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Trump’s COVID-19 infection adds another layer of uncertainty. Some wires are reporting this as a risk-off event as it raises the prospect of a Biden victory and a Democrat victory is equity market negative. Strategists at MUFG Bank are not convinced on that line of reasoning, though.

Key quotes

“Trump remains very competitive in key swing states and catching COVID-19 is unlikely to alter his support much. Indeed, if he quickly recovers it will play into his line of argument over getting the economy open being the much more important.”

“A Democrat win as being negative for equities is questionable. Yes, corporate taxes would likely go higher but if the Democrats win the Senate as well then a large fiscal stimulus package would be legislated quickly. Another spending would be likely also, including a possible infrastructure spending program. If the Fed is true to its word of ensuring yields are lower for longer, the result of these policies would likely be lower real yields and a weaker US dollar, an attractive mix for equities.”

“But some in the markets will no doubt see this as possibly benefitting Trump. That raises the risk of a more closely contested election that raises the prospect of a contested election result. Trump’s illness could encourage further action against China, which would help the US dollar, mostly versus EM.” 

“Trump debated with Biden for 90mins, admittedly at a distance but if Biden was to become infected, Trump and others could well push for a delay to the election. Both camps would have been together for a period of time that certainly raises the risk of Biden himself or his team becoming infected. A delay to the election is still a small risk of course but an added risk that didn’t exist prior to Trump’s announcement.”