HomeThe Election Week Is Here – Predictions and Assumptions

The Election Week Is Here – Predictions and Assumptions

2 November 2020 By Mircea Vasiu

America votes today and decides who will be the next President for the four years ahead. Also, the Congress structure matters as the new fiscal measures much-needed for the country depend on its composition.

For financial markets, this is the event to mark the end of the trading year. Also, this is the day traders prepared for several months now. Should Trump win a second mandate, the USD is expected to rally. On the other hand, should Biden secure a win, the USD is expected to decline.

Is it that simple? If we look at what happened four years ago, the answer is a straight no.

Record Number of Americans Registered to Vote

The election process in America is both unique and complex. It goes by the rule of “the winner takes it all.” In other words, people vote in a state, and if one candidate wins the state, all the electors of that state will vote for that candidate. More precisely, if Biden wins 53% and Trump 47% of any given state, the electors will not represent 47% of the population.

That is one thing to consider. Another thing is that over 90 million people already voted. These votes will be counted only if there is an undecided result tomorrow by the end of the day in the United States. If the President and the Congress are already known, these votes will not be counted.

What Are the Market Assumptions?

Polls favor Biden at this point. More precisely, all national polls favor Biden, but national polls are different than local ones. As explained earlier, the majority in one state may not be enough for swinging the final result. States have a different number of electors depending on the number of people that live there. Therefore, the so-called “swing states” have the biggest number of electors, and that is where the battle will take place.

Providing Trump wins a second term, the USD is expected to rally. The argument behind this thesis is that Trump’s policies will intensify, and so will trade wars, protectionism, isolationism, etc. Hence, a higher USD is not a surprise.

On a Biden win, the USD will slide due to the massive infrastructure spending bill expected to pass. Fiscal stimulus will send the USD lower, and the markets will react in anticipation.

As it is always the case, these are just assumptions. The market is full of surprises, and this time will be no different.