NEW YORK (Reuters Breakingviews) – It may take a few days before US presidential elections generate clear winners. That is eternal for markets that get used to the price moving per microsecond. But whether Donald Trump or Joe Biden won, investors could have guessed what the next government would look like: pretty weak.
The election map is engulfed in purple haze. Mail ballots are still tallying in a number of key pivot states ̵1; including Michigan, Wisconsin and Pennsylvania – which are likely to determine which candidate will take office on January 20. The Senate is also still active. The currencies of trading partners like China and Mexico weakened sharply on Tuesday night. The S&P 500 futures index rose 2% as the count took place. Both showed confidence in a Trump victory, but only expected.
However, some broad outlines can be given. Even if Biden wins, he is less likely to benefit from the so-called green wave – where Democrats gain control of Congress and the president. That’s bad news for more ambitious parts of his agenda, like expanding a government-backed alternative to private health insurance, doubling the tax rate on income from capital for people with very high incomes and trillions of investments in green infrastructure.
Likewise, a triumphant Trump could be besieged by a fragile Republican Senate majority, or nothing at all, with the Democratic House of Representatives. Yes, he doesn’t outline many policy lines, other than slogans like “Create 10 million new jobs in 10 months” and “Keep China fully accountable for allowing the virus to spread around the world. gender ”. But a reduction in the already low 21% corporate tax rate may be out of the question.
For some, a fragmented or weak government is a Goldilocks situation – with checks of both Trump’s progressive and impulsive policies. Go Wall Street. Without the green wave, tougher regulations are unlikely – including big banks threatened by Democratic Sen. Elizabeth Warren. Plans to regulate internet companies like Facebook could get bogged down in partisan contention. And a government that cannot or will not pass positive climate laws will benefit oil and gas companies like Exxon Mobil.
However, weakness can come at a cost for many Americans. For one, it can hold a lot of needed Covid-19 relief. Scholars at Oxford’s Said School of Business find that the percentage of unemployed Americans struggling to pay their bills has doubled between August and October. It is increasingly unclear who is in charge. , the more difficult it is to spend big finance. If it starts to seem like Biden has won, Trump and the Republican lawmakers may be even less inclined to act in his last two and a half months in office.
The market may be able to handle a degree of uncertainty. After all, investors were expecting some uncertainty. VIX’s November 3 level, a measure of stock market volatility, is almost double the level on election day 2016. And the Federal Reserve proved it in March, when Covid-19 derail the market, that it will do whatever it takes to keep the financial apparatus running. A slow path to tough government would be a shame. However, it shouldn’t be a shock.
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