Addressing the US election on a state-by-state basis is for other more qualified souls. Our broad take on it is endeavoured below and followed up tomorrow. However, at time of press there is a growing opinion that Donald Trump, by a close margin, will regain the White House after four years of being sidelined. Well, if one cannot believe the polls, which can be so hilariously wrong, have faith in the betting exchanges. Polymarket, PredictIt in the US and Betfair in the UK are now pricing a Trump win at 95% despite the majority of the so-called swing states not yet declaring. 

The immediacy of market reaction is a ramp in the US Dollar. The US Dollar Index (DXY) had been eroding due to the unwinding of the 'Trump Trade' after a weekend of favourable Kamala Harris polls. However, with a Trump win now being bandied, the basket index has rallied from 103.45 yesterday to over 105.00 this morning before settling back to 104.80. With Trump's promise of lower taxes, US stock futures take a run, and again at time of press, the DOW, S&P and Nasdaq are all up well over 1%. Cryptocurrencies are deemed to be favoured more by Trump and Bitcoin also rallies nearly 10% overnight. The 'Trump Trade' in the US is 'Trump Fear' in other parts of the world. Europe takes a more circumspect view, due to the tariffs that are likely to come, and this is also reflected in China. The CN Yuan has suffered a little smoking this morning and dropped by 1% against the revitalised greenback with China's bourses including the Hang Seng sharply lower. 

Commodities feel the weight of the US currency's rise. None less so than oil prices where Brent is now over $1.5/barrel lower. The losses are inflated by a larger than expected build in the API Inventory Report. Crude stocks increased by 3.1mb against a 1.1mb call as products came in at expectation. This is despite storm 'Rafael' being upgraded to hurricane status and threatening hardware in the US Gulf of Mexico area.

America Decides, But What For? (Part 1)

Markets crave binary outcomes. When a data set is due, the publication is made and depending on whether the reading is below or above the expected number, it does not matter, the data is fact and markets move on. There is absolutely no chance of this happening in the US election, particularly so when Donald Trump is involved. The US love a ‘too close to call’ election, but this one really was/is, and despite the overnight results already announced, this election is going to test the patience of even the most battle-hardened politico.

As it is, the legal profession in the United States is set to have a windfall as battalions of lawyers will be called upon in almost every state to scrutinise and contest ever smudge, dog-ear or some such questionable markings or fold that may not be legal tender in a ballot. As for the counting of the votes there are amazing differences within states on when for example postal or ‘day before’ drop off votes are counted. Although reassurances are to be found that counting has been speeded up from the last election when the result was not known for four days, this election might be even closer and the final declaration cannot be assured in a palatable time frame for the citizens of the US, the world and hamstrung markets. Hyperbole? No, the US accounts for up to 25% of global GDP, spends more on arms than the rest of the next 8 countries on the list combined and remains the centre of the world’s trade made all the more resolute by the US Dollar being the planet’s King currency. The US global influence cannot be understated.

There is little assuredness on which outcome will be bullish or bearish for individual markets, there will be no clean sweep of uniformity. The ‘Trump Trade’, that has somewhat unwound after the weekend’s polling, suggests a defensive United States, insistent on border controls that are not all about immigration but also on protectionism for trade or a Harris administration which at present looks set to be Biden II or if one is cynical, Obama III. Therefore, the biggest price reaction across the suites will come from a Trump win, if and when it might be announced. Make America Great Again and ‘Americanism’ over globalism will rear its head again and so will the concept of swingeing tariffs applied across the whole of imports.

Inflation, the bane of the Federal Reserve could possibly increase, interest rates to combat it, and a US Dollar that will outgun all currencies before it. This will obviously be reflected in oil prices but will be matched by how the geopolitical landscape might change. A Trump regime will unlikely be as friendly towards Ukraine as the Biden one is at present. The Donald has something of bromance going on with Vladimir Putin, and to get the Russian leader around the table a new President Trump might just have to sacrifice relationship with Kyiv. An overt critic of NATO, the former President, or maybe President elect, holds plenty of truck with the EU and its annual neglection of GDP commitments for spending on defence. As for Israel, his support will be more resolute than the begrudging one shown be the previous White House. Which brings a double whammy on what might happen to Iran.

Expediency has been the motto of the last four years, no matter if it was bringing in sanctions and price caps on Russian oils at a pedestrian pace to allow a beleaguered Europe to replace energy sources or turning a blind eye to the ever-increasing Iranian exports. All sacrificed at the altar of keeping oil prices lower. Donald Trump scuppered the last nuclear deal, and with it not being able to find reinstatement, will Tehran’s biggest critic then take aim at its oil industry? As for China, if the threatened 60% tariff on all imports becomes a reality, the fallout in the ensuing trade war will collapse global demand for all produce and oil cannot be spared.

All these influences will be chewed over and over as the vote crawls to a conclusion, whatever that may be. If one were to believe predictors there is chance of tie, which will be a festival for upholders of the US Constitution. If both candidates receive 269 electoral votes, there would be a ‘contingent election’ in which the House of Representatives chooses the next president with a simple 26-state majority being the decider. Obviously, if the House is controlled by one party, it ought to be sure fired victory, but who knows when hand grenade Trump is in the mix. Markets are truly in for a frustrating time until a winner is announced. However, one of the candidates has form in terms of not accepting a result and if he loses the US Government might be bound up in legal cases for some time.

There is a stream of consciousness from this seat relating to a Trump win being in some ways a grudging convenience so that the world can get on with itself. Of course, the added bonus, from a certain perspective, is that he will not be able to run again in 2028 and any damage he might do will be neutered by either the Senate or the House being under Democrat control. The most divisive, but not decisive US election since World War II needs to be behind us. The anxiety around the result might just prove to be worse than the reality.
….to be continued

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