OCBC OneWealth App– One day later

US Presidential Election

2 November 2020

THE RACE IN 2020

POSSIBLE SCENARIOS

WHITE HOUSE

Joe Biden is likely to achieve 270 electoral college votes if he retains his lead in Nevada, which carries with it 6 votes.
Pennsylvania and Georgia are hotly contested at this time, with mail-in ballots being counted.

SENATE

There are FOUR uncalled Senate races.
Of the four, one of the Senate seats in Georgia will head for a run-off vote in January 2021, as not a single candidate in the race was able to command at least 50% of the votes.
Votes are still being counted for the second Georgia Senate race, with the Republican candidate’s results just slightly north of 50%. The margin is shrinking as more votes are being counted. The race is still too close to call.
Votes for the other two Senate seats are leaning towards Republicans.
As it stands, it is unlikely for Democrats to carry the Senate.

HOUSE OF REPRESENTATIVES

The House of Representatives is expected to remain firmly in Democratic control.

The first order of business for a Biden administration would be to contain the Covid-19 pandemic and pass a Covid-19 relief bill. However, the size of the stimulus bill is likely to be modest, at around US$500 billion.
Biden may focus on infrastructure spending later in his term as this issue enjoys some bipartisan support. However, Senate Republicans may only greenlight a far smaller package than what was originally conceived.
Biden may focus on regulatory legislation that enjoys bipartisan support including drug pricing for healthcare and increased oversight of Big Tech.
He is likely to govern by executive orders if Senate Republicans remain obstreperous.
A Republican senate is likely to block any effort to roll back Trump’s tax cuts or raise taxes – a plus for markets.
We expect a Biden White House to adopt a less capricious and more strategic approach towards China, hence reducing trade policy uncertainty – another plus for markets.

Overall

The expectation that a Biden administration will be more strongly positioned to manage the Covid-19 pandemic than Trump’s administration will boost investor sentiment.
Under a Biden presidency, we expect an overall environment characterised by the post-pandemic economic recovery, moderately higher inflation, and a weaker US dollar.
This will be broadly supportive of equities, credit, commodities, and emerging markets.

A Covid-19 relief package will likely be passed after the election. However, the size of the stimulus package will likely be less generous given that the current Republican Senate has only proposed a US$500 billion plan.
President Trump may pursue an infrastructure package, but the size of the spending plan, if any, will be far more limited than under a blue sweep scenario.
President Trump will continue to adopt an aggressive line on trade and foreign policy, increasing uncertainty on the geopolitical front.

As widely anticipated, Trump’s campaign has threatened legal action due to claims of widespread voter fraud, especially in the aftermath of the Michigan and Wisconsin results.
This could escalate further if he wishes to attempt recounts in states that Biden has won with narrow margins, and there is the risk that this could inject renewed uncertainty into markets.
For now, investors have mostly disregarded the tail-risk of a prolonged and chaotic contest by Trump, mostly due to the relief from getting over the election hump, and because it is unclear if Trump has a concrete legal basis for contesting the results.
The most recent example of a contested election was the race between Al Gore and George W Bush in 2000, where less than a thousand votes separated the winner from the loser in the state of Florida, the state that would ultimately decide the winner of the election. This triggered rounds of recounts and led to a wave of lawsuits that worked its way up to the US Supreme Court.
The weeks of uncertainty battered US stock markets and increased flows into safe haven assets such as the greenback and gold. The same could happen again should the race for the White House come down to the wire.