The US presidential election race reaches its conclusion on November 5th. Markets have apparently moved to price in a Trump victory, but the polling data suggest it remains, even to last, far too close to call. The result will of course have a significant and lasting impact on financial markets. Meanwhile, the attention will immediately switch to the central banks, with the Federal Reserve and Bank of England expected to cut interest rates on Thursday.
Here are the week’s key events:
It’s the final day of campaigning for the candidates in the presidential and Congressional elections.
Financial and betting markets may have started to price a Trump victory, but the election remains, to most observers, too close to call. Polling data in key swing states is within the margin for error.
Trump's policy would tend to have a larger market impact than Harris's – a) she represents the status quo, and b) it’s unlikely the Democrats can secure Congress.
The focus of the Trump trade is fiscal expansion and trade (tariffs), which would affect inflation expectations (higher) and tend to exert a strong influence in Treasury and FX markets, but also see risk-on in equity markets with US cyclical favoured over RoW. We would also look at tax cuts as part of Trump's economic policy, with a possible flirtation with ending the income tax altogether. The Harris trade would tend to focus on unwinding elements of the pre-election Trump trade, the likely impact of higher taxes on earnings and the reassertion of wider macro forces.
Earnings: Palantir (PLTR)
Trump or Harris? The race to the White House reaches its climax today as voters go to the polls. Results will start to emerge in the early hours of Wednesday morning, but expect markets to be moving on expectations and last-minute polls. We expect things to be volatile on the night. Declarations or rumours around key swing states like Pennsylvania will be particularly important, and algo-driven markets could be especially sensitive to headline risk. Ahead of the US focus, the Reserve Bank of Australia is expected to leave interest rates on hold.
It ought to be the day the markets wake up to a new president-elect.
However, the biggest uncertainty facing the market is not whether it’s Trump or Harris but whether it ends up as a genuinely contested result. It took days to declare Biden officially the winner last time – and Trump contested the result almost until the January inauguration. The risk is once again that neither side is willing to concede, and we end up in a high-stakes legal cat-and-mouse, that could, in theory, at least last weeks. This outcome has the largest potential for a negative risk catalyst in the market.
Earnings: Novo Nordisk (NVO), Airbnb (ABNB), ARM Holdings (ARM), Qualcomm (QCOM), Super Micro Computer (SMCI)
Both the Federal Reserve and Bank of England are expected to cut interest rates. The BoE is forecast to lower rates to 4.75% from 5% after the latest CPI inflation report slowed to 1.7%, the first time it has dropped below the Bank’s 2% target since 2021. Core inflation fell to 3.2%, which is also below forecast. The key services inflation figure dropped from 5.9% to 5.6%, whilst the core services fig dropped from 5.6% to 4.9%. All indications point towards the BoE cutting, but the question is how far and how fast it will be after this meeting.
It’s a similar story for the Fed: it’s expected to slow its pace of easing down to a 25bps cut, having cut by 50bps on September 18th. Since then, Treasury yields have risen sharply as US economic data proved stronger than anticipated. The Fed is now taking it easier than it did before, but a lot may depend on the election result.
Earnings: Barrick Gold (GOLD), Moderna (MRNA), Arista Networks (ANET), Lucid Group (LCID), Pinterest (PINS), Rivian Automotive (RIVN), Upstart Holdings (UPST)
The fallout from the US election will no doubt remain the driving force in major markets, though the Fed’s decision and that of the Bank of England will also steer the macro side of things. On the data front, the week ends with Canada’s employment report and the UoM inflation expectations report, and markets will look ahead to Saturday’s inflation data out of China.
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