Global Economy & Markets, Weekly Roundup 04/11/24
It takes 270 to win
Former President Donald Trump and Vice President Kamala Harris are neck and neck in the race for the White House according to national polls. On the other hand, prediction market-based pricing implies that Trump will win the presidency (55% vs. 45% for Harris).
The Electoral College consists of 538 electors. An absolute majority of at least 270 electoral votes is required to win the election (see graph below). Trump leads slightly in five out of seven “swing states” (Arizona, Georgia, Nevada, North Carolina, and Pennsylvania with 68 votes out of a total 538), while Harris leads slightly in two (Michigan and Wisconsin with 25 votes out of a total 538). Nevertheless, the margin of error that pollsters report is circa 3 to 4 pps. In a 269-269 tie (a remote probability), the House chooses the President.
The likelihood that Republicans will also control the Congress (the so-called “Red Sweep”) ranges between 25% and 35%. The balance of power in the bicameral (Senate and House of Representatives) legislature will influence substantially, inter alia, the prospect of the elected President’s political agenda, transforming into law.
A “Red-Sweep” scenario could be a catalyst for new tariffs on US imports (and a retaliation by affected trading partners) as well as aggressive fiscal policy. Both presidential candidates are making proposals that would make narrowing the budget deficit difficult. According to the nonpartisan Committee for a Responsible Federal Budget, both Harris and Trump (proposals) would likely further increase deficit and debt above levels projected under current law.
The likelihood of a contested US election after which the winner will remain unknown for several days and/or weeks (assuming vote recounts) could lead to elevated equity and bond market volatility.
Ahead of US Election (Tuesday) and Federal Reserve’s interest rate decision (Thursday), global equity markets recorded losses in the past week (MSCI ACWI: -1.2%) and core government bond yields continued to edge higher (US 10-Year up by +13 bps wow to 4.36% and Bund 10-Year up by +12 bps wow to 2.41%). UK Gilts underperformed, with yields surging by circa +21 bps to 4.45% on the back of circa 0.9% of GDP per annum worth of fiscal easing announced in the past week.
On monetary policy, the Federal Reserve is expected to proceed with a -25 bps cut in the federal funds rate (current range: 4.75% - 5.00%), from -50 bps on September 18th, given also a continued solid momentum for economic activity. Indeed, US real GDP growth increased by +2.8% qoq saar (+2.7% yoy) in Q3:2024 from +3.0% qoq saar in Q2, with private consumption (+3.7% qoq saar | +3.0% yoy) contributing +2.5 pps to the headline figure growth. The US labor market data for October were distorted due to strikes (Boeing) and storms.
In the euro area, real GDP growth was better-than-expected, increasing by +0.4% qoq (+1.5% in annualized terms), from +0.2% qoq in Q2:2024, with the annual growth at +0.9% from +0.6%, according to the 1st preliminary estimate. Euro area CPI inflation accelerated to +2% yoy in October from +1.7% yoy in September, as broadly expected, with the contribution from the Energy subcomponent turning less negative (-0.45 pps from -0.6 pps to the headline CPI figure).
Former President Donald Trump and Vice President Kamala Harris are neck and neck in the race for the White House according to national polls. On the other hand, prediction market-based pricing implies that Trump will win the presidency (55% vs. 45% for Harris).
The Electoral College consists of 538 electors. An absolute majority of at least 270 electoral votes is required to win the election (see graph below). Trump leads slightly in five out of seven “swing states” (Arizona, Georgia, Nevada, North Carolina, and Pennsylvania with 68 votes out of a total 538), while Harris leads slightly in two (Michigan and Wisconsin with 25 votes out of a total 538). Nevertheless, the margin of error that pollsters report is circa 3 to 4 pps. In a 269-269 tie (a remote probability), the House chooses the President.
The likelihood that Republicans will also control the Congress (the so-called “Red Sweep”) ranges between 25% and 35%. The balance of power in the bicameral (Senate and House of Representatives) legislature will influence substantially, inter alia, the prospect of the elected President’s political agenda, transforming into law.
A “Red-Sweep” scenario could be a catalyst for new tariffs on US imports (and a retaliation by affected trading partners) as well as aggressive fiscal policy. Both presidential candidates are making proposals that would make narrowing the budget deficit difficult. According to the nonpartisan Committee for a Responsible Federal Budget, both Harris and Trump (proposals) would likely further increase deficit and debt above levels projected under current law.
The likelihood of a contested US election after which the winner will remain unknown for several days and/or weeks (assuming vote recounts) could lead to elevated equity and bond market volatility.
Ahead of US Election (Tuesday) and Federal Reserve’s interest rate decision (Thursday), global equity markets recorded losses in the past week (MSCI ACWI: -1.2%) and core government bond yields continued to edge higher (US 10-Year up by +13 bps wow to 4.36% and Bund 10-Year up by +12 bps wow to 2.41%). UK Gilts underperformed, with yields surging by circa +21 bps to 4.45% on the back of circa 0.9% of GDP per annum worth of fiscal easing announced in the past week.
On monetary policy, the Federal Reserve is expected to proceed with a -25 bps cut in the federal funds rate (current range: 4.75% - 5.00%), from -50 bps on September 18th, given also a continued solid momentum for economic activity. Indeed, US real GDP growth increased by +2.8% qoq saar (+2.7% yoy) in Q3:2024 from +3.0% qoq saar in Q2, with private consumption (+3.7% qoq saar | +3.0% yoy) contributing +2.5 pps to the headline figure growth. The US labor market data for October were distorted due to strikes (Boeing) and storms.
In the euro area, real GDP growth was better-than-expected, increasing by +0.4% qoq (+1.5% in annualized terms), from +0.2% qoq in Q2:2024, with the annual growth at +0.9% from +0.6%, according to the 1st preliminary estimate. Euro area CPI inflation accelerated to +2% yoy in October from +1.7% yoy in September, as broadly expected, with the contribution from the Energy subcomponent turning less negative (-0.45 pps from -0.6 pps to the headline CPI figure).