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U.S. election raises economic stakes as Trump and Harris compete in tight race: report

05.11.2024 11:35
Americans are casting their final votes in the closely contested presidential election between Donald Trump and Kamala Harris, with significant, global economic implications hinging on the outcome, according to a report.
According to the polls, Trumps and Harris chances are evenly matched and the battle will be decided in seven key swing states.
According to the polls, Trump's and Harris' chances are evenly matched and the battle will be decided in seven key swing states.PAP/EPA/WILL OLIVER/ERIK S. LESSER

Both candidates’ economic platforms could substantially increase public debt, but they diverge sharply on issues like tariffs, taxes, and foreign policy. These policy differences are expected to impact markets globally, influencing the dollar, bond yields, and even the Polish zloty, the Business Insider news website reported on Tuesday.

Tuesday’s U.S. election not only influences policy, but also heavily impacts financial markets. Alongside choosing the next president, Americans will vote on the entire House of Representatives and one-third of the Senate, which will shape the nation’s future policy direction.

Two weeks ago, Trump held a slight polling lead, suggesting a likely second term, but recent surveys indicate a comeback for Harris, making the race neck-and-neck. With narrow margins possible, full results may be delayed by days. Analysts predict Republicans will retain control of the Senate, with results from key states likely to cause volatility in financial markets.

Trump’s larger fiscal expansion, Harris’s renewable focus

The candidates’ economic agendas reveal distinct approaches with varying impacts on sectors and assets:

  • Donald Trump proposes increased public spending paired with tax cuts, tariff expansions, and energy independence—policies that could benefit defense and energy sectors but strain international relations.
  • Kamala Harris advocates for government spending increases combined with tax hikes, trade cooperation, and renewable energy investment, supporting sustainable development and easing commodity price pressures.

According to the Committee for a Responsible Federal Budget, Trump’s plans could double U.S. debt more than Harris’s, adding USD 7.5 trillion compared to her USD 3.5 trillion projection. Both candidates differ significantly on support for Ukraine, climate change policy, and corporate tax rates. Analysts at Poland’s PKO BP bank warned that a Trump win might reduce U.S. support for Ukraine, heightening geopolitical risks for Poland.

Market sentiment shifts as election day nears

In October, financial markets prepared for a Trump win, strengthening the dollar, pushing up U.S. bond yields, and weakening emerging markets, including Poland. However, recent polls showing Harris gaining ground have partially reversed these trends.

Michael Szymański, CEO of VIG/C-QUADRAT TFI, notes that both candidates favor high-budget spending, which may have a neutral effect on the U.S. market. He adds that Trump’s emphasis on additional tariffs could increase tensions with the EU and China, potentially weakening emerging market currencies like the Polish złoty.

Post-election market scenarios

Economists at the Polish branch of the Credit Agricole banking group outlined four election scenarios with probable market reactions:

  1. Republican sweep: Trump wins the presidency and Republicans control Congress (40% probability), leading to expansive fiscal policy, aggressive tariffs, reduced immigration, a stronger dollar, and higher U.S. bond yields—potentially spiking inflation.
  2. Divided government with Trump victory: Trump wins, but Democrats hold one chamber (20% probability), moderating policy impacts with a slightly stronger dollar and higher bond yields, albeit less than in the first scenario.
  3. Harris Win with GOP Congress control: Harris wins, with Republicans controlling at least one chamber (30% probability), resembling the current situation, limiting changes in immigration and protectionist policies and weakening the dollar while raising U.S. debt prices.
  4. Democratic sweep: Harris wins and Democrats control Congress (10% probability), increasing government spending with offsetting tax hikes, likely weakening the dollar and raising bond yields slightly due to inflationary effects.

Saxo Bank experts view a Harris win with a divided Congress as the most market-positive scenario, avoiding corporate tax hikes and additional tariffs. Conversely, a Democratic sweep may introduce corporate tax hikes, which could lower valuations and trigger a sell-off in U.S. stocks, though they consider this outcome less likely due to the U.S. Electoral College favoring Republicans.

(jh)

Source: Business Insider