US election: Known and unkown uncertainties

In Short

Less than four weeks before the US election day (November 3), uncertainty is unprecedented. Polls give Democratic contender Joe Biden a lead over president Trump, while the race about the majority in the Senate looks even more open. Surging postal votes may delay the proclamation with the risk of a prolonged legal dispute on a contested election result.
Focal Point

Highlights:

  • Less than four weeks before the US election day (November 3), uncertainty is unprecedented. Polls give Democratic con-tender Joe Biden a lead over president Trump, while the race about the majority in the Senate looks even more open.
  • Surging postal votes may delay the proclamation with the risk of a prolonged legal dispute on a contested election result.
  • Our base scenario, Biden as president checked by a Republican majority in Senate, would prevent the implementation of higher taxation and tighter regulation proposed by the Democrats, but could open the door to infrastructure spending.
  • This scenario may have a mild but overall positive impact on risky assets, as abrupt policy changes would be avoided and Treasury yields would remain low. A full Democratic win would be temporarily harmful for equity and credit and have a more persistent negative effect on the dollar, while increased deficit spending would lead to a bear steepening of the curve.
  • Markets are pricing the possible volatility triggered by a delayed and contested outcome of the election. Such a scenario could paradoxically favour short term the US dollar on its persistent safe haven status.

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FOCAL POINT US ELECTION: KNOWN AND UNKOWN UNCERTAINTIES

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