Thomas Harr, Ph.D., Global Head of FI&C Research at Danske Bank discusses some of the political and economic consequences of the US election and the implications for financial markets. He believes that the Us dollar will depreciate against the yuan and the EUR/USD will peak below the 1.20 level.
Key quotes
“Biden’s win improves the prospects of transatlantic cooperation and re-engagement with multilateral agreements and institutions such as the Paris Agreement, WTO and NATO. However, it is his approach to China which will have the most far-reaching geopolitical and economic consequences. The US and China need a mechanism for dialogue but the US has changed, as well as China under Xi Jinping’s leadership, and I don’t believe the relationship will improve under Biden. As such, the technological decoupling between the two superpowers is set to continue, which would also spread to capital and people. Biden may take a tougher stance against China than Trump did on South China Sea, Hong Kong and human rights. However, I believe Biden would pose more restraint on rhetoric, be more predictable and less volatile than Trump e.g. on trade tariffs.”
“In a divided government, I could see a COVID-19 package of $1.2-1.3 trillion in Q1, as I believe that current Senate leader Mitch McConnell and other Republican senators, who proposed a bill of $500 B before the election, would like to do more for state and local governments given that a large number of the Senators are up for re-elections in 2022.”
“A possible prolonged period where Trump refuses to concede defeat would not have much impact on markets, which will refocus on the virus, the prospects of vaccines and the economy. However, Georgia run-offs are crucial for markets.”
“The USD initially strengthened on election uncertainty and a divided government but weakened as Biden emerged as the likely winner with a chance of Senate control. I expect more USD weakness against CNY/CNH as the risk of trade wars has diminished, whereas I believe that EUR/USD will peak below 1.20 and range-trade due to the very weak macro backdrop in the eurozone.”
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