What President Biden will mean for markets

Although recounts and legal challenges relating to the election need to be resolved, markets are moving on to considering what a Biden Presidency will mean.

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  1. Charles Stanley

The media have decided Joe Biden will be the next President of the USA. Three states still need to complete their counts. In Georgia, there is likely to be a recount. In several states, there are legal contests pending concerning possible voter fraud, incorrect process at the counts, failed deliveries of votes and possible errors in counting computers.

Today, some of Donald Trump’s legal challenges are emerging – including claims of voter impersonation in false postal votes, late votes and voters voting who were not legal voters in that state.

There would need to be substantial numbers of votes challenged successfully in at least three swing states to change the outcome. We remain a good way off the formal declaration of a duly elected President-elect, which is scheduled for 6 January in a joint session of Congress.

Meanwhile, markets are moving on to considering what a Biden Presidency will now mean. There will also need to be two repeat elections for Republican Senate seats in Georgia which means there could be a Senate controlled by the casting vote of the Democrat Vice President, Kamala Harris, which would alter the outlook substantially were that to occur.

Fixing America

Mr Biden's main pledge is to reunite the US. This will be a very difficult – if not impossible – task given the passionate feelings of many Trump supporters that they have in some way been ‘cheated’ out of victory by ‘fiddled’ postal votes. The freedom-loving, low-tax, gas-burning Trump voters find Mr Biden's promises of a green revolution, bigger government and involvement with world bodies as scary as Democrats found Mr Trump.

Assuming the Senate is confirmed as Republican-led, it will be a difficult body to win over to the Democrat agenda – and may even, in due course, wish to return the compliment of impeachment if they find a cause.

Mr Biden may work with a few moderate Republicans to reward – and seek some cross-party agreement on a fiscal package – but will find it difficult to end the intense and personal civil war between the two main parties of recent years. Some of his supporters will be out for revenge against the Trump tendency in politics. Just as Mr Trump sought to reverse Obama-era measures through Executive Orders, so Mr Biden will wish to reverse as much of the Trump deregulatory agenda as he can by the same means.

The first practical steps the new President is likely to take will be in tackling the pandemic. He made this an important feature of his campaign. Mr Biden stayed at home where Trump went out on the stump. He put on a mask when he was visible, whilst the President avoided one where he could. Whilst a national lockdown is unlikely, there will be pressures and encouragements on more states to take the virus seriously – and to impose stricter rules on masks, social distancing, events and numbers of customers. There will be more of a break on recovery as a result.

He will be looking for progress on a bipartisan package of increased spending and borrowing. We should expect some results, but on a smaller scale than the Democrats would like as Republicans will cavil with many of the Democrat spending priorities. He will want to work up his ‘Build Back Better’ agenda, and greatly strengthen US commitments to renewables, battery technology and green targets. He will re-join the Paris accords on climate change and commit the US to a net-zero carbon target.

A return to convention

Given a lack of a majority in Congress, he may be a more conventional President in many ways. He is likely to spend more time on foreign policy and building bridges with major allies and international quangos. He will probably repair the relationship with the World Health Organisation and resume funding. He will want to work with the European Union (EU) on climate change and other shared interests.

As an Irish Catholic by background, he will be more sympathetic to the EU rather than the UK view on Irish and Brexit matters. He will retain the Trump Administration's hostility to China – and will be even more exercised about the Chinese approach to human rights – but will doubtless abate the aggressive rhetoric.

He will continue Mr Trump's wish to see peace treaties in the Middle East, but his tilt back to Iran will make that process more difficult. He will not be as staunch an ally of Saudi Arabia and Israel as Mr Trump was, though he will be conscious of the need not to provoke the Israeli lobby in the USA too far.

Whilst Mr Biden is awaiting the end to the long counts and the outcomes of the various court cases, he will seek to put his Administration together ready for next year. Meanwhile, the twin crises of Covid-19 and the economic damage brought on by anti-pandemic policies press on.

The US case and death rate remains a concern, with the US leading the world in the number of identified cases with around 10 million so far. The US death rate at 72 per 100,000 people is similar to the UK and well below Belgium, Peru and Spain. But it is high compared with Germany or Sweden. The second European wave continues, with France particularly badly hit. France has now reached more than 1.6 million cases so far compared to the UK's 1.1 million and Spain's 1.36 million. Belgium, at half a million, remains well ahead in relation to the size of the population.

Governments are still largely using lockdowns, social distancing and self-isolation of possible carriers of the disease as their preferred ways of responding. As there is still no guaranteed cure nor any approved western vaccine, it means more damage to economies whilst we await progress with medical science.

The US is re-joining the mainstream on this and other matters, so we should expect its economy to slow and perform more like the Europeans. The US will still have one major offsetting advantage, the dominance of its technology giants. This is likely to be an Amazon, Zoom, Microsoft and Google Christmas rather than street markets, choral services and highly decorated shops.

Markets have decided to go up on the possible emergence of President Biden and a Republican Senate. In practice, for the next few weeks, they have the contested-election scenario they were said to fear most. Markets do seem to be getting a bit ahead of both the economic and political realities.

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