US ELECTION: WANING ODDS OF A ‘BLUE SWEEP’ STIMULUS
- Polls proved wrong again and the presidential election looks very tight. It will be decided over the next few days, with the risk of a protracted and bitter legal fight looming large.
- Failure by the Democrats to take the Senate would greatly reduce the odds of a sizeable fiscal stimulus (US$ 2tn or more). However, a smaller size package (up to US$ 1tn) remains feasible under a split Congress. Conversely, any regulatory tightening and tax increase would look much less likely, with a Republican Senate.
- The surprising result triggered an initial risk off-mode on markets, as bets on the fiscal boots following a “blue wave” were reversed. Prices are recovering on European markets. While another fiscal stimulus and brightening prospects about a Covid-19 vaccine may ultimately help to underpin risk sentiment, the risk of a drawn-out legal battle may cast a shadow over the prospects of financial markets over the next days, if not weeks.