Event:
On August 16, 2024 local time, current Vice President of the United States, Harris, announced "the Agenda to Lower Costs for American Families" and delivered a speech to elucidate the economic policies of Democratic candidate "Harris-Walz". Recent public opinion polls show that the support rate of Democratic candidate Harris exceeds that of Trump.
The core of Harris's economic policy is to combat inflation and reduce the cost of living. If elected, the fiscal deficit will increase by 1.7 trillion USD.
Harris's economic policy speech took lowering the cost of living as its starting point, and elaborated on topics such as tax, housing, prices, and medical insurance. With regards to housing issues, she proposed providing subsidies of 0.025 million US dollars for new home buyers, building 3 million new homes to alleviate the housing shortage, control rental prices, and establish a housing fund, among other measures. On the issue of tax reductions, she proposed expanding the scope of labor tax relief, restoring the child tax relief policy of 3000 US dollars during the epidemic period, and newly proposing a tax relief for newborns of 6000 US dollars, aiming to improve the birth rate while guaranteeing welfare. With regards to medical care, she proposed to set price ceilings on some pharmaceuticals, and reduce drug and medical insurance expenditures. Administrative means will be adopted to control the cost of groceries and strike against price gouging tendencies. CBO estimates that if her comprehensive plan is implemented, the budget deficit may increase by 1.7 trillion US dollars. If the temporary housing policy is made permanent, the deficit may grow to 2 trillion US dollars.
Walz has a relatively dovish attitude towards China's exports, which may reverse the pessimistic expectations caused by the previous Trump's tariff advocacy.
The relevant opinions of Trump on high tariffs on China have triggered pessimistic expectations for US exports. The export-related sectors of mechanical equipment, communications equipment, consumer electronics, and other sectors have significantly declined. Harris is continuing the main tone of the Democratic Party's previous trade policies, while Walz's attitude towards trade with China is more dovish. He advocates the normalization of trade with China and the restoration of normal tariff levels, emphasizes market fairness, and aims to lower prices to achieve the goal to combat inflation; if he is elected, it will bring considerable advantages to our country's exports and may reverse the pessimistic expectations for our country's exports to the US. As for domestic issues in the United States, Walz's attitude is generally moderate, similar to that of Harris. He has proposed relevant policies such as tax relief and expansion of social welfare policies in Minnesota, protection of illegal immigrants, support for the legalization of marijuana entertainment, and control of guns and protection of abortion. His attitude towards supporting Ukraine and Israel in foreign affairs is also relatively high and more hawkish, and his overall thoughts are more in line with Harris.
Harris's policy continues the Democratic Party's fiscal policy that stimulates demand. It mainly focuses on the issue of "inflation" that voters are most concerned about, and caters to the political demands of swing states, young groups, ethnic minorities, low-income voters, etc. In the medium and long term, it will affect the debt ceiling, the game between the two parties, and the government's leverage level.
First of all, the newly launched "Harris Economics" essentially continues the Democratic Party's fiscal policy that stimulates economic growth by stimulating demand led by Biden's leadership. The implementation and landing of some policies still need to pay attention to the results of the "unified government VS lame government" formed after the election. The overall content is still to increase government subsidies in housing, consumption, medical insurance, etc. (CBO estimates that the total increase in the deficit will be approximately 1.7 trillion US dollars in 10 years); secondly, the new stimulus policy launched this time has clear goals, mainly focusing on the issue of "inflation" that voters are most concerned about, and catering to the political demands of swing states, young groups, ethnic minorities, and low-income voters.
According to recent public opinion polls by major US polling institutions, the current issues that voters are more concerned about is inflation, which to some extent explains the reason why the Biden's support rate is low under the background of low unemployment rate. At the same time, "Harris Economics" continues the core idea of the Biden government's "rebuilding a better home" and structurally exerts force, directly targeting the core demands of voters from groups such as "young people, homebuyers, low-income people, ethnic minorities, and swing states" to consolidate the basic support of the Democratic Party while leaning towards low-income swing state voters; thirdly, in the medium and long term, "Harris Economics" is still difficult to get rid of the path dependence of the US government's levering up. In the medium and long term, it may continue to raise the US government's budget deficit and debt pressure, increase the intensity of the game between the two parties on the level of the debt ceiling.
The market's trading logic about "Harris Economics" will mainly revolve around the support policies of the Fed's interest rate cuts, the fiscal leverage support of US bond interest rates, weak US dollar, new energy, new energy vehicles and public transportation, the improvement of export expectations to China, and geopolitical support for high oil prices, etc.
1) With regards to the policy of total amount, if Harris wins, it may alleviate the risk of market concerns about the inflation caused by immigration and tariff issues after Trump was elected, increasing the market's expectations for the amplitude and slope of the rate cut by the Fed. The current round of interest rate cuts may be larger, and the duration may be longer. Next year, the US dollar index may be relatively weak, and the fiscal leverage will further raise the US government's budget deficit and subsequently support the central performance of long-term US bond interest rates.
2) In terms of industrial policies, Harris may continue the Democratic Party's thinking on industrial policies, emphasizing support policies for new energy, electric vehicles, climate change & ESG, and the construction of public transportation infrastructure. However, policies such as drug price reductions and fair-priced medical insurance may affect the profitability of pharmaceutical companies and be unfavorable to asset price performance;
3) Regarding China policy, there may be room for improvement in our country's export performance, especially in terms of exports to the United States. Harris's trade policy toward China will basically continue the current Democratic government's main stance, while Walz is generally dovish on trade with China. If Harris is elected, the previously concerned Trump tariff issue and tense atmosphere may be marginally eased, and there may be opportunities for oversold rebounds in asset prices of key export industries and companies after the release of short-term tense atmosphere.
4) In terms of geopolitics, if Harris is elected, the Russia-Ukraine conflict may continue, and the Iran-Israel conflict may be difficult to end. Geopolitics may still motivate OPEC+ to support oil prices and raise the lower limit of oil price volatility.
In addition, trading around Harris economics will increase the market's expectation of a rate cut by the Federal Reserve, and the improvement of financial conditions and the decline in real interest rates and weakness of the dollar may be a bullish for colored sectors such as gold and copper.
From September to the fourth quarter, the market may show a mix of the Federal Reserve's interest rate cuts and the interweaving of Harris' and Trump's trades, which may affect different categories of assets differently or even oppositely, and may amplify fluctuations in asset prices.
The follow-up market trading theme still needs to focus on major time nodes of the Federal Reserve's monetary policy meeting, the Bank of Japan's monetary policy meeting, and the US election: the Democratic Party National Convention from August 19th to 22nd, the Jackson Hole Global Central Bank Conference and Powell's speech on August 23rd, the presidential candidate debate on September 10th, the Federal Reserve's monetary policy meeting on September 18th, the vice presidential candidate debate on October 1st, as well as the governing policies of finance, trade and other aspects that the two parties may subsequently launch.
Editor/new