As the US presidential election is slowly turning into a hot topic, economists at Nordea bet that Biden will win. The most immediate reaction will be a stronger USD and performance in duration as a Biden-victory may not be discounted at all in markets despite strong polling.
“If we assume that Biden intends to roll back corporate tax cuts, we would argue that the initial reaction would prove to be EUR/USD negative while the USD equities would likely struggle to outperform EUR equities over the medium-term. So, if we really summon our inner Cassandras, we suggest that EUR/USD goes swiftly down post a Biden victory, before returning higher over the medium-term. EUR/USD bulls will need to cheer on Trump in November.”
“In general, we find that Biden’s presidency should be reflected in an initially stronger USD (due to a less benign corporate tax policy), less US outperformance of peers, sector outperformance in sustainables and a larger geopolitical risk premium on China (yes, we said that).”
“It will probably remain a good idea to buy duration (and bet on flatteners) should Biden win the election. Should Biden opt for a less benign corporate tax regime, we would also argue that it speaks in favor of a more disinflationary environment with decent performance in duration.”