US election could turn into a thriller for the markets
Published: Monday, Nov 4th 2024, 11:50
Updated At: Monday, Nov 4th 2024, 10:50
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The big event of the year is just around the corner. Tomorrow, Tuesday, Americans will be called upon to elect their new president or their first female president. However, it may well take longer before the decision is actually made.
This is because there will hardly be a trend before Wednesday morning - according to European time, polling stations do not close until the night or early morning. Moreover, the outcome is anything but clear.
While official polls continue to predict a neck-and-neck race, especially in the swing states, betting agencies now see Trump more clearly ahead. Either way, a longer hanging game is currently more than likely.
And of course, the US elections are also being hotly debated on the financial markets. After all, whether Kamala Harris or Donald Trump moves into the White House will have an impact on certain sectors or even global trade - especially in view of the trade dispute with China. Increased volatility is therefore to be expected until a winner is finally determined. "Uncertainty is simply the greatest poison for the stock market," is the word from the trading world.
Trump greater risk factor
"Once the dust has settled, the key question is: how much of the planned program can the winner really implement and when," comments Jonas Goltermann, market strategist at Capital Economics, in a recent study. In the case of Trump, he assumes that many ideas will be watered down, but will ultimately lead to weaker growth and higher inflation as well as a more restrictive monetary policy.
Overall, Trump represents a comparatively greater uncertainty and therefore risk factor for the markets, according to other sources. He is the much more unpredictable candidate, says ZKB in an analysis. If Trump were to take control of both chambers of Congress, there would be a risk that he would have the leeway to "go too far" with his policies, ZKB investment strategist Felix Jäger continues.
"This could lead to a further deterioration of the budget, severe economic isolationism and unilateral action in foreign policy. In the medium term, Trump would therefore be the riskier choice for the stock market," he says.
Central bank likely to remain independent
According to Raiffeisen Switzerland, however, it must be assumed that the US national debt will continue to rise regardless of who moves into the White House. This should exert corresponding pressure on the US dollar.
At the same time, according to the ZKB, such an expansive fiscal policy calls the US Federal Reserve into action. The Fed would then have to counteract the inflationary policy with a restrictive monetary policy. And that is actually exactly what Trump does not want.
Nevertheless, experts agree that Trump is unlikely to actively attack the Fed. Karsten Junius from J. Safra Sarasin expects Trump to constantly criticize the Fed and blame it for poor economic developments.
In addition, he could only remove Fed Chairman Jerome Powell in May 2026 when his term of office expires, adds ZKB expert Jäger. And even if Trump would like to appoint a candidate who promises a looser monetary policy, he would have little leeway to do so. "The financial markets pay attention to price stability and would react very skeptically," says Junius.
Some stock market experts generally relativize the significance of the event. What politicians say before the election and what they implement after the election are two different things. In this respect, the saying "political stock markets have short legs" could prove true once again in this case.
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