الأسبوع المقبل: خاص بالانتخابات الأمريكية

ستكون انتخابات الرئاسة الأمريكية ومجلس الشيوخ الحدث الرئيسي في الأسبوع المقبل، لكننا سنتابع أيضًا اجتماعات الاحتياطي الفيدرالي وبنك إنجلترا.

انتخابات 2020

الانتخابات الأمريكية التي تجرى يوم الثلاثاء هي العنصر الوحيد المؤثر (تقريبًا). يمكن عادة توقع النتيجة بعد إغلاق مقصورات الاقتراع، إلا أنه ليس هناك شخص متأكد من الموعد الذي سنعرف فيه من سيكون صاحب المنصب القادم في البيت الأبيض. يحتفظ جو بايدن بالصدارة في الاستفتاءات على المستوى الوطني، لكن الأمر متقارب في الولايات الحاسمة الرئيسية والتي ستحدد الفائز. فما زال بإمكان لدونالد ترامب أن يفاجئ استطلاعات الرأي. في الوقت ذاته فإن سباق مجلس الشيوخ بنفس القرب وقد يكون بنفس الأهمية لنظرة السوق حول إتمام صفقة تحفيز بعد ذلك مباشرة.

ترجيح التقلب في تسعير العقود الآجلة وربما بعض أسواق الفوركس أثناء الليل سيكون هو الطريقة التي تجرى بها استدعاءات الولايات الفردية. وحيث أن بعض الولايات تعالج أوراق الاقتراع الشخصية قبل حساب الأصوات البريدية، ومع سماح بعض الولايات بوصول الأصوات البريدية بعد 3 نوفمبر (طالما أنها مختومة بختم البريد قبل هذا التاريخ)، يمكن أن نحصل على عينة غير دقيقة ومتفاوتة عند إغلاق اقتراع الساحل الغربي. يمكننا أن نتوقع ارتفاع التقلبات ثانية إذا لم تكن هناك نتيجة واضحة أو كانت النتيجة متنازع عليها.

سنستضيف ندوة خاصة عبر الإنترنت لما قبل الانتخابات يوم الإثنين، وسنتابع رد فعل السوق مباشرة يوم الأربعاء.

الاحتياطي الفيدرالي

في أعقاب الانتخابات الأمريكية مباشرة يُعقد يوم الأربعاء اجتماع اللجنة الفيدرالية للأسواق المفتوحة FOMC لشهر نوفمبر لمدة يومين، والذي لا يُتوقع أن يعلن فيه صناع السياسة عن تغييرات كبيرة. ستبحث الأسواق عن وضوح أكبر بشأن الطريقة التي يقارب بها صناع السياسة هيكل متوسط التضخم المستهدف الجديد. شددت محاضر من اجتماع سبتمبر على أنه بالرغم من أن المعدلات ستخُفَّض لمدة أكبر، يسعى المسؤولون إلى الحفاظ على درجة من المرونة بشأن التوجيه المسبق ولا يرغبون في الالتزام دون شروط بإبقاء المعدلات عند أدنى مستوياتها.  سيصدر بيان FOMC وسيعقد مؤتمر صحفي مع جاي بويل يوم الخميس.

بنك إنجلترا

قبل هذا يوم الخميس، يصدر بنك إنجلترا أحدث بيانات سياسته النقدية وسط توقعات بهبوط معدلات الفائدة إلى السالب. يمهد بنك إنجلترا الطريق أمام الهبوط إلى معدلات فائدة سالبة. طلب نائب المحافظ سام وودز من الشركات، في خطاب أُرسل إلى البنوك التجارية يوم 12 أكتوبر، بتفصيل «استعدادها الحالي للتعامل مع معدل فائدة بنكي صفري أو معدل فائدة بنكي سالب أو نظام مدرَّج للأجور الاحتياطية، والخطوات التي سيتعين عليكم اتخاذها للاستعداد لتنفيذ ذلك». يذكر الخطاب أن «القطاع المصرفي … سيتعين عليه أن يكون مستعدًا تشغيليًا لتنفيذ ذلك بطريقة لا تؤثر سلبًا على أمان ورسوخ الشركات»، ويفسر ذلك قائلًا «قد ترى لجنة السياسة النقدية أنه من الملائم اختيار خيارات متنوعة بناءً على الموقف في وقت الاختيار». يأتي هذا بعد أن أظهرت تفاصيل من آخر اجتماعات السياسة أن بنك إنجلترا يدرس بشكل فعال المعدلات السالبة، بينما يبذل أندرو بايلي جهودًا شاقة في التأكيد على أن هذا لا يعني بالضرورة أنهم سيسيرون في هذا الطريق.

من الواضح أن هناك جدال دائر الآن داخل لجنة السياسة النقدية MPC للبنك نراه يخرج إلى العلن. ففي سبتمبر، دعا نائب المحافظ دايف رامسدن إلى توخي الحذر بعد يوم واحد فقط من دعم سيلفانا تنريرو بشكل صريح المعدلات السالبة. وبالرغم من هذا يبدو الأمر كما لو أن هناك بعض النزاعات الفكرية الواضحة بين محددي الفائدة تحتاج إلى تسوية خلال الخريف، مما يدل على أن المعدلات السالبة لن تُطبق في الأفق القريب، حتى مع دراستها بجدية، كما أشار أندرو بايلي. المشكلة التي تواجه البنك ستكون عمليات الغلق الجديدة و/أو أزمة البطالة التي تتجه نحو الكريسماس، والتي تبذل ضغطًا على لجنة السياسة النقدية لتتخذ إجراءً.

بنك الاحتياطي الأسترالي

قد يُخفض بنك أستراليا معدلات الفائدة لأول مرة منذ مارس عندما يعقد اجتماعه هذا الأسبوع، مع تزايد توقع الأسواق بخفض في معدل النقد من 0.25% إلى 0.1%. وقد ترك بنك الاحتياطي الأسترالي معدلات الفائدة ثابتة في أكتوبر، عازفًا عن الخفض دون 0.25%، لكنه حافظ على تحيز لموقف مسالم بلا جدال ما زال يشير إلى أن المزيد من الخفض قد يحدث هذا العام. قال بنك الاحتياطي الأسترالي إنه سيبقي السياسة النقدية سهلة «طالما تطلب الأمر» ولن يرفع هدف معدل النقد حتى يُحرَز تقدم نحو كامل التوظيف وحتى يكون واثق من أن التضخم سيكون في النطاق المستهدف 2-3% بشكل مستدام. وإنه يبقي خياراته مفتوحة، وشدد على أنه سيواصل دراسة تسهيل نقدي إضافي.

البيانات الاقتصادية

أغلب البيانات الاقتصادية، إذا لم تكن كلها، غير حديثة بسبب عودة ظهور الفيروس والقيود، بالإضافة إلى أن المشهد السياسي في الولايات المتحدة قد تغير على الأرجح حتى إذا بقي دونالد ترامب رئيسًا. وبالرغم من هذا، ستراقب الأسواق أحدث مؤشرات مديري المشتريات وتقارير الرواتب غير الزراعية في الولايات المتحدة.

أهم البيانات الاقتصادية لهذا الأسبوع

افتح التقويم الاقتصادي في المنصة لتشاهد قائمة كاملة بالأحداث.

Date  Event 
2-Nov  China Caixin manufacturing PMI 
2-Nov  UK manufacturing PMI 
2-Nov  US ISM manufacturing PMI 
3-Nov  US ELECTION 
3-Nov  Reserve Bank of Australia monetary policy decision 
3-Nov  New Zealand unemployment rate 
4-Nov  US ELECTION RESULTS EXPECTED 
4-Nov  US ADP employment change 
4-Nov  US ISM manufacturing PMI 
4-Nov  EIA crude oil inventories 
5-Nov  Bank of England monetary policy decision 
5-Nov  US weekly initial jobless claims 
5-Nov  FOMC statement and press conference 
6-Nov  RBA statement 
6-Nov  US nonfarm payrolls 
6-Nov  Canada Ivey PMI 

 

أهم تقارير الأرباح لهذا الأسبوع

لا تنس متابعة حلقاتنا الخاصة اليومية لموسم الأرباح في XRay للمزيد من التحديثات

Date  Company   
2-Nov  PayPal Inc  Q3 2020 Earnings 
2-Nov  Estée Lauder  Q1 2021 Earnings 
2-Nov  Mondelez  Q3 2020 Earnings 
3-Nov  Aramco (Saudi-Aramco)  Q3 2020 Earnings 
3-Nov  Ferrari N.V.  Q3 2020 Earnings 
3-Nov  Bayer  Q3 2020 Earnings 
4-Nov  QUALCOMM Inc.  Q4 2020 Earnings 
5-Nov  T-Mobile US Inc  Q3 2020 Earnings 
5-Nov  AstraZeneca PLC  Q3 2020 Earnings 
5-Nov  Bristol-Myers Squibb Co.  Q3 2020 Earnings 
5-Nov  Linde plc  Q3 2020 Earnings 
5-Nov  Enel S.p.A.  Q3 2020 Earnings 
5-Nov  Zoetis Inc (A)  Q3 2020 Earnings 
5-Nov  Square  Q3 2020 Earnings 
5-Nov  Barrick Gold Corp.  Q3 2020 Earnings 
6-Nov  Toyota Motor Corp.  Q2 2021 Earnings 
6-Nov  CVS Health Corp  Q3 2020 Earnings 
6-Nov  Richemont  Q2 2021 Earnings 

 

Election update: Blue-nami flips to consensus bull catalyst

US presidential election update: Bank of America strategists say the Blue-nami outcome, which had been initially considered negative for equities, is being priced in better by the market and may now be a positive. “Blue wave election outcome (Democrats winning) has curiously flipped from consensus bear to bull catalyst in recent months,” they say. 

The S&P 500 corrected through September, flushing out some of the weaker hands and allowing longs to cautiously rebuild as the market traded the 3200-3400 range. The recent upside break came despite negotiations around a broad $2.2tn stimulus package all but breaking down entirely. In this period polls have reverted to showing a greater likelihood of a Biden win and odds shortening on a Democrat clean sweep. 

As noted in our election playbookthere are lots of reasons why the market could really like a Biden presidency, even if tax and regulation could be a problem.  

Clean sweep

Ultimately though it may matter less in the long run who enters the White House than whether the Senate turns blue or stays red. Unusually, the economy may benefit more from unity than the current polarisation – the normal idea that gridlock in Washington is good, because it stops politicians from interfering with the free market, doesn’t quite wash this time. 

The pandemic has upended the norms and the economic backdrop to this election. Cohesion in Washington would likely deliver the kind of fiscal stimulus required to flood the economy with money and get the wheels turning again. 

A Democrat clean sweep would probably result in a far larger package of support and therefore deliver a much stronger stimulus than we would anticipate if Trump wins and the Senate remains in Republican hands whilst the House of Representatives stays blue. Biden’s plans to stimulate the economy involve enormous spending pledges – and to be fair, an increase in the budget deficit is exactly what the economy needs right now. The Federal Reserve has already said it will not get in the way by raising rates should inflation emerge – a major policy shift announced in August that has huge implications for the economy and the application of fiscal policy. 

Wall St or Main St?

Joe Biden would raise taxes, which is supposed to be bad, but Trump’s tax cuts disproportionately benefited the rich, large corporations and people who own stocks. This does not generate additional consumer spend in the same way as a more evenly distributed tax cut. To borrow a line from a leading economist, how many additional swimming pools did Jeff Bezos put in because his tax rate fell under Trump? 

JPMorgan conducted an investor survey recently: 79 per cent said the worst-case scenario would be a Democrat president and Senate, whilst 49 per cent said the best would be a Republican president and Senate. But that may be more about a fear of regulation (and higher taxes) than a belief that a Biden presidency and Democrat clean sweep would be bad for stocks. 

Meanwhile the BoA report also highlighted how renewable energy stocks may front run a Democratic victory in presidential and Congressional elections. Clean energy stocks make up a large part of our Biden20 Blend. 

Congressional Elections: Why do they matter?

While the race for the White House has received outsized attention, developments such as the failure to reach a new coronavirus relief bill and the looming threat of a government shutdown have heightened the stakes in the battle for control of Congress.

The House of Representatives looks firmly in the hands of the Democrats after the inroads they made in the 2018 midterms. Control of the Senate is therefore crucial. It’s currently in Republican hands and the Democrats would need to win four seats of the twenty-three up for grabs in order to gain an overall majority.

With Biden ahead in the Presidential polls, can the Democrats feel confident about the Senate?

With party now trumping candidate, the general momentum towards the Democrats should give them some hope. 2016 was the first year on record where every single state holding Senate elections voted for the same party for Senate as for president.

It’s no longer the case that voters split their ticket when they go to the polls. For example in 1980, despite Republican Ronald Reagan winning the White House, 12 of 31 Senate seats went to the Democrats.

Now though, the electorate is so polarized that party dominates across elections. If you voted Trump, you vote Republican across your ballot paper.

This means state-wide elections have increasingly been nationalized: Senators struggle to separate themselves from their national parties. This has been exacerbated under President Trump, where almost every Republican Senator has embraced him of fear of losing his conservative base – this is especially the case for the Republican Senator in Arizona, Martha McSally, who has pivoted to the right and linked her fate inextricably to Trump’s.

Rare candidates, like Maine Senator Susan Collins, have been able to maintain an identity distinct to the national party’s and keep split-ticket voting alive – but even Collins’ long-time local reputation as an independent, in a centrist state with a history of electing moderate women, is under threat for her polarizing pro-Trump voting record. She backed Brett Kavanaugh for his confirmation to the Supreme Court, in support of her President – and saw her popularity with female voters plummet.

Replacement for Ruth Bader Ginsburg becomes key election issue

With any coronavirus relief unlikely to pass before the election, control of the Senate will be crucial to any alleviation of the recession. This has been exacerbated by the death of Supreme Court Justice Ruth Bader Ginsburg.  Party politics will now be bogged down in finding her replacement, rather than finding a fiscal compromise.

While Trump has made this a key issue, going as far as releasing an unsurprisingly political list of possible appointees, Biden has in turn also made this a focus of his candidacy, promising to nominate a historic first: a black woman. Given the increasing frequency of constitutional hardball around Supreme Court confirmations, control of the Senate will be a prerequisite to a successful nominee.

Given that the states in the Senate up for re-election are very Republican, this development will energise the base, reducing the likelihood of a Democratic majority.

However, on the Presidential level, the blue wall which deserted Hillary Clinton in 2016 looks likely to be rebuilt, given the intensely partisan nature of the battle to come. Mitch McConnell should be pleased by this weekend’s news, Donald Trump should not.

With both sides becoming more entrenched the elections look set to deliver a split between the legislature and the executive. With a more polarized Congress, key platform items promised by both candidates will be tougher to achieve. Expect partisan  investigations and tense hearings to persist no matter who wins.

US Presidential Election Weekly: Federal Reserve & US Election

Our resident political commentator, XRay regular and Blonde Money CEO Helen Thomas, takes a look at the latest big developments in the race for the White House. This week, the focus is on why the Federal Reserve’s switch to average inflation targeting could help Donald Trump in the polls over the coming weeks.

Don’t forget you can catch more great insight from Helen every week with Blonde Markets and our Election2020 Weekly shows on XRay. For all the latest election updates, including polling data, visit our US Presidential Election 2020 microsite.

The stock market rally is facing a major hurdle

European equities opened firmer again on Thursday morning, extending gains from a very strong session on Wall Street. France’s CAC led the way after President Macron announced an extra €100bn stimulus package over two years. Remember the EU’s bailout fund is still to be delivered. The FTSE 100 moved back towards the 6,000 level as the pound came under further pressure from a resurgent dollar.

US stocks power higher, but Vix raises red flag

US equity markets jumped – the Dow and S&P 500 both rallied more than 1.5% on another strong day for equities. But Vix futures show no signs of backing down either, which indicates fears about the sustainability of the rally. Technical indicators are stretched too – the 14-day relative strength index is flashing a warning light at above 80 for the S&P 500.

Many of the top stocks like Apple are also trading above 80 on the RSI. Salesforce and Apple fell, but there were otherwise broad gains for the Dow, with the likes of IBM and Coca-Cola leading the way. Tesla was down 5% after its stock sale announcement. Apple remains +20% over the last month, representative of the wider tech trend, which remains strong.

Citi this morning upgraded their call on Value stocks from ‘neutral’ to ‘positive’, however they caveat this by saying they mean Value ex-Financials. Whilst rising inflation breakevens favour cyclical value stocks, low nominal rates continue to weigh on financials.

The S&P 500 continued to extend above its long-term weekly trend line (in red) and is really starting to push the envelope to breaking point.

Vix futures (Sep) are extending higher but the sharp contango between the front and back months is extreme with October printing above 35. This risk premium implied by the options market is simply not being reflected by equity markets.

Global economy slow to recover from Covid slump

Economic indicators continue to show a slow recovery. The Fed’s Beige Book – an anecdotal snapshot of businesses across the US – noted that “activity remained well below levels prior to the COVID-19 pandemic”.

PMIs continue to show a slowdown in August – following some softer European numbers, China’s Caixin services PMI slipped to 54 from 54.1 last month. Italy’s services PMI slipped to 47.1 in August from 51.6 in July, indicating businesses think things are getting worse, not better.

US jobs numbers were poor – the ADP report showed the US private sector added just 428,000 jobs in August, which was less than half what was forecast. It bodes ill for Friday’s nonfarm payrolls report. Today’s initial claims number is forecast to come in under 1m, but the slow pace of jobs growth relative to layoffs earlier in the year continue to point to a very long, slow recovery in the labour market.

On a happier note – the New York Times reported that the US Centers for Disease Control and Prevention informed officials to get ready to distribute a potential coronavirus vaccine as early as October. There are several candidates are in the running and there is clearly a lot more confidence we will have a vaccine and be able to declare victory over Covid.

Sanofi and GSK announced today the start of their Phase 1/2 clinical trial for their adjuvanted Covid-19 vaccine. If the trials are positive, the companies aim to move into a Phase 3 trial by end of 2020 and target producing up to one billion doses in 2021.

Odds of Trump re-election grow as White House race grows tighter

Yesterday, betting markets turned in favour of Donald Trump being re-elected. The RCP average showed Trump +0.1pt over Biden at 49.8 to 49.7. Whilst clearly too close to call, the speed at which Trump has narrowed the gap shows how quickly things can change. Betting markets are not, however, the same as polls. They are only market participants’ best guess at what the outcome will be.

But according to our US Presidential Election poll tracker, polls also show a tighter race. On a national level Trump is polling better than at any time since May and has eaten into Biden’s clear lead, which remains strong. However, looking into the key battlegrounds where we know the fight will be bitterest and where it really counts, the lead Biden has is also narrowing and now well within the margin for error area.

The RCP data showed Biden at +2.6 in the top battlegrounds, having been more than +6pts in July. By Thursday however, Biden bolstered his lead again to +3.3 in the battleground states. Suffice to say, the race is going to be very close.

Increasingly we see the biggest risk to market stability being a disputed election result, which would considerably dent risk appetite going into the end of the year. Will President Trump resist leaving the White House? Will Biden refuse to concede on the night goes against him even if the vote on the night goes against him? Lots of risks ahead. A clean sweep for the Democrats would mean more regulation and more taxes.

Yields have come back down to pre-Jackson Hole levels with US 10s back at 0.647%. Gold slipped further from the Tuesday swing high towards $1930 and again contending with long-term trend support.

The dollar notched further gains – GBPUSD has retreated to take a 1.32 handle and EURUSD briefly taking a 1.17 handle again. The unwind for these pairs has been sharp but it still looks to be a tough period for USD.

Oil settled lower at its weakest in a month despite a large draw on oil inventories. WTI slipped to $42 as the temporary nature of the shut-ins from Hurricane Laura failed to offer support. The EIA said US crude inventories fell by 9.4m barrels for the week ended Aug 28th, after the API had reported a drop of 6.4m barrels.

Election2020 quick briefing: Trump catches up, markets price for pullback

  • Trump catches Biden in betting markets
  • Polls narrow further as race tightens
  • Options markets show concern

September 2nd saw an important development as betting markets turned in favour of Donald Trump being re-elected. The RCP average showed Trump +0.1pt over Biden at 49.8 to 49.7. Whilst clearly too close to call, the speed at which Trump has narrowed the gap shows how quickly things can change.

Betting markets are not, however, the same as polls. They are only market participants’ best guess at what the outcome will be.

US Presidential Election polls tighten as Trump eats into Biden’s lead

But polls also show a tighter race. Our US election poll tracker, which is powered by data from Real Clear Politics, has come in sharply. On a national level Trump is polling better than at any time since May and has eaten into Biden’s clear lead, which remains strong.

However, looking into the key battlegrounds where we know the fight will be bitterest and where it really counts, the lead Biden has is also narrowing and now well within the margin for error area. The latest RCP data shows Biden at +2.6 in the top battlegrounds, having been more than +6pts in July. Trump currently stands on 45.4 vs Biden’s 48.

Vix signals heightened election nerves

The tighter race is being displayed by more implied volatility in options markets for the S&P 500 than the stock market itself is showing. We have talked in the last few days about the Vix moving steadily higher even as the SPX rises – futures again pointing higher today after Tuesday’s record close.

This is the first red flag. The second is the term structure of the Vix futures curve which shows significant increase in expected volatility come Oct and Nov with a sharp 20% contango between the front and back months. Compare for example the CBOE Volatility Index Oct 2020 close at 33.51 vs the front month (Sep) at 28.35. Nov traded at 31.80.

This contango in the Vix is at odds with the general grind higher we are seeing and signals genuine anxiety among investors that the election will create the conditions for pullback.

Our Trump20 Blend – comprised of stocks seen as being most exposed to changes to corporate tax rates – is up but has lagged the broad market in recent days, whilst the dollar has softened despite a decent recovery on Wednesday.

Funnily enough, whilst the implied volatility is elevated around the election, all else being equal Trump’s low-tax, low-regulation agenda ought to be more positive for the stock market than a Democrat clean sweep would be. What this increased volatility may represent more is in fact investor fears about a disputed election result, which would considerably dent risk appetite going into the end of the year.

US Presidential Election Weekly: Republican National Convention

Our resident political commentator, XRay regular and Blonde Money CEO Helen Thomas, takes a look at the latest big developments in the race for the White House. This week, the focus is on the Republican National Convention.

Don’t forget you can catch more great insight from Helen every week with Blonde Markets and our Election2020 Weekly shows on XRay. For all the latest election updates, including polling data, visit our US Presidential Election 2020 microsite.

Trump approval rating holds up as Republican convention draws to close, battlegrounds tighten

We know that the Presidential race will come down to a handful of key swing states. But national polls still tell us something about the direction of the campaigns.

As the Republican convention draws to a close this week, the latest polls indicate Donald Trump’s standing remains at least stable. NBC News|SurveyMonkey Weekly Tracking Poll shows that 45% of American adults strongly or somewhat approve Trump’s performance, 54% disapprove.

Meanwhile there has been evidence that the race is tightening. This should not come as a great surprise – national polls showing Biden with a double-digit lead were never going to hold once the campaign proper got underway.

What’s interesting is the direction of travel in Trump’s favour in some key battleground states.

According to a recent CNN poll, the national split was 50% for Biden-Harris and 46% for Trump-Pence. That is within margin-of-error territory.

But drill down to the most important states for the Electoral College and it’s even tighter. In 15 battleground states the poll showed Biden with just a single percentage point lead – with the Democrat on 49% and Trump on 48%. The latest poll for Wisconsin shows Trump edging it for the first time in months.

According to RealClearPolitics, which powers our Election Coverage, Trump trails on 42.4% to Biden’s 50% nationally. But in the battlegrounds the gap is narrowing, and Trump leads in some. 

And as can be seen by the electoral map, it looks like a toss up as to who will win in November.

What will happen to the US dollar if Trump wins re-election?

After years of threatening a devaluation, in the face of China’s own currency manipulation, President Trump recently indicated that he is now in favour of a strong dollar. Given the President’s inconsistency on the issue, and the current turbulent economic environment, what exactly would a second term entail for the most important currency in the world?

How a second Trump term could impact USD

The crucial distinction here is one of means versus ends. In the mind of President Trump, the currency is just a tool to deliver a buoyant stock market and booming economy, whatever he might tweet.

The Trump administration will do whatever it takes to catalyse the recovery, whether appreciation or depreciation is the required remedy. In our view, the latter will prove to fit the bill, and so the US dollar’s value will fall if the Trump train continues to roll through November.

Whilst the dollar has been relatively stable in its value over the course of Trump’s first three years in office, the gargantuan nature of the economic task at hand means that this trend simply cannot continue.

When he began his first term, the economy looked to be in a relatively healthy state. Discounting the remote possibility of a miraculous economic recovery, his second term will debut in very different circumstances.

Massive relief spending set to continue

Looking at the demand side, one could be forgiven for assuming that a dollar appreciation was imminent. The US economy comfortably outperformed the G7 and G20 averages in the first quarter of 2020, shrinking by just 1.3% compared to 2% and 3.4% respectively.

This is likely the result of mammoth congressional stimulus packages, which have allowed the US to lead the world nominally in terms of relief spending and come second in terms of percentage of GDP.

A second Trump term would almost certainly see further waves of relief, likely in the form of his $1 trillion infrastructure plan. This particular avenue of execution benefits from relatively healthy levels of bipartisan support, meaning that such spending can be expected no matter who controls the Congress come 2021.

US stocks likely to continue outperforming, pressuring USD

And in terms of the stock markets, the US has also consistently outperformed global averages throughout the President’s first term, including in the post-Covid era.

This is exemplified by the fact that the S&P 500 index has risen by over 50% since 2016, whilst the FTSE has fallen by around 9% in this same period. Given all of the above, the US is likely to continue attracting investors the world over, delivering inflationary demand-side pressures that would support USD.

However, the aforementioned upward pressure caused by a healthy economy will be insignificant when compared with the deflationary pressure instigated on the supply-side.

Federal Reserve stimulus measures will help Trump get weaker dollar

Since February, the Federal Reserve has increased its balance sheet by almost $3 trillion, moving from $4.2 trillion to $7 trillion. This rapid increase is expected to continue, with Trump calling the policy ‘something that’s really great for our country’.

In addition, the possibility of extreme measures in the form of yield curve control is rising, with several current Fed governors commenting that the policy should be on the table if necessary.

All of this is indicative of our central point: the authorities are prepared to do whatever it takes to prop up the stock market and the real economy and will stop at nothing to achieve this end.

Expanded balance sheet, flat interest rates, yield curve control to cause dollar depreciation

Trump has repeatedly held up rising stock prices as a beacon of success in his first term and will continue to do so if he wins a second. With quasi-control over the Fed, afforded to him by his position at the bully pulpit, the President will get what he desires, no matter the cost.

In this particular instance, the cost will be an expanding Fed balance sheet, rock-bottom interest rates and, if it comes to it, yield curve control measures. The sheer enormity of the response on the supply-side will be more than enough to drown out any inflationary pressures on the demand-side – depreciation inbound.

Overall, Pres Trump doesn’t really care about the value of the dollar outside of its utility as an economic tool or a stick with which to hit China. The real motivation behind the President’s actions in a second term will mirror those of the first: growth in the stock market and the real economy, in that order of importance.

In his pursuit of these goals, no policy instrument is off limits, whether it be a trusty expansion of the Fed’s balance sheet, or an as yet untested tool like yield curve control.

Whilst the Fed is technically a quasi-independent body, such independence is illusory, particularly in the context of Trump’s propensity for the use of public pressure. Whilst some demand-side inflationary effects will be initiated by a better-than-average recovery, such effects will be lost in the vastness of the supply-side avalanche that is to come.

If he achieves a second term, Pres Trump will leave office in 2024 having achieved two things that he initially desired: a stock market on the rise and a depreciated dollar.

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CySEC (أوروبا)

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