Source: Chuan Yue Global Macro
Author: Tao Chuan Zhao Honghe Wu Bin Zhang Xinnan
If the June 28th debate took place in 2020, the White House might still not have changed hands. Overall, the content of the debate itself is no longer so important. What is more eye-catching is the age issue behind Biden's "disastrous" on-site performance - as the oldest president in US history (81 years old this year), can Biden still handle the job of president for the next four years?
Market's answer is NO. From overseas perspective, based on real-time data, the famous website PredictIt calculates that after the debate, Biden's probability of winning the election dropped from 47% the previous day to 33%, the lowest in nearly a year, while Trump's chances of winning increased to 59%.
So can it be assumed that Trump is a sure winner? We believe that there are still many variables in the US election this year, and the key lies in the fact that the timing of this year's first round of debates is much earlier than in previous years, before both parties have confirmed their candidates. Looking ahead, the Democratic Party's strategy may mainly have two paths:
One is to continue to promote Biden's candidacy. The key is expectation difference. Whether intentional or unintentional, the first round of debate has lowered market expectations to the bottom, and then counterattacks in the second round of debate. This is similar to the 2016 presidential election, in which Trump turned the tide against Hillary Clinton in the third round of debates.
Second, Biden may drop out and choose new candidates. The key is to select suitable candidates and unify the party's support and opinions in the short term. The sequence of Vice President Harris in this list is undoubtedly among the top. Based on this, the new candidate still has the possibility to turn the tide in the second round of debates in September.
In terms of the content of the debate itself, both candidates were rather restrained. Trump was clearly more "mature and savvy", and both sides seemed to have a tacit understanding not to play the "China card" too much. Most of the content of this debate, both sides' policy positions, were actually already well known in the market before. A one-and-a-half-hour debate focused more on energy and on-the-spot response. In this regard, after the baptism of 2016 and 2020, Trump was clearly more calm and at ease, and did not mention China too much, possibly due to the fact that the two parties' attitudes towards China are not very different in the current environment. In other areas:
On the economic front, Biden pointed out that the economy was in chaos when Trump stepped down, and that Trump’s proposed tariff increases pushed up prices. He emphasized his contribution to creating employment opportunities and promised to reduce inflation. Trump, on the other hand, criticized the inflation caused by Biden was "completely destroying us." Job growth is a result of the post-epidemic rebound. He himself saved the US steel industry through tariffs.
On the abortion issue, Trump still supports returning abortion rights to the states, while Biden said he would veto national anti-abortion laws. Trump's position of "leaving it to each state to decide" is like saying that civil rights should be returned to each state.
On immigration, Trump said that Biden's opening of the border has caused violent crime in the United States, and claimed to be the person with the "widest heart" on stage. Biden criticized Trump's immigration policy for causing family separation. On the geopolitical front, Biden expressed support for a Gaza ceasefire, while Trump accused Biden of triggering the geopolitical conflict.
On a personal level, in terms of Trump's crimes, Trump said he "did nothing wrong" but was convicted of being "manipulated," and insisted that there was fraud in the 2020 election. Biden said Trump was a "complainer" who couldn't accept failure.
But it must be admitted that this debate is a real blow to Biden's candidacy, especially among swing voters.
Recently, due to reasons such as reduced inflation and easing of geopolitical conflicts, Biden's approval rating has been catching up with Trump, especially in swing states where the gap has narrowed. However, in this debate, Biden's old age was exposed, and Trump has disciplined and sharply criticized Biden's economic and immigration policies, accusing him of causing violent crime in the United States and the Russia-Ukraine conflict. Looking at the basic situation, black and Latin American, young people, and high-income groups are more supportive of Biden, while whites, middle-aged and elderly groups, and low-income groups tend to support Trump.
After this debate, Biden may face the loss of support among some black people, high-income groups, and young people. Although his abortion policy is more in line with women's interests, the priority of the abortion issue may be weaken when women consider voting.
Follow-up attention: In addition to the sentencing results of Trump's "hush money case" on July 11, the Democratic National Convention will be held on August 19-22, with the possibility of replacing the Democratic presidential candidate, and the second presidential debate on September 10 will be the Democratic Party's last chance to counterattack.
Author: Minsheng Macro Team
A convoluted and twisty plot, but the final ending is abrupt. This may be the biggest characteristic of this year's USA presidential election. It was thought to be an intense and possibly prolonged election, even until January next year, but this afternoon the suspense was basically lost. Along with the presidential election, the control of the Senate was also settled as expected by the Republicans.
Of course, after 'completing the drama', what's worth paying attention to are the unresolved questions after the election: the most pressing one is the control of the other half of Congress, the House of Representatives, which will directly impact the progress of inflation in the USA, and the external environment China will face next year. Another issue is Trump's real policy demands. We still believe that there might be discrepancies between Trump's policy layout during the new term and his statements during the campaign, so it's crucial to seize the time window after the election for hints from the presidential speeches and personnel nominations.
Trump has almost 'swept' the swing states. As of 3:40 pm on November 6th, out of the 7 key swing states, Trump has won Georgia, North Carolina, and Pennsylvania, with other 4 swing states clearly favorable, which basically ensures him the 270 'electoral tickets' needed to enter the White House. On one hand, this reflects the current structural bias in many election polls; on the other hand, it indeed reflects the dissatisfaction of the vast lower-class populace in the Midwest and Central regions with the current economic situation. Economy (employment and inflation) and immigration are unavoidable topics.
The suspense of Congress, the space for policies.
The Senate was the first to announce results, with the Republicans securing more than half of the seats as expected.
The House of Representatives is undecided, as of 4:40 pm on November 6th, Beijing time, the current situation of the 435 seats is: Democrats 175 seats + Republicans 194 seats + 66 seats with results yet to be disclosed. The Polymarket website shows a 90% chance of the Republicans winning the House of Representatives.
The control of the House of Representatives plays a decisive role in the US fiscal outlook for 2025.
1. Pay attention to the debt ceiling issue. In June 2023, Congress approved the suspension of the federal government's statutory debt limit until January 1, 2025, which is one of the important reasons why federal debt continues to grow this year and supports the strength of the US economy.
On January 2, 2025, the debt ceiling suspension will expire, and the Treasury Department will initiate 'extraordinary measures'. Both houses of Congress will start a new round of negotiations, during which fiscal expansion will not be possible. If Congress is united, the negotiation progress may be smoother, and a new debt ceiling bill could be in place in the first half of the year. However, if Congress is divided, the negotiation process for the debt ceiling is expected to be more rocky, possibly resulting in a significant setback for the US finances next year.
2. Continuation of tax legislation. Trump's 'Tax Cuts and Jobs Act of 2017' (TCJA) provided significant reductions in corporate and individual income taxes, many of which are set to expire in 2025. The control of Congress will determine whether these tax policies can continue, thereby affecting resident disposable income and corporate profit levels.
In addition, the control of the House of Representatives may affect the sequence of policy implementation for the incoming government in the next four years. In the scenario of a 'Republican sweep,' the focus of the White House's work may initially be on domestic affairs.
What to look out for next? Regarding Trump's policies, we follow two principles: what is said after the election is more important than what is said before the election; actions speak louder than words.
First, pay attention to the newly elected president's victory speech and governing declaration, which may provide clues to the policy sequence for 2025, with executive orders on immigration possibly taking priority.
Second, pay attention to the appointments of the new government. Trump and his transition team may gradually announce the new cabinet candidates from November to December, to be sworn in between February and March next year after Senate approval. Focus on key positions like the Secretary of the Treasury and Trade Representative.
Third, pay attention to the prospects of the Federal Reserve's policies. During Trump's first term, there were frequent verbal interventions with the Federal Reserve. Similar verbal interventions may reoccur next year. In addition, Trump may intervene through a "shadow Federal Reserve" method, for example, nominating a successor to Chairman Powell before his term ends in May 2026, diverting market attention from Powell.
For the market, after the short-term impact of Trump, Trump's trade still needs to be considered in the long run. Since October, the trends of many asset prices have been reminiscent of Q4 2016. After Trump's return today, will the market really repeat the subsequent mistakes? We think it may not necessarily happen. On the one hand, the expectations and pricing of the market in the early stage are sufficient, on the other hand, both current US bonds and commodities may have expectations of deviating from reality. We predict that after this week's Fed meeting, the market may choose a new direction, and the specific Trump trade is not the same. It needs to be combined with the specific environment of the market and the economy.
Risk warning: The progress of the US election exceeds expectations, as well as geopolitical factors exceeding expectations.
Editor/Somer
