Showdown!!!
Happy Friday,
Next week we will see two big showdowns. On the one hand, the apparently unpredictable US election, and on the other, BREXIT negotiations - which could be influenced by the outcome of the former. Based on the experience of the 2016 election, the majority of election observers are still sceptical about the result, although the predictions clearly favour Biden. Besides the 8% lead in national polls for the popular vote, Biden is also leading with 273 vs 125 of the Electoral College votes in the polls. As of 29-OCT, 80 million Americans had voted early - either by post or in person which is already 58% of the total number of people who voted in the election in 2016. This is an indication of a potential record overall turnout in this year's election. However, this isn't a reliable indicator of who will win the election in the end. Still, all postal-voting polls are also indicating a win for Joe Biden.
The biggest risk for the market is not a win for Trump, but the case of him losing, as it is not clear if he will accept the result. Trump is planning on the fact that it will take time until all postal votes have been counted - especially after he “limited” the postal service and some states reacted be extending the deadline to send in the postal votes. It is very likely that especially in the battle states we will see two different results, one on election night which could lean to the Republican side, and one after all postal votes have been counted and verified - which could lean towards the Democrats. The final result could be decided in court or in Congress, making the election even more unpredictable.
The outcome of the election could have a significant impact on the final negotiations of BREXIT. There are increasing rumours in Westminster that Boris Johnson is waiting for the final result of the election, since a Trump victory will enable him to pressurise towards a hard Brexit. However, this game is dangerous because there is the possibility that a winner will only be determined months later, which will be too late for the BREXIT negotiations. Only a clear winner next week will provide more clarity and structure.
My thoughts for next week:
Even though the US election will be the dominated theme next week, markets will get some economic numbers to digest too. The most focused one will be the two Central Bank meetings in the UK and the US, where traders are not expecting any change in the current rate level but further hints of how they will react if the second Coronavirus wave is looks like getting worse. It is very likely that both central banks will be indicating to react quickly if needed but will keep their cards very close to their chest. In particular, the FED is very unlikely to change anything soon, as many members of the FOMC have pointed out that a better-than-expected economic recovery is a result of the current monetary support, and should remain in place for some time to come.