Biden is leading Trump by miles in polls, while the increasing probability of a blue wave outcome has been correlated with higher equities, a weaker USD and a steeper curve, but such a viewpoint is already consensus by now, as Andreas Steno Larsen from Nordea notes.
Key quotes
“A Biden win will be associated with a risk-asset rally, a weaker USD with positive spill overs to EM and a slightly steeper yield curve, but it is getting increasingly clear that markets are already mostly positioned for such a scenario. It could therefore be that a Biden win will rather lead to temporary profit-taking on such positions. This is now more likely than a swift rally immediately after a Biden-win, in our view.”
“The very initial reaction (first 1-2 hours) of trading post a Biden win will likely lead to stronger equities, a weaker USD and higher interest rates, but such moves could be swiftly reversed due to profit-taking since everyone is already aboard the Biden train in market positions.”
“We decided to conduct a survey on expected market moves over the following month of a confirmed blue wave to gauge the market sentiment. Most people expect a ‘Biden-rally’ with higher equities, a weaker USD and a steeper yield curve in the month following a blue sweep. The biggest consensus view is that long bond yields will increase if Biden wins the election in a blue sweep (76% of respondents). 67% of respondents expect the USD to weaken (DXY) and 71% expect equities to rally. It is hence a consensus view that a Biden presidency will lead to a reflationary market environment in the following month.”
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