polling data show a decisive lead for Joe Biden in the presidential election, even allowing for potential polling error and the idiosyncrasies of the Electoral College system," noted analysts. "The balance of power in the Senate is a closer call, but Democrats appear poised for a slim majority."
What if Biden wins
It all depends. Will it be a landslide victory that President Trump will have no other option than accept. Or will it be a close call with a potential disputed election?
Let's say Biden wins big. According to experts, markets would open with huge gains on Wednesday. After all, it will mean the return of certain normality and a bigger stimulus package on the horizon. And you know Wall Street, the size matters.
It will also be good for the Euro and Pound as more money will push the Dollar down. Gold and cryptos? Bullish scenario with money coming from the government and the Federal Reserve.
Special consideration for oil prices. As Joe Biden is a believer in green energies, it would be more willing to cut US oil production, which would drive oil prices up, let's say to 60 dollars per WTI barrel.
What if Trump wins
Let's say that there will be four more years of making America great again, again. It will be mixed to stocks as investors will get a clear path for a stimulus package, but smaller than the potential Democratic stimulus.
Also, the Republican party would be open to revising the monetary policy and debt to GDP ratio. So, we would see spending cuts on the horizon.
What we can anticipate are low interest rates as the United States will try to push the Dollar down to get the necessary money to pay all the debt accumulated in the last four years.
A clear Trump victory would open the doors for gains in Wall Street as it would clear uncertainty. In the long run, expect more steroids to Wall Street as President Trump would be preparing its succession in 2024. Perhaps, Ivanka Trump would become the first woman President in the United States? She is a Trump, all that matters to Donald.
This Market Analysis has been published by a staff writer at XBTFX .
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