Polls are calm as the pressure builds.
It’s going to be a bumpy ride for markets ahead of 3 November - and possibly beyond if an election result is delayed or contested.
Biden gained a significant lead in polling as voters expressed disappointment with both Trump’s pandemic handling and response to BLM protests and civil unrest, but 2016 taught us anything can happen despite what pollsters say.
The polling gap between Trump and Biden is starting to narrow, and despite the president’s poor approval rating, he does an edge on one thing: the economy. As the country reopens and US economic data improves, Trump has a chance yet to win over voters.
When is the US election?
The election will be held on Tuesday 3 November and it’s a race between Republican incumbent Donald Trump and Democratic nominee former Vice President Joe Biden.
If one candidate has a clear win, markets will price in the news accordingly and look to the future. But if the results are close, and if a surge in mail-in ballots causes delays, we may see a contested election - and heightened market volatility - until Congress ratifies the result on 6 January ahead of inauguration on 20 January.
USD volatility will likely increase as investors react to polls and evolving election outcomes - trade against the unknown. Trade forex majors, minors and crosses with low spreads and fast execution.
Commodities like oil, silver, and copper could see some big moves as markets price in what the country’s economic future looks like leading up to the election and after. Trade WTI, XAU and XAG with Pepperstone today.
USDJPY is historically a favoured vehicle to hedge election risk, but markets could see a reaction in the CAD, CNH and gold (XAUUSD) too. We offer gold denominated in the USD and four other major currencies, as well as low spreads and ultra low latency execution.
Two major themes: China and Taxes
On China policy, both candidates are a bearish case for markets as the US-China relationship will remain fragile. Markets have learned to expect a hard stance on China from the Trump administration, yet once seen as an easier ticket for China, Biden has certainly adopted a harder position over time. A Biden administration would be less likely to use tariffs as punishment, which could be positive for the USD and US stocks.
Trump famously slashed the corporate tax rate from 35% to 21% in 2017. The pro-business policy was well-received by investors and helped propel US stocks to endless record highs, maintaining a strong US dollar until the pandemic. Biden has indicated a partial reversal of the 2017 corporate tax rate, perhaps towards 28%, but It is unclear when such a change would be made, as higher taxes could be a handbrake on a recovering economy.
But it's not winner takes all
The winner of the US election isn’t decided by the popular vote, instead it’s decided by an electoral college system. Under the electoral college, many states will always vote blue or red. For example, California will always vote blue and Oklahoma red. This makes battleground states so important, as they ultimately determine the election outcome.
Florida is a critical battleground state. It has the third largest number of electoral college votes and has voted for the overall election winner all but once since 1964. Trump won Florida in 2016, but current polls indicate the state could tilt blue this year.
Many swing states are part of the industrial mid-Western rust belt, which Trump overwhelmingly won in 2016. Wisconsin, Michigan, and Pennsylvania will be among the most critical swing states this year.
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