Former President Donald Trump has all but secured the Republican nomination to take on President Joe Biden in the US presidential election in November after emphatic victories in the US primary elections. Opinion polls show Trump is ahead of Biden in the presidential race and the primaries should provide him with a tailwind in the coming weeks. While it’s still too early to forecast the eventual winner, a Trump-Biden rematch is likely to raise geopolitical and market uncertainty. Moreover, a second Trump presidency is likely to be initially positive for US assets and the USD and significantly disruptive for the world.
Standard Chartered highlights what to watch for and policy priorities of the two candidates. Ultimately, the candidates’ chances and the impact on markets are likely to be guided by whether the US economy manages a soft-landing, with bouts of volatility driven by politics. History suggests President Biden has a higher chance of winning if the US avoids a recession.
The ‘swing’ states: There are six so-called ‘swing’ states that really matter in the US electoral system used to determine who wins the presidential race: Arizona, Georgia, Wisconsin, Nevada, Michigan and Pennsylvania. Other states have consistently voted for candidates from one of the two main US parties. In recent elections, US presidents have been elected on the back of narrow wins in some of these swing states. Opinion polls show Trump is currently ahead in five of these six ‘swing’ states (except for Pennsylvania), with more than 5 percentage point leads in three of them (Nevada, Georgia and Arizona). The main issues in the states where Trump is leading significantly are: immigration (Arizona), high unemployment (Nevada), criminal cases against Trump for interference in elections, which fires up his supporters (Georgia) and Biden’s support for green energy and electric vehicles which traditional automaking hubs see as a threat to jobs (Michigan). In the swing states Biden is slightly ahead (Pennsylvania) or slightly behind (Wisconsin), the rust-belt rejuvenation through Biden’s re-industrialisation policies and abortion rights are key issues.
For investors, in a nutshell, Biden signals policy continuity and a more nuanced stance on foreign and trade policy. In contrast, a Trump presidency is likely to be disruptive, both domestically (through immigration curbs at a time when the labour market is tight) and for the rest of the world. One of his policy priorities is to impose a 60% tariff on imports from China and a 10% tariff on other trade partners, including the European Union. Trump also plans to cut US corporate taxes. The impact on financial markets will likely be determined by the sequencing of his policy implementation: will the proposed corporate tax cuts come before legislation on immigration and/or import tariffs?
Investment implications: Ultimately, history shows US presidents are usually re-elected if the economy avoids a recession. Latest data has been softer than expected. However, Fed Chair Powell reiterated this week plans to cut rates later this year if the current disinflationary trend persists, which should help support growth. In this environment of rising uncertainty, a broadly balanced foundation allocation, with a slight tilt towards equities balanced by an Overweight in DM IG government bonds within fixed income, still makes sense.
US equities are likely to emerge as winners versus the rest of the world if Trump wins as he’s likely to cut corporate taxes and impose import tariffs. SC said based on its 2024 Outlook report, gold and other safe-haven assets such as DM IG government bonds are likely to be well supported in the coming months amid elevated geopolitical uncertainty until the US elections. The US 10-year Treasury yield has fallen below its 200DMA and 50DMA (4.11%) after pulling back from a strong resistance around 4.35%. Investors with 6-12-month horizon have an opportunity to lock in the elevated yields.
