Today I want to concentrate on the political background because Politics does matter and they have a meaningful impact on market dynamics and strategic asset allocation decisions.
US Presidential Election
Current polling indicates that Joe Biden leads Donald Trump 50%-43% nationally (Source: USA Today/Suffolk University Poll conducted after the National Conventions). We are less than 2 months from the election and are on the cusp of the first head to head Candidates Debate on the 29th September. The performance in this forum cannot win you an election but it can have a negative impact on credibility. Joe Biden has been prone to gaffes historically in unscripted moments, so the outcome of the 3 scheduled debates will be closely monitored, as it appears the Presidency is his to lose.
The choice of Kamala Harris, as the running mate for Joe Biden, has broadened the base of potential support and has not negatively moved market expectations of the economic impact in the event of Biden winning the Presidency. Biden has expressed his intention to wind back some of the tax cuts that were enacted during the first 4 years of the Trump Presidency but he has been clear to explain that this would not be a priority until the economic backdrop has stabilised. On the face of it the Democrats appear more likely to regulate or even break up Tech companies but again this will be commensurate with the importance of the specific Tech company on a nationally strategic basis. Just like Trump, Biden and the Democrats believe there is a need to curb the perceived economic abuses perpetrated by China. Where the implementation policy differs is that Biden wants this to be done on a coordinated multi nation basis and not on a unilateral basis.
To date Donald Trump has not brought any significant new policy initiatives for his second term to the fore. It is unclear why this is the case unless he is holding back something for the latter part of the campaign. There is a feeling being expressed by political commentators in the US, however, that what he is offering is more of the same. Only time will tell if that is enough to overturn the polling deficit and encourage people to vote for him again.
The result of the 3rd November vote will tell us much about the direction of the US both economically and also as a global political player.
Brexit
Despite the current pessimism about a deal being reached with the EU our base scenario has remained constant throughout the protracted process. We believe that a deal will be achieved, albeit it at the 11th hour. The impact of COVID-19 on the economies of the world has made achieving a deal more important now than it has ever been. Anything that undermines the ability to economically build a bridge to the other side of the virus will have a significant bearing on negotiations. The recent utterances by Boris Johnson in relation to UK fishing quotas and state aid crank up the pressure on the EU to give a bit on negotiations. Moves and countermoves have always been the way of diplomacy and deal making. If a deal is done then it will be skeletal and further negotiations will be required to flesh out the wider agreements between the UK and the EU Bloc, but it will ensure a no-deal Brexit does not take place.
At present the UK economic recovery, based on various PMI measures, looks robust but it is being constrained by the stalling Brexit negotiations. The hope is that pragmatism will win the day.
US Politics during the Trump Presidency and the evolving Brexit situation have been two constant and unpredictable features of the last 4 years. By the end of this year both of these areas will reach a conclusion. What those conclusions are, we need to wait and see.
As mentioned previously Scott and I will continue to offer support and advice to assist you in making investment decisions based on our ongoing assessment of markets.
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