Chart of the week - US election preview: the key issues

Click here for full report and disclosures

● Advantage Biden: Four days ahead of the US elections on 3 November, opinion polls show a clearer and more consistent lead for the Democratic candidate Joe Biden over the Republican’s Donald Trump than they did for Hillary Clinton over Trump in 2016. But in the US, the results in key swing states determine the outcome rather than the national tally. At the risk of oversimplifying matters, Biden would probably have to win i) either Florida (29 out of 538 electoral college votes) or ii) Pennsylvania (20 votes) plus Arizona (11) or Wisconsin (10) to make it. State polls show leads for Biden over Trump of 1.2 points in Florida, 4.3 points in Pennsylvania, 6.4 in Wisconsin and a tie in Arizona. In Florida and Pennsylvania, that is within or close to the margin of error of such polls. We stick to our c60:40 Biden versus Trump probability.

● In the mail: In the shadow of the pandemic, a record 53.6m Americans have already cast their vote by mail. With 36.7m mail ballots still outstanding, the 2020 total will far exceed the 33m of 2016. As the outcome in key swing states may hinge on lengthy counts of postal ballots, the result may thus not be known on the morning after the election. Also, the rejection rate for postal ballots (1.2% in 2016) tends to be higher than for in-person votes. This could give rise to long court battles about the rejection criteria. In 2000, the US Supreme Court handed victory to George W. Bush with its final ruling about a “hanging chad” recount on 12 December, five weeks after the 7 November vote.

● Near-term risks: In the charged political atmosphere of the US, a tight election outcome and/or prolonged uncertainty until the final result is known, possibly only after a Supreme Court verdict, could stoke tensions. Although markets have discussed these risks intensively, a period of unrest could still rattle markets even if the economic impact seems minor.

● What if? If Biden wins, the impact would depend on the answer to two questions: i) Will Democrats also win control of the Senate (63% probability according to electionbettingodds.com)? If so, Biden could implement significant tax hikes beyond the tighter industrial, environmental and labour market regulations, which he could pursue without Congress. ii) Will Biden remain true to his history as a moderate, for instance raising taxes only gradually and modestly once the economy has fully recovered, or will he side more with the progressive left and implement an agenda that could retard US trend growth over time? The answer to this question may have significant long-run consequences for the US.

● The global angle: At home, both Trump and Biden stand for more infrastructure investment and further increases in public spending, albeit with different priorities. A victory for the Democrats in the Senate may clear the way for a bigger new fiscal package in 2021 than otherwise. Abroad, Trump has pursued an erratic and confrontational foreign and trade policy while weakening multilateral institutions. A second term for Trump could raise the risk of US-EU trade conflicts. Biden seems to have similar protectionist inclinations. But a calmer Biden trade and foreign policy that reaches out to traditional allies such as Europe to possibly find a common line versus China could be positive for global trade.

● For an in-depth analysis, see Mickey Levy’s report and slide deck. Click here for a look at what is at stake for Europe.

Holger Schmieding

Chief Economist

+44 20 3207 7889

holger.schmieding@berenberg.com

Kallum Pickering

Senior Economist

+44 20 3465 2672

kallum.pickering@berenberg.com

Florian Hense

European Economist

+4420 3207 7859

florian.hense@berenberg.com

Disclosures

This material is intended as commentary on political, economic or market conditions for institutional investors or market professionals only and does not constitute a financial analysis or a research report as defined by applicable regulation. See the "Disclaimers" section of this report.

The commentary included herein was produced by Joh. Berenberg, Gossler & Co. KG (Berenberg). For sales inquiries, please contact:

Phone: +44 (0)20 3207 7800
Email: berenberg.economics@berenberg.com

BERENBERG
Joh. Berenberg, Gossler & Co. KG
Neuer Jungfernstieg 20
20354 Hamburg
Germany

Registered Office: Hamburg, Germany
Local Court Hamburg HRA 42659

For Berenberg the protection of your data has always been a top priority. Please find information on the processing of personal data here.
Any e-mail message (including any attachment) sent by Berenberg, any of its subsidiaries or any of their employees is strictly confidential and may contain information that is privileged or exempt from disclosure under applicable law. If you have received such message(s) by mistake please notify the sender by return e-mail. We ask you to delete that message (including any attachments) thereafter from your system. Any unauthorised use or dissemination of that message in whole or in part (including any attachment) is strictly prohibited. Please also note that any legally binding representation needs to be signed by two authorised signatories. Therefore we do not send legally binding representations via e-mail. Furthermore we do not accept any legally binding representation and/or instruction(s) via e-mail. In the event of any technical difficulty with any e-mails received from us, please contact the sender or info@berenberg.com. Deutscher disclaimer.

Click here to unsubscribe from these emails.