Who won the first US presidential debate?

Blonde Money CEO and XRay regular Helen Thomas recaps what we learned – or didn’t – from the first debate of the US Presidential Election between President Trump and Joe Biden.

Don’t forget you can catch the latest insight from Helen every week on XRay.

 

US Presidential Election: To Vote, or Not to Vote – That is the Question

As the 2020 US Presidential Election creeps into view, the United States is a country divided. With polarisation increasingly prominent, and ever-stronger partisan loyalty, the famed ‘floating voter’ is nearing extinction.

Whilst almost 40% of the electorate identify themselves as independents, these figures hide a residual bias which exists in most. Recent research has found that 93% of the electorate have some sort of partisan lean, with only 7% considered truly neutral. This illustrates the desire of many American voters to be considered independent, even if they are almost certainly going to vote for the same party in every instance.

And yet, conventional wisdom tells us that the most successful campaigns are those which reach out the middle ground and win over these floating voters. If the aforementioned research is correct, such a strategy may no longer be effective.

Instead, we suggest that turnout is the key to victory in modern US elections. The most important decision a voter can make is not who to vote for – for the vast majority this is a foregone conclusion. Rather, the voter choice that really matters is whether to vote at all.

One need only look back to 2016 to exemplify this point, where Hillary Clinton lost the election by less than 100,000 key swing state votes. By comparison, 4.4 million people who voted for Obama in 2012 didn’t vote in 2016, more than enough to overturn Trump’s wafer-thin victory.

Some research has even suggested that, had turnout remained at 2012 levels, Clinton would have won 323 electoral college votes – enough to deliver her the White House comfortably. In states such as Michigan, Wisconsin, Pennsylvania, Florida, and North Carolina, it was a failure to turn out their own voters which scuppered Clinton, not a failure to win over the centre.

Can Democrats recover African American vote?

The challenge for the Democrats in this election year, both at the Presidential and Congressional level, will be to recognise this as the root of their failure, and to take action in response. In particular, rebuilding African American turnout could prove decisive, after the 7% drop which occurred between 2012 and 2016.

Perhaps Biden’s choice of VP is a recognition of the importance of African American turnout. Although Kamala Harris is unlikely to provide an Obama-sized boost to African American enthusiasm, she may go some way to bridging that gap.

This is especially likely in the context of the Black Lives Matter movement, which could also help to increase turnout among minority demographics.

Which campaign will adapt best to mail-in ballots?

The prominence of mail-in ballots could throw a spanner in the works, though, with campaigns having to radically change their Get Out the Vote operations in response to the new circumstances.

Whereas previous elections have seen a focus on last-minute voter outreach, the early registration deadlines will mean that a longer-term strategy is required. The campaign which adapts to these changes most effectively will gain a critical edge come election day.

To vote, or not to vote: that is the question. The answer will decide who resides in 1600 Pennsylvania Avenue come 2021.

US election playbook: navigating the volatility with 40 days to go

  • Temporary dislocation
  • Too many variables
  • Bigger risks ahead

Given the once-in-a-lifetime pandemic, the US election is being held in exceptional circumstances. All else being equal though, we can deduce something about how current polling might play out. The market consensus is that a Biden win and Democrat clean sweep will lead to higher taxes and regulatory risk for a large number of corporates, which will hurt equities.

There are however plenty of other ways in which the market might like a Blue-nami, from pragmatic trade policy to combined loose fiscal and monetary policy.

Trade

Could Biden open up trade with China again? The Democrat candidate is taking a hard line on China – which is playing well with both sets of voters – but will he become more emollient once in office?

Tony Blinken, a senior foreign policy adviser to Biden, said fully ‘decoupling’ with China as urged by Donald Trump is ‘unrealistic’ and ‘counter-productive’. Biden will instead reset ties with China while seeking to redress unfair practices on trade and IP. However, it will be difficult for Biden to withdraw Trump’s tariffs immediately, without gaining significant concessions.

Biden has to play the hand Trump dealt, but he might seek to drive greater consensus with China and work out a more pragmatic trade policy.

MMT

Biden may not have expressed much support for Modern Monetary Theory – in fact he was once a fiscal hawk in the old style – but under a Democrat Congress and White House there would be no rush to reduce the deficit.

In fact, Biden’s economic stimulus plans entail more borrowing. Whilst it is a stretch to suggest that Biden is a supporter of MMT, the economic and social backdrop has changed drastically in recent years and it is gaining traction in more corners of the Democrat machine.

Moreover, the Fed’s recent average inflation targeting shift opens up a new front for MMT proponents in explicitly pushing full employment as the primary goal of monetary policy.

The Fed

At Jackson Hole the Fed announced a policy shift that ought to have a material impact on expectations around rates and inflation. The Fed is taking a more practical approach than in the past when it has been guided by theories about maximum employment, the Philips Curve and inflation.

Instead of saying that the economic outcomes need to fit its models – which have always been nothing more than a best guess – it will let the outcomes drive the policy. Some would say this is a step towards fully embracing MMT, even if Powell has been against this approach in the past.

The fact is that the crisis has thrown MMT from economic theory to economic practice without any real debate. Powell has embraced a central tenet of MMT – why should millions of people be thrown on the economic scrapheap and left unemployed as the price to pay for low inflation.

Under a Democrat-led Congress and White House, MMT proponents will gain a louder voice, with implications for federal economic policy.

Overall, whilst Biden’s tax policy might be tougher on Wall Street, trade and monetary policy could be easier. But it is not quite so straightforward as that. With polls close in the key battleground states and huge uncertainty over the potential impact of postal votes, it is currently difficult to put a price on any outcome, which in turn makes it hard to trade the election per se.

Going long or short based on the outcome is far too simplistic and you could just as easily call it wrong as get it right. What we can say is that the pandemic, the economic recovery and the monetary policy response are longer term going to matter much more. And so, all else being equal is far too simplistic a view to take in what’s a very complex situation.

Will the election outcome be contested?

The only thing the market wants is to get the election out of the way – the only real danger would be a long period of legal disputes post-election, but again this ought only to create volatility at the time and would eventually be forgotten once it all shakes out.

Veiled threats by Trump to not accept a Biden win are probably over-analysed. The Supreme Court (and Secret Service) would see to that. It turns out the most antagonistic election in a generation for the people of America might well end up merely a short term ripple when it comes to markets, given everything else they have to contend with in the long term.

With 40 days to go, the race is tight and in the major battlegrounds it is too close to call. Markets will be volatile and dislocations will occur that present opportunities. The best approach is to be agile enough to contend with both outcomes and no clear winner on the morning of November 4th.

You can follow our election coverage here.

Congressional Elections: Why do they matter?

While the race for the White House has received outsized attention, developments such as the failure to reach a new coronavirus relief bill and the looming threat of a government shutdown have heightened the stakes in the battle for control of Congress.

The House of Representatives looks firmly in the hands of the Democrats after the inroads they made in the 2018 midterms. Control of the Senate is therefore crucial. It’s currently in Republican hands and the Democrats would need to win four seats of the twenty-three up for grabs in order to gain an overall majority.

With Biden ahead in the Presidential polls, can the Democrats feel confident about the Senate?

With party now trumping candidate, the general momentum towards the Democrats should give them some hope. 2016 was the first year on record where every single state holding Senate elections voted for the same party for Senate as for president.

It’s no longer the case that voters split their ticket when they go to the polls. For example in 1980, despite Republican Ronald Reagan winning the White House, 12 of 31 Senate seats went to the Democrats.

Now though, the electorate is so polarized that party dominates across elections. If you voted Trump, you vote Republican across your ballot paper.

This means state-wide elections have increasingly been nationalized: Senators struggle to separate themselves from their national parties. This has been exacerbated under President Trump, where almost every Republican Senator has embraced him of fear of losing his conservative base – this is especially the case for the Republican Senator in Arizona, Martha McSally, who has pivoted to the right and linked her fate inextricably to Trump’s.

Rare candidates, like Maine Senator Susan Collins, have been able to maintain an identity distinct to the national party’s and keep split-ticket voting alive – but even Collins’ long-time local reputation as an independent, in a centrist state with a history of electing moderate women, is under threat for her polarizing pro-Trump voting record. She backed Brett Kavanaugh for his confirmation to the Supreme Court, in support of her President – and saw her popularity with female voters plummet.

Replacement for Ruth Bader Ginsburg becomes key election issue

With any coronavirus relief unlikely to pass before the election, control of the Senate will be crucial to any alleviation of the recession. This has been exacerbated by the death of Supreme Court Justice Ruth Bader Ginsburg.  Party politics will now be bogged down in finding her replacement, rather than finding a fiscal compromise.

While Trump has made this a key issue, going as far as releasing an unsurprisingly political list of possible appointees, Biden has in turn also made this a focus of his candidacy, promising to nominate a historic first: a black woman. Given the increasing frequency of constitutional hardball around Supreme Court confirmations, control of the Senate will be a prerequisite to a successful nominee.

Given that the states in the Senate up for re-election are very Republican, this development will energise the base, reducing the likelihood of a Democratic majority.

However, on the Presidential level, the blue wall which deserted Hillary Clinton in 2016 looks likely to be rebuilt, given the intensely partisan nature of the battle to come. Mitch McConnell should be pleased by this weekend’s news, Donald Trump should not.

With both sides becoming more entrenched the elections look set to deliver a split between the legislature and the executive. With a more polarized Congress, key platform items promised by both candidates will be tougher to achieve. Expect partisan  investigations and tense hearings to persist no matter who wins.

Blue-nami or Red Wave? How the US election result could impact markets

How will the US Presidential Election impact markets? Will there be Democratic sweep of all three houses; the White House and both houses of Congress? Or can Donald Trump defy the pollsters and hold on for four more years?

Whatever the result, there is sure to be an impact on financial markets. We’ve put together all the potential outcomes and how these might impact the US dollar, S&P 500 and Treasury yields in a handy guide – you can find yours today in platform message centre.

US Presidential Election Weekly: Federal Reserve & US Election

Our resident political commentator, XRay regular and Blonde Money CEO Helen Thomas, takes a look at the latest big developments in the race for the White House. This week, the focus is on why the Federal Reserve’s switch to average inflation targeting could help Donald Trump in the polls over the coming weeks.

Don’t forget you can catch more great insight from Helen every week with Blonde Markets and our Election2020 Weekly shows on XRay. For all the latest election updates, including polling data, visit our US Presidential Election 2020 microsite.

Election2020 quick briefing: Trump catches up, markets price for pullback

  • Trump catches Biden in betting markets
  • Polls narrow further as race tightens
  • Options markets show concern

September 2nd saw an important development as betting markets turned in favour of Donald Trump being re-elected. The RCP average showed Trump +0.1pt over Biden at 49.8 to 49.7. Whilst clearly too close to call, the speed at which Trump has narrowed the gap shows how quickly things can change.

Betting markets are not, however, the same as polls. They are only market participants’ best guess at what the outcome will be.

US Presidential Election polls tighten as Trump eats into Biden’s lead

But polls also show a tighter race. Our US election poll tracker, which is powered by data from Real Clear Politics, has come in sharply. On a national level Trump is polling better than at any time since May and has eaten into Biden’s clear lead, which remains strong.

However, looking into the key battlegrounds where we know the fight will be bitterest and where it really counts, the lead Biden has is also narrowing and now well within the margin for error area. The latest RCP data shows Biden at +2.6 in the top battlegrounds, having been more than +6pts in July. Trump currently stands on 45.4 vs Biden’s 48.

Vix signals heightened election nerves

The tighter race is being displayed by more implied volatility in options markets for the S&P 500 than the stock market itself is showing. We have talked in the last few days about the Vix moving steadily higher even as the SPX rises – futures again pointing higher today after Tuesday’s record close.

This is the first red flag. The second is the term structure of the Vix futures curve which shows significant increase in expected volatility come Oct and Nov with a sharp 20% contango between the front and back months. Compare for example the CBOE Volatility Index Oct 2020 close at 33.51 vs the front month (Sep) at 28.35. Nov traded at 31.80.

This contango in the Vix is at odds with the general grind higher we are seeing and signals genuine anxiety among investors that the election will create the conditions for pullback.

Our Trump20 Blend – comprised of stocks seen as being most exposed to changes to corporate tax rates – is up but has lagged the broad market in recent days, whilst the dollar has softened despite a decent recovery on Wednesday.

Funnily enough, whilst the implied volatility is elevated around the election, all else being equal Trump’s low-tax, low-regulation agenda ought to be more positive for the stock market than a Democrat clean sweep would be. What this increased volatility may represent more is in fact investor fears about a disputed election result, which would considerably dent risk appetite going into the end of the year.

US Presidential Election Weekly: Republican National Convention

Our resident political commentator, XRay regular and Blonde Money CEO Helen Thomas, takes a look at the latest big developments in the race for the White House. This week, the focus is on the Republican National Convention.

Don’t forget you can catch more great insight from Helen every week with Blonde Markets and our Election2020 Weekly shows on XRay. For all the latest election updates, including polling data, visit our US Presidential Election 2020 microsite.

Trump approval rating holds up as Republican convention draws to close, battlegrounds tighten

We know that the Presidential race will come down to a handful of key swing states. But national polls still tell us something about the direction of the campaigns.

As the Republican convention draws to a close this week, the latest polls indicate Donald Trump’s standing remains at least stable. NBC News|SurveyMonkey Weekly Tracking Poll shows that 45% of American adults strongly or somewhat approve Trump’s performance, 54% disapprove.

Meanwhile there has been evidence that the race is tightening. This should not come as a great surprise – national polls showing Biden with a double-digit lead were never going to hold once the campaign proper got underway.

What’s interesting is the direction of travel in Trump’s favour in some key battleground states.

According to a recent CNN poll, the national split was 50% for Biden-Harris and 46% for Trump-Pence. That is within margin-of-error territory.

But drill down to the most important states for the Electoral College and it’s even tighter. In 15 battleground states the poll showed Biden with just a single percentage point lead – with the Democrat on 49% and Trump on 48%. The latest poll for Wisconsin shows Trump edging it for the first time in months.

According to RealClearPolitics, which powers our Election Coverage, Trump trails on 42.4% to Biden’s 50% nationally. But in the battlegrounds the gap is narrowing, and Trump leads in some. 

And as can be seen by the electoral map, it looks like a toss up as to who will win in November.

Mail-in Ballots: The Battle That Will Decide the War?

Track all the latest developments in the race for the White House with the special US Presidential Election 2020 site from Markets.com.

With the coronavirus pandemic calling into question the safety of in-person voting this November, many states have already taken steps towards allowing voters to cast their ballots from home during the US Presidential Election 2020.

President Trump has repeatedly spoken out against such actions, citing rampant voter fraud as a potential consequence of mail-in voting. However, behind the veneer of concern for electoral integrity, lies the real reason for Trump’s focus on the issue: turnout.

Turnout concerns for Trump as ‘swing states’ expand mail-in voting

If voters had turned out in 2016 as they had four years previously, Hillary Clinton would now be sitting pretty in the White House: a recent study shows that her 2016 defeat was largely down to a sharp decline in minority voting.

Recent research by the New York Times suggests that the proliferation of mail-in voting nationally could increase overall turnout by as much as 9%, with particularly large upswings among young and minority voters.

Given that these demographics heavily favour the Democrats, it is easy to see why the President is eager to discourage any move towards mail-in voting for November’s election. And yet, despite Pres Trump’s protestations, every one of the crucial ‘swing states’ has already taken steps towards a liberalisation of their vote from home policy.

Do mail-in ballots really disadvantage Trump?

If we look at each of these states in more detail however, we see Trump has less to fear. The rust belt states like Michigan, Wisconsin and Pennsylvania simply don’t have the diversity that would benefit from the mail-in votes.

If the Democrats are winning there, then they’ve already got enough cross-community support to be sure of success, whether it’s through ballots cast in person or through the post.

Focus on Florida in US Presidential Election

There is one state that is diverse enough to cause Trump to stumble, and that’s Florida. Famous for George Bush’s hanging chad victory in 2000, where he scraped out a gain of just 0.01% of the vote, it’s possible that mail-in ballots might boost the Democratic demographic enough for Biden to steal the state.

Hence Trump’s latest provocation. He has threatened to withhold funding from the US Postal Service (USPS), which could render mail-in voting unfeasible. It could also upset the President’s own voter base, as it risks alienating rural voters who are heavily dependent on the USPS.

Will threatening USPS aid progress on new stimulus bill?

The truth is that he is merely using this threat as a bargaining chip in the latest round of Congressional stimulus negotiations. If the Democrats play ball with his fiscal plans, he will leave the USPS alone.

It also is yet another classic Trumpian tactic to provoke the woke. He relishes poking at the dividing lines of America. The noise delivers oxygen to his campaign, stealing headlines from his opponents, as well as forcing the liberal left into ever more pearl-clutching outrage that incenses his right-wing voter base.

Impact of mail-in voting on the Senate

Given that any President’s legislative agenda depends on which parties hold the balance of power in Congress, mail-in ballots might prove decisive for determining if the Republicans can hold onto the Senate.

The picture here is rather similar to that of the Presidential election: the vast majority of competitive states lack the diversity required for mail-in voting to be decisive, but a small and significant minority should still be highlighted.

In particular, of the ten states that will decide the balance of power in Washington come 2021, two are likely to see a sizeable Democratic advantage, thanks to new vote from home protocols: Georgia and North Carolina. However these are typically Republican leaning, so the Democrats will have to be sweeping across the nation to ensure they pick them up.

How worried should Republicans be?

Given that many states have already opted to shift towards mail-in voting, the Republicans have already lost the battle over voting from home. Whilst the President will continue to make a lot of noise on this issue, dragging out threats of USPS defunding, come election day voting from home will be ubiquitous.

Far from being the final nail in the coffin for the Trump campaign, voting from home poses only a minimal obstacle to re-election in the vast majority of swing states.

Florida is the only, but perhaps crucial, exception to this rule. Whilst not election-deciding in and of itself, we have seen Presidential elections in the past be decided by far, far smaller margins. And in the case of the Senate, we see a similar story: small but potentially crucial areas where mail-in voting could have the deciding impact.

Advantage Biden. Advantage Democrats. But only just.

Don’t forget to check out the latest polling data for the US Presidential Election 2020.

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  • CFD
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