Regardless which presidential candidate wins, we do not believe the dynamics for the global financial markets will change that much. Given how central banks around the world have pumped trillions of dollars into the markets in recent months, to combat the COVID-19 pandemic, we don’t see much of a shift in market dynamics. Global central banks have provided plenty of liquidity to the markets, to keep them calm and functioning, which in turn may actually dampen some of the volatility we’d normally see during a presidential cycle. While we do acknowledge that certain fiscal policies may differ, dependant upon which candidate wins the White House, for now we are not changing our view on the markets.
We still favor US assets, especially US stocks and credit (both investment-grade and high-yield), as we think they still offer good (relative) value in this low-yield environment. We are also starting to become more bullish on European stocks, as well as on investment-grade credit , both in the sovereign and corporate spaces. Specifically, we like French, German, and UK assets within the region, as we do see these assets being quite attractive from a valuation perspective, as they are offer deep discounts relative to their US peers. Further, we see these assets getting a nice boost from the European Central Bank, and Europe’s €750 billion stimulus package, providing a nice foundation for these assets to rally in the later part of the year and into 2021.
There are some risks that investors and traders should keep in mind, including uncertainty surrounding US tax policy in the onset of the COVID-19 pandemic. A key thing to note here is that there is still quite a bit of uncertainty in how US tax policy will change in the coming years. In a post-COVID environment, markets will be watching to see how this will affect the assets and their returns going forward.
In spite of all this, given this unprecedented election cycle, we will certainly be watching to see which way the political winds will blow for the US, and how this will affect Europe across the pond into 2021 and beyond.
“From the Outside Looking in”: The 2020 US Presidential Election and Europe
With the 2020 US presidential election quickly approaching, incumbent President Trump will face off against Democratic nominee Joe Biden. In this article, we assess the implications of this election for Europe, and why the bloc may feel more comfortable with Biden, who represents a more conventional political approach.
“Shake it Up” – 2016 Donald Trump Presidential Victory
In 2016, after the onset of a surprise Donald Trump election victory, it was difficult to know what to expect from a Trump administration. Though it was expected that an unconventional President like Donald Trump would “shake-up” Washington, the global political establishment have been surprised nonetheless. Given this new geopolitical environment, Europe is closely watching the US presidential election this year with great interest.
Friend or Foe? Strained Relations between the US and Europe
Four years ago, President Trump’s “Make America Great Again” mantra resonated with many American voters, even at the expense of strained relations with other countries – regardless of whether they were friend or foe. As a result, relations between the US and Europe, as well as between the US and China, have become strained to say the least.
If Trump were to win a second term, relations between the US and Europe will continue to remain strained in our view, especially on the diplomatic and economic front. With “America First” policies taking hold, and a “tit-for-tat” trade war with China, Europe has found itself caught between a proverbial “Rock and a Hard Place”. The march towards de-globalization will continue, causing challenges for the European economy, as unilateral trade terms will take hold amongst countries for the time being. Members of the economic bloc like to do things “The European Way”, essentially conducting its geopolitical affairs in a multilateral way, with all 27 member countries coming together as a unified body. Thus, under a second Trump term, we expect more geopolitical volatility not only for Europe, but for the entire geopolitical environment as a whole.
“But Will they Accept Him?” – A Biden Election Victory
If Biden were to win in November, we expect to see a rollback of numerous Trump-era policies, especially in areas such as the environment and international trade. In terms of foreign policy, Biden has stated that under his administration, he favors a multilateral approach, similar to that of Europe, and that he would rebuild diplomatic relations with countries that were strained by Trump’s policies. Under this scenario, Biden is the type of politician that Europe is used to, and likes dealing with. Through Biden’s inclusive diplomatic approach, the effort to bring people together on global issues would be well received by the Europeans.
One key area of focus that Europe would be quite interested in under a Biden administration, is his stance on the environment and climate change. Biden has rolled out a US$2 trillion climate change plan, which embraces cutting reliance on fossil fuels, promoting clean energy usage, and improving the country’s infrastructure. Biden’s environmental plan is closely aligned with Europe’s seven-year budget and rescue fund, which focuses on establishing a “greener” European economy.
By acting collectively on this issue, a partnership could help bridge the gap between the US and Europe, and thaw any frosty relations between the allies in an effort to bring them closer together. Though there is still some lingering resentment over President Trump withdrawing the US from the Paris Agreement, a global pledge by over 190 countries to cut greenhouse gas emissions, there is a high probability that Biden would likely bring the US back into the fold, which would further help in mending relations between the two allies.
Another key area that Europeans would find favor on, given a Biden victory, would be his stance on international trade and diplomacy. Biden has pledge that as president, he would take immediate steps to renew alliances, both trade and diplomatic, with US allies, by having the US re-assert its position as a global leader. The Biden foreign policy agenda would once again place the US back at the head of the geopolitical table, putting the country in a position to work multilaterally with its global partners and allies on global issues – a move that Europeans would take kindly. In doing so, under this geopolitical framework, the US and its allies would play a key role in writing the rules, establishing the agreements, and supporting the global institutions that guide trade and diplomatic relations among nations, all in an effort to advance international prosperity, development, and security.
“Dollars and Sense” – the Election and Global Financial Markets
Regardless which presidential candidate wins, we do not believe the dynamics for the global financial markets will change that much. Given how central banks around the world have pumped trillions of dollars into the markets in recent months, to combat the COVID-19 pandemic, we don’t see much of a shift in market dynamics. Global central banks have provided plenty of liquidity to the markets, to keep them calm and functioning, which in turn may actually dampen some of the volatility we’d normally see during a presidential cycle. While we do acknowledge that certain fiscal policies may differ, dependant upon which candidate wins the White House, for now we are not changing our view on the markets.
We still favor US assets, especially US stocks and credit (both investment-grade and high-yield), as we think they still offer good (relative) value in this low-yield environment. We are also starting to become more bullish on European stocks, as well as on investment-grade credit , both in the sovereign and corporate spaces. Specifically, we like French, German, and UK assets within the region, as we do see these assets being quite attractive from a valuation perspective, as they are offer deep discounts relative to their US peers. Further, we see these assets getting a nice boost from the European Central Bank, and Europe’s €750 billion stimulus package, providing a nice foundation for these assets to rally in the later part of the year and into 2021.
There are some risks that investors and traders should keep in mind, including uncertainty surrounding US tax policy in the onset of the COVID-19 pandemic. A key thing to note here is that there is still quite a bit of uncertainty in how US tax policy will change in the coming years. In a post-COVID environment, markets will be watching to see how this will affect the assets and their returns going forward.
In spite of all this, given this unprecedented election cycle, we will certainly be watching to see which way the political winds will blow for the US, and how this will affect Europe across the pond into 2021 and beyond.
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